Just two months after he called on the dominant music labels to remove the protective software from their online tracks, Steve Jobs has secured an agreement for Apple Inc. to sell music from EMI Group PLC without play-back and copying restrictions.
The deal marks another milestone in the overhaul of the music industry and proves Mr. Jobs has become one of its biggest powerbrokers through the success of his firm's iPod and iTunes franchise.
By agreeing to allow Apple to sell its content without digital rights management software, EMI becomes the first of the major labels to remove the protective wrapper that limits how consumers can play and copy the tunes.
EMI is hoping that any increase in consumers sharing its music files will be more than offset by a rise in sales. The world's third-largest music label is struggling financially and recently reported that music sales will be down 15 per cent for the fiscal year.
Norah Jones performs on a stage during a concert in Paris, France, last January. (Jacques Brinon/AP)
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The four major labels, which account for more than 70 per cent of music sold, are desperately seeking a new business model as sales of traditional packaged CDs plummet. Digital sales account for about 10 per cent of worldwide sales, after doubling last year to approximately $2-billion (U.S.). But the rise in online sales was not enough to compensate for falling CD sales, according to the International Federation of the Phonographic Industry.
"In order to succeed in this market, you have to placate Apple," said Michael Goodman, director of digital entertainment at Yankee Group, a research firm in Boston.
Apple is the 800-pound gorilla in the digital music market, controlling about 70 per cent of all purchased downloads through iTunes and 80 per cent of the playback hardware with its iPod line, he said.
Each of the major music companies has tested DRM-free tracks. But Universal Music Group, Sony BMG Music Entertainment and Warner Music Group Corp. are not commenting on their plans. As recently as February, Warner chief executive officer Edgar Bronfman Jr. said it made no sense to drop DRM, calling it "the cornerstone of [the] digital future."
EMI's major competitors will wait to see how the deal works out, and if EMI's digital sales rise they will face intense pressure to sign their own agreements with Apple, Mr. Goodman said.
Beginning next month, consumers buying from Apple's iTunes website will be able to buy almost any song from the EMI catalogue and have complete control over how they may copy it and on which digital music devices they play it. Excluded from the arrangement is the Beatles catalogue, which EMI has still not made available for legitimate downloads.
The DRM-free tracks will sell for a 30-per-cent premium but will also offer superior sound quality. Apple will also continue to sell protected versions of EMI's tracks at the original price of 99 cents (Canadian) each, executives from the two companies said during a press conference in London yesterday.
"We think the best way to fight piracy is to make legal services readily available [that offer] good value and convenience," Eric Nicoli, CEO of EMI, said in a joint interview with Mr. Jobs on CNBC.
Mr. Jobs, Apple's CEO, made a public appeal to the major labels in February to make their music available for sale in an unprotected format. He argued that because most of their content is sold in digital format on CDs, which are not protected with DRM, putting protection on downloadable sales amounted to a false sense of security.
"If you're shipping 90 per cent of the music without DRM, then why burden the other 10 per cent with DRM when that 10 per cent — the digital part — is hopefully the salvation of the industry as the physical part — CDs — declines," he said.
