Archive for the ‘CD / DVD’ Category

h1

Guy Hands: EMI must dump artists to survive

January 22, 2008

_img_1340.jpg 

The model of Nipper, the gramophone-fixated dog, remains in the chairman’s office – but that is about the only piece of EMI’s 77-year history that looks likely to survive under the ownership of Guy Hands.

Since Hands, a titan of the private equity world, paid £3.2 billion for the record company last summer, the former bell-wether of the British music industry has been rocked by an artists’ revolt, with Paul McCartney and Radiohead already gone and Robbie Williams, Coldplay, Kylie, Snow Patrol, Damon Albarn’s Gorillaz and The Verve threatening to follow suit.

The press has resounded with lurid tales of excess, after Terra Firma, Hands’s company, unearthed a supposed £200,000-a-year slush fund to buy sex and drugs for artists (disguised as “fruits and flowers” in the company accounts), bizarre bills of £20,000 for candles, and revelations of a £5 million company house in Mayfair for the use of senior executives.

This week, Hands stunned staffers with proposals to slash 2,000 jobs worldwide, bulldoze the management and turn a blowtorch on the sprawling roster. EMI has more than 14,000 acts under contract, an absurd total, and one that no company could hope to promote effectively.

In an interview with The Daily Telegraph, the new owner reiterates the point: “About a third of the artists who sign with EMI never make an album,” he says. “We’re going to drop a fair number of them. You’ve got to get them to a level where you can provide a super service.”

Hands’s operations are usually only reported in the business pages, but the intoxicating mix of big money, outraged superstars and internecine warfare has guaranteed him front page headlines.

When he presented his job-cutting proposals to employees this week, he was surrounded by minders to protect him from the paparazzi. Terra Firma finds itself cast as a villainous asset-stripper, ram-raiding the family jewels and crushing delicate artistes underfoot.

But when the smoke clears, it has to be acknowledged that Hands has faced the facts that EMI had tried to hide from.

The firm paid lip service to the new era of digital downloading without ever giving up hope that CDs could somehow be made profitable again. Instead, the pace of technological change has cruelly exposed the company’s wastefulness and sluggishness.

One bright spot had been its £80 million “multi-streamed” deal with Robbie Williams in 2002. Hailed as a daring innovation, it covered not just album sales, but also tours and merchandising.

But now, as the news trickles out that a million surplus copies of Williams’s last album, Rudebox, are being shipped to China to be recycled for use in road surfacing, the artist is threatening to go on strike, and his manager, Tim Clark, has accused Hands of behaving like a “plantation owner”.

The refusal of the best-selling band Radiohead to sign a new deal last year has also been seized upon as a symbol of the short-sightedness of the new regime. But the most significant comments came from Paul McCartney.

When a sixtysomething knight of the realm complains that working for his record label has become “mind-numbing” and “a treadmill”, it is clearly time for radical surgery.

The 48-year-old Hands has no music industry experience, but he tells the Telegraph that he shares more of the innovative spirit that helped build the record business than his detractors would allow.

“I’ve always been an entrepreneur,” he says, “and I invest my money alongside that of others, rather than being a fund manager. I will continue to use my money to invest in businesses where I can make a positive difference to how they are run.”

Even when he was a student at Oxford, Hands showed his flair.

“If you were a student and you needed a few pounds, you went to Guy and he would give you an opportunity to sell paintings door to door, that had been bought directly from the artist. That was partly how we got through university financially,” recalls his close friend William Hague, who was best man at Hands’s wedding in 1984.

“By the end of it, he owned the house and the shop down the street.”

Today, Hands owns houses in Hawaii, California and Spain, along with his estate and vineyard in Tuscany. This is thanks to a gift for buying poorly run companies, replacing management, and extracting underlying value.

Analysts gasped when he paid British Rail £700 million for the Angel Trains rolling stock company during the Nineties, but he sold it for a £390 million profit, and has since added the Odeon and UCI cinema chains to his portfolio. However, he still appreciates the scale of the EMI challenge.

“It’s probably the most difficult thing I’ve done in my life, from a business perspective,” he admitted after his presentation to staff on Tuesday. “People were excited about a new vision for EMI, and a number of people said this should have been done years ago, but clearly they were nervous for their own jobs. They clapped and applauded, which was very nice of them.”

