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The beginning of the end for DRM?

December 7, 2006

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Recording companies, increasingly worried about the growing power of Apple in the legal online music space and the incresing illegal file sharing are starting to toy with the idea of making MP3 downloads available for sale free of DRM restrictions.

The problem for record companies is that the dominance of the iPod in the portable music player market combined with Apple‘s strict digital rights management (DRM) system are combining to restrict legal digital music sales.

iPod, which has as much as 80% of the market won’t play music downloaded from online stores other than iTunes. In addition, iTunes which dominates the legal digital downloads market, will not permit its downloads to play on portable music players other than iPods. Apple has no interest in opening up iTunes to music players other than iPod because it is really in the business of selling iPods, not music.

For Apple it’s all about locking users into iPod-iTunes cycle.

Record companies, on the other hand, which have experienced a downturn in CD sales because of online music, are aware that the amount of music being purchased through iTunes and other digital music online stores is not enough to make up for the decrease in CD sales.

Meanwhile, music piracy through file-sharing sites, which DRM was meant to prevent, continues to proliferate.

The music industry has been worried that allowing legal downloads without DRM would make it easy to pirate music. However, it has become plain that imposing DRM restrictions on downloads has been a disaster for record companies in terms of lost sales, while piracy is more rampant than ever.

In reality, DRM does little to stop piracy, but makes life harder for legitimate music users, said analyst Mark Mulligan, a vice president at Jupiter Research in the U.K.

“Most of the DRM in place is not going to stop piracy. You’ve got limits on CD-burning, but all of that is cracked immediately if you burn it onto CD and rip it back in again. Anyone with an ounce of tech-savvy is going to know how to get around that,” he said.

Major record labels are starting to look more seriously at MP3 distribution because of the success of eMusic.com Inc., which Mulligan says is the second-largest online music download store in the U.S., after that of Apple. EMusic sells music from independent record labels in MP3 format.

EMI is first to make the plunge, making releases from Lily Allen, Norah Jones and Relient K available as MP3s via Yahoo‘s music download site.

One of EMI‘s music labels, Blue Note, is offering as of today the latest Norah Jones single, “Thinking About You” as an MP3 track on Yahoo‘s music downloading site for 99c.

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