EMI, DRM and new licenses

I’ve been getting question after question about the EMI/Apple announcement that they are going to start selling DRM-free AAC files in higher quality format.  Mostly these questions are:  1. Why is this a big deal 2. What does it mean to rVibe 3. Will this mean greater competition for Apple?

Let me start with this general statement:  people who have already signed on to iTunes (or Napster, or Yahoo – any DRM’d service), generally already either accept DRM or don’t know they are getting DRM files.  So, in that case, it really does not matter if the files are DRM free or not.  However, if other services start offering DRM files exclusively (like rVibe), then that DOES matter.

Why? For many people, myself included, DRM has been a reason to NOT use commercial services. So – I am just not going to rush over to Apple to buy some of their tracks that are DRM-free (and, not all are, so how do I select them)?  When I go to rVibe, I know that everything is DRM-free – so I am confident that what I get is just that – DRM-free. No issue.

In terms of competition, it’s important to remember that Apple is first and foremost selling iPods and that iTunes is mostly a type of loss leader for iPod sales. So, I don’t think it will increase competition for selling iPods, but it might increase competition for iTunes, but from Apple’s model (selling iPods), I just don’t think it’s a big deal for them.

The far bigger deal for them is making a showing to the EU that they are trying to drive interoperability. I believe that Apple’s real goal in opening the DRM environment is risk mitigation from legal compliance issues.  That would be a much bigger blow to Apple than some domestic competition for iTunes.

In terms of rVibe, yes this is a big deal. And for the rest of the online distributors out there that have DRM-free services (how many are there now – like 5?) it’s a big deal.  But only if we can afford a DRM-free license with EMI.

Some reports show that Apple paid $5 million for the DRM-free license with EMI. That is a very steep price tag (which seems to bolster my theory about risk mitigation on the part of Apple).  EMI currently is tanking on earnings and is a target for acquisition. To prop up that price or avoid take over, they need to show some top line growth.  Easiest way to do that is to get a high pre-payment for a DRM-free content – hence the $5 M price tag for the DRM-free license.

However, that is a one time revenue from Apple which is nice, but means they have to do it again and again. There are only a few companies that could support that (Yahoo, MSN, Wal-Mart, Napster (maybe), Microsoft), and most of those depend on DRM for their business model (subscription).  So – I suspect EMI will entertain anyone with deep enough pockets for a DRM-free license – which is a very short term strategy since they will quickly run out of clients.  And, that prices us out.

If they offer a DRM-free license at a reasonable rate, then we’re good to go – and it would be a great step for rVibe.

Posted on April 9, 2007 in Market

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