One of the chief obstacles, apart from the artists’ managers lined up against him, under the sobriquet of The Black Hand Gang, is the perception that people like Hands don’t belong in the business.

There’s still a sense that it ought to be populated by free-thinking bohemians who value artistic adventure over profit. Surely a rapacious venture capitalist, even a Bunterish and dishevelled one like Hands, shouldn’t be allowed?

“No disrespect, but the question’s irrelevant,” says Ed Bicknell, the former manager of Dire Straits and Bryan Ferry and a founder of the Music Managers Forum.

“Record companies are just like anything else – everything’s for sale. Whether it’s a Saudi prince or Guy Hands, it’s just a matter of who’s got enough money to buy a majority of the voting shares. It’s very rare these days that I hear anybody in the business talk about music – they’re all talking about ‘synergy’, ‘branding’ and ‘360-degree business models’.”

Hands insists that “unless the industry finds a way to provide something that the consumer is willing to pay for, there is not going to be any music. If the industry doesn’t want to move, it will die.”

Some EMI insiders have been outraged by his claims of waste and inefficiency, but Bicknell suspects he’s right. “When I dealt with them, which was before the era of Tony Wadsworth [the ex-chief executive], EMI was like the Civil Service of the record business.

“It was uninspired and uninspiring. It was so much like a government department that a tea lady would come round with a trolley every afternoon.”

Hands sees the industry as an entrepreneurial opportunity rather than a calling. When he expresses admiration for Mick Jagger, it is not for musical reasons: “He is creative, very intelligent, realistic and focused. He is a real gentleman and would make a super chairman of a FTSE company.”

Unfortunately, Sir Mick has repaid the compliment by turning his back on EMI to sign a one-off deal with Universal for the next Rolling Stones album, the soundtrack to Martin Scorsese’s documentary Shine a Light. Although Hands is scheming to bring him back, his most pressing problem is to persuade managers like Tim Clark that swingeing cuts won’t damage their artists’ releases.

“Whenever you restructure something, you have a lapse before the new model hits its groove,” says Bicknell. “It could take him two years to get this where he wants it, and Tim and everybody are concerned about falling into that void.”

There are signs, though, that Hands’ message is not falling on deaf ears. After a meeting with the Black Hand Gang, The Verve’s handler Jazz Summers felt Hands was “beginning to understand the industry”.

Jonathan Shalit, who manages Jamelia, was almost euphoric: “The way the record industry has been going in recent years is to bury their heads in the sand. EMI was going nowhere, and EMI has now got the balls to make changes.”

Even if his plans fail – and much of the responsibility will fall on Roger Ames, one of the industry’s smartest executives and now in charge of signing artists in Britain and the US – observers suspect that Hands’s long-term goal may be to keep the highly profitable music publishing part, and sell the troublesome recording bit.

Hands’s bid for Chrysalis, which includes the publisher Chrysalis Music, supports the theory that he’s building a publishing empire.

“If Terra Firma was just thinking about making a profit, they should dump all new releases, reduce overheads to a minimum and just resell back catalogue,” says Bicknell. “It wouldn’t be exciting, but it would be much more profitable.”

It’s not exactly a rock’n’roll attitude, but it might have got the thumbs-up from the Beatles, when in 1963 they sang: “The best things in life are free/But you can keep them for the birds and bees/Now give me money.”

Thirty-five years later, the man who owns their record company could find himself singing along.

in The Telegraph, by Adam Sweeting and Juliette Garside

Advertisements
h1

Hands in challenge to music industry

January 21, 2008

bcnboots320.jpg 

GUY HANDS is throwing down the gauntlet to the rest of the music industry to match his much-criticised turnround plan for EMI.

“I would like to be as big as the big three [music groups] and bigger,” he said, after visiting EMI staff in New York and Nashville to explain his scheme to strip out £200m of costs and reengage with music-buying consumers.

“We have a sensible plan to survive. The other labels need to have a plan to do that. They haven’t put anything forward yet. I would hate to find that we are the largest simply because the others have died.”

That seems unlikely for some time because Universal dwarfs EMI, particularly on its home British turf, where it has been losing market share. Hands’s Terra Firma is also fighting a rear-guard action to hold on to top-selling artists such as the Rolling Stones and Robbie Williams.

Hands is adamant that he won’t pay “ludicrous sums” to retain talent. “People move from label to label over time. The thing we are doing differently is that we are being realistic with what we are willing to pay in advances,” he said.

He is talking to artists at other labels to try to persuade them to defect to EMI, which announced last week that it was cutting up to 2,000 jobs and stripping record labels of their traditional sales and marketing role. He has told investors he wants recorded-music profits to soar from £60m to £528m by 2012.

But Hands remains at odds with the music-industry trade bodies, including the piracy-fight-ing International Federation of the Phonographic Industry, and is set to cancel EMI’s membership by March. He claims the issue is not the annual cost, but more to do with how the industry has bullied consumers into buying music on its own terms.

“The trade bodies need to change the way they operate,” he argues. “If they change, EMI will remain a member. If not, EMI will leave. I have a very, very strong view that we can’t cajole and sue our customers into buying music.”

Many artists from EMI’s 14,000-strong roster will be kept on but have their releases distributed only digitally in future to make them economically viable. The company is also examining plans to pair some performers with corporate sponsors. Hands, who is also bidding for the music publisher Chrysalis, hopes to line up a new chief executive by the end of June.

in Timesonline

h1

Interview: Jay Adelson, chief executive of Digg

January 7, 2008

sevensheaven_drm.jpg 

Media companies will have to abandon their efforts to prevent digital music from being copied and concentrate instead on tracking a song’s path around the internet, the head of the one of the world’s most popular Web 2.0 sites has said.

The chief executive of Digg, which created controversy earlier this year when users published a code that unlocked digital rights management (DRM) software designed to prevent illicit copying, said that media companies had to change the way they policed intellectual property.

If record companies focus on finding a way to measure how many times a song had been listened to on the web, using what is known as watermark technology, they will have a better chance of accurately estimating advertising revenues, which will underpin the new business model for the record industry, Jay Adelson said.

“What social networks show is that people control the information,” he said, referring to an incident in May, when users of Digg, who recommend and vote on stories they like on the web, posted the key to a piece of software which prevented HD-DVD movie files from being copied.

When the site attempted to take down the links, other users reposted them, to the point where the site’s administrators gave up trying to stop the activity, and let the links stand.

“There’s an inertia there that is almost impossible to stop,” Mr Adelson told Times Online. “What it means is that DRM has to change its scope and purpose. It has to stop being a system that prevents distribution.”

Asked what should replace the current method, he suggested that a piece of software could be embedded into a digital file and log how many times the file is downloaded or streamed over the internet. That information could in turn can be used to determine advertising rates.

“For the majority of people, it means DRM as they know it disappears, but in truth what’s happening is the content is being monetised in a different way. All the media executives will tell you that their strategy is moving in the direction of being able to monetise content without DRM.”

Some labels, including EMI, have experimented with making their music available without copy protection, but attempts by the industry to embrace the internet as a means of distributing digital music have failed to prevent the decline in CD sales, which have fallen by 23 per cent since 2000, largely because of piracy.

In a wide-ranging interview with Times Online, Mr Adelson dismissed persistent reports that Digg, which he helped to found four years ago, was to be put up for sale, and said that the site was on target to be profitable.

The most recent rumour, on the site Venturebeat, said the site has hired the investment firm Allen & Company to attract offers in the vicinity of $300 million.

Mr Adelson said that Digg’s revenues were good and that the site, which has raised $10 million from a range of venture partners, including Greylock, would not need more money before turning a profit, but declined to say when that would be.

Digg – which ranks stories based on how popular they are with users – was “100 per cent focused” on releasing new features, he said, including a much anticipated image feature, which will let people vote on photos and other images.

Under a deal announced early last year, Microsoft will serve all the adverts on Digg, meaning that the site’s staff – which will grow from 35 to about 40 over the next year, can focus on software development.

Asked about how other web 2.0 sites could compete with the likes of Facebook and MySpace, Mr Adelson said that he thought there was room for new networking sites to emerge, but that in order to gain a foothold, they would have to offer a very specific service, as LinkedIn had with its focus on professional workers.

In addition, he said, there was scope for sites which took a syndicated approach, like Digg, and used other sites as a way of “extending their own database and value.” (In Digg’s case, this means placing their own ‘buttons’ on other websites, so that visitors to such sites could vote for stories they found there, which in turn fed back in to the main Digg page.)

“That really is the Web 2.0 thing,” he says. It really is a buzzword that gets thrown around too often, but what’s revolutionary at the moment is that you have this collaboration beyond a single location. It’s the use of collective wisdom to affect ranking and value.”

Digg, which Mr Adelson founded with his friend, Kevin Rose, in 2003, had 6.1 million unique visitors in October, an increase of 109 per cent on a year ago. In the UK it had just over a half a million visitors – an increase of 82 per cent.

Mr Adelson was previously chief technology officer at Equinix, an internet exchange he helped found that routes web traffic.

By Jonathan Richards in Timesonline

h1

Sir Paul McCartney: ‘I Also Downloaded Radiohead’s ‘In Rainbows”

December 26, 2007

paul_mccartney.jpg

British rock legend Sir Paul McCartney criticized his former record label EMI for its “boring” approach, and accused it of taking him for granted in an interview with the UK’s “The Times.”

Sir McCartney said he also became frustrated with the amount of time it took for EMI to release a song – while he wanted them released within weeks, record label executives expected to take months.

“I’d started saying to them: ‘Look, we could write a thing and have it released the next week.’ And they would say: ‘You can’t do that these days.’ So I would say: ‘Well, how much time do you need?’ And they’d say six months. I said: ‘Why do you need that long?’ And do you know what they said? ‘To figure out how to market it.’ I said: ‘Wait a minute, are you sure you need six months for that? Couldn’t some bright people do that in two days?’ Jesus Christ. I said: ‘Look boys, I’m sorry, I’m digging a new furrow.”

He also noted that he too was one of the millions who downloaded Radiohead’s “In Rainbows,” paying “something reasonable.”

“This was how we used to operate,” he noted. “I remember John [Lennon], for instance, writing Instant Karma and demanding it was released the following week.”

EMI, on the other hand, wasn’t able to perform such a “miraculous” task and he lamented that music artists there “had become a part of the furniture.”

“I’d be a couch; Coldplay are an armchair. And Robbie Williams, I dread to think what he was … But the most important thing was, I’d felt (the people at EMI) had become really very boring, y’know? And I dreaded going to see them.”

Asked what he meant by accusing the record company of being “boring”, Sir McCartney responded: “Well, because I could guess what they were going to say.” He added that he became frustrated with what he described as the “treadmill” approach of the company when it came to marketing music. “You go somewhere, speak to a million journalists for one day, and you get all the same questions. It’s mind-numbing.

“So I started saying: ‘God, we’ve got to do something else’.” McCartney split with EMI earlier this year, and released his latest album Memory Almost Full with coffee giant Starbucks’s newly-launched Hear Music label.

Now I can only imagine what it was like when EMI execs would meet with Sir McCartney, but you’d think that they’d give him carte blanche to do as he pleases. I think as a former Beatle, and as a music artist in every sense of the word, he’s at least earned that courtesy. When a guy like Sir McCartney says “Well this is what John and I used to do,” and “John” is the John of all Johns besides that baptist fella, it’s probably safe to bet that his plan will work out just fine.

I mean honestly, 6 months to market what he can do in 6 hours? No wonder the music biz is falling apart.

What’s also telling about Sir McCartney is that he really is all about the music. Always has and always will. Unlike Prince and others who seem to try and sue any website that allows fans to hear their music unless they benefit financially, he has own official YouTube channel. Sure he can afford it, but can’t Prince?

in ZeroPaid

h1

Steve Jobs – Thoughts on Music

February 8, 2007

sjmusic.jpg 

With the stunning global success of Apple’s iPod music player and iTunes online music store, some have called for Apple to “open” the digital rights management (DRM) system that Apple uses to protect its music against theft, so that music purchased from iTunes can be played on digital devices purchased from other companies, and protected music purchased from other online music stores can play on iPods. Let’s examine the current situation and how we got here, then look at three possible alternatives for the future.

To begin, it is useful to remember that all iPods play music that is free of any DRM and encoded in “open” licensable formats such as MP3 and AAC. iPod users can and do acquire their music from many sources, including CDs they own. Music on CDs can be easily imported into the freely-downloadable iTunes jukebox software which runs on both Macs and Windows PCs, and is automatically encoded into the open AAC or MP3 formats without any DRM. This music can be played on iPods or any other music players that play these open formats.

The rub comes from the music Apple sells on its online iTunes Store. Since Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. When Apple approached these companies to license their music to distribute legally over the Internet, they were extremely cautious and required Apple to protect their music from being illegally copied. The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices.

Apple was able to negotiate landmark usage rights at the time, which include allowing users to play their DRM protected music on up to 5 computers and on an unlimited number of iPods. Obtaining such rights from the music companies was unprecedented at the time, and even today is unmatched by most other digital music services. However, a key provision of our agreements with the music companies is that if our DRM system is compromised and their music becomes playable on unauthorized devices, we have only a small number of weeks to fix the problem or they can withdraw their entire music catalog from our iTunes store.

To prevent illegal copies, DRM systems must allow only authorized devices to play the protected music. If a copy of a DRM protected song is posted on the Internet, it should not be able to play on a downloader’s computer or portable music device. To achieve this, a DRM system employs secrets. There is no theory of protecting content other than keeping secrets. In other words, even if one uses the most sophisticated cryptographic locks to protect the actual music, one must still “hide” the keys which unlock the music on the user’s computer or portable music player. No one has ever implemented a DRM system that does not depend on such secrets for its operation.

The problem, of course, is that there are many smart people in the world, some with a lot of time on their hands, who love to discover such secrets and publish a way for everyone to get free (and stolen) music. They are often successful in doing just that, so any company trying to protect content using a DRM must frequently update it with new and harder to discover secrets. It is a cat-and-mouse game. Apple’s DRM system is called FairPlay. While we have had a few breaches in FairPlay, we have been able to successfully repair them through updating the iTunes store software, the iTunes jukebox software and software in the iPods themselves. So far we have met our commitments to the music companies to protect their music, and we have given users the most liberal usage rights available in the industry for legally downloaded music.

With this background, let’s now explore three different alternatives for the future.

The first alternative is to continue on the current course, with each manufacturer competing freely with their own “top to bottom” proprietary systems for selling, playing and protecting music. It is a very competitive market, with major global companies making large investments to develop new music players and online music stores. Apple, Microsoft and Sony all compete with proprietary systems. Music purchased from Microsoft’s Zune store will only play on Zune players; music purchased from Sony’s Connect store will only play on Sony’s players; and music purchased from Apple’s iTunes store will only play on iPods. This is the current state of affairs in the industry, and customers are being well served with a continuing stream of innovative products and a wide variety of choices.

Some have argued that once a consumer purchases a body of music from one of the proprietary music stores, they are forever locked into only using music players from that one company. Or, if they buy a specific player, they are locked into buying music only from that company’s music store. Is this true? Let’s look at the data for iPods and the iTunes store – they are the industry’s most popular products and we have accurate data for them. Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold.

Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full. This means that only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. It’s hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music.

The second alternative is for Apple to license its FairPlay DRM technology to current and future competitors with the goal of achieving interoperability between different company’s players and music stores. On the surface, this seems like a good idea since it might offer customers increased choice now and in the future. And Apple might benefit by charging a small licensing fee for its FairPlay DRM. However, when we look a bit deeper, problems begin to emerge. The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak. The Internet has made such leaks far more damaging, since a single leak can be spread worldwide in less than a minute. Such leaks can rapidly result in software programs available as free downloads on the Internet which will disable the DRM protection so that formerly protected songs can be played on unauthorized players.

An equally serious problem is how to quickly repair the damage caused by such a leak. A successful repair will likely involve enhancing the music store software, the music jukebox software, and the software in the players with new secrets, then transferring this updated software into the tens (or hundreds) of millions of Macs, Windows PCs and players already in use. This must all be done quickly and in a very coordinated way. Such an undertaking is very difficult when just one company controls all of the pieces. It is near impossible if multiple companies control separate pieces of the puzzle, and all of them must quickly act in concert to repair the damage from a leak.

Apple has concluded that if it licenses FairPlay to others, it can no longer guarantee to protect the music it licenses from the big four music companies. Perhaps this same conclusion contributed to Microsoft’s recent decision to switch their emphasis from an “open” model of licensing their DRM to others to a “closed” model of offering a proprietary music store, proprietary jukebox software and proprietary players.

The third alternative is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.

Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player.

In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system.

So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies.

Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly.

Sreve Jobs, Feb. 6, 2007

in: Apple.com

h1

Music wants to be free

February 8, 2007

jobs3.jpg 

It was uncharacteristically low-key for the industry’s greatest showman. But the essay published this week by Steve Jobs, the boss of Apple, on his firm’s website under the unassuming title “Thoughts on Music” has nonetheless provoked a vigorous debate about the future of digital music, which Apple dominates with its iPod music-player and iTunes music-store. At issue is “digital rights management” (DRM)—the technology guarding downloaded music against theft. Since there is no common standard for DRM, it also has the side-effect that songs purchased for one type of music-player may not work on another. Apple’s DRM system, called FairPlay, is the most widespread. So it came as a surprise when Mr Jobs called for DRM for digital music to be abolished.

This is a change of tack for Apple. It has come under fire from European regulators who claim that its refusal to license FairPlay to other firms has “locked in” customers. Since music from the iTunes store cannot be played on non-iPod music-players (at least not without a lot of fiddling), any iTunes buyer will be deterred from switching to a device made by a rival firm, such as Sony or Microsoft. When French lawmakers drafted a bill last year compelling Apple to open up FairPlay to rivals, the company warned of “state-sponsored piracy”. Only DRM, it implied, could keep the pirates at bay.

This week Mr Jobs gave another explanation for his former defence of DRM: the record companies made him do it. They would make their music available to the iTunes store only if Apple agreed to protect it using DRM. They can still withdraw their catalogues if the DRM system is compromised. Apple cannot license FairPlay to others, says Mr Jobs, because it would depend on them to produce security fixes promptly. All DRM does is restrict consumer choice and provide a barrier to entry, says Mr Jobs; without it there would be far more stores and players, and far more innovation. So, he suggests, why not do away with DRM and sell music unprotected? “This is clearly the best alternative for consumers,” he declares, “and Apple would embrace it in a heartbeat.”

Why the sudden change of heart? Mr Jobs seems chiefly concerned with getting Europe’s regulators off his back. Rather than complaining to Apple about its use of DRM, he suggests, “those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free.” Two and a half of the four big record companies, he helpfully points out, are European-owned. Mr Jobs also hopes to paint himself as a consumer champion. Apple resents accusations that it has become the Microsoft of digital music.

Apple can afford to embrace open competition in music players and online stores. Consumers would gravitate to the best player and the best store, and at the moment that still means Apple’s. Mr Jobs is evidently unfazed by rivals to the iPod. Since only 3% of the music in a typical iTunes library is protected, most of it can already be used on other players today, he notes. (And even the protected tracks can be burned onto a CD and then re-ripped.) So Apple’s dominance evidently depends far more on branding and ease of use than DRM-related “lock in”.

The music giants are trying DRM-free downloads. Lots of smaller labels already sell music that way. Having seen which way the wind is blowing, Mr Jobs now wants to be seen not as DRM’s defender, but as a consumer champion who helped in its downfall. Wouldn’t it lead to a surge in piracy? No, because most music is still sold unprotected on CDs, people wishing to steal music already can do so. Indeed, scrapping DRM would probably increase online-music sales by reducing confusion and incompatibility. With the leading online store, Apple would benefit most. Mr Jobs’s argument, in short, is transparently self-serving. It also happens to be right.

in: The Economist

Link to our own debate a few months back: DRM or no DRM, look for our readers comments and post your own

h1

Steve Jobs takes first step to free-DRM music

February 7, 2007

apple_1.jpg

Apple Inc. hits the news once again this week when Chief Executive Steve Jobs called, just yesterday, the four major record companies to start selling songs online without copy protection software known as digital rights management (DRM).

Jobs said there appeared to be no benefit for the record companies in continuing to sell more than 90 percent of their music without DRM on CDs, while selling the remaining small percentage of their music encumbered with a DRM system.

“If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies,” he said in a statement posted to his company’s Web site.

As you have read before, Apple has been under pressure in Europe to make iTunes music compatible with players other than the iPod. On January 25 Norway’s consumer ombudsman said Apple must open access to iTunes by October 1 or face legal action. The company has also faced some criticism because songs bought on the iTunes music store play on the iPod and not other digital music players.

“Perhaps those unhappy with the current situation should redirect their energies toward persuading the music companies to sell their music DRM-free,” said Jobs about the European action.

Apple also is due to reopen talks with the four majors in early March to discuss terms of their relationships with the iTunes Music Store, according to a source familiar with the discussions.

The four majors — Vivendi’s Universal Music Group; Sony BMG Music Entertainment, which is owned by Sony Corp. and Bertelsmann; EMI Group; and Warner Music Group — all negotiated one-year extensions with Apple last year, according to the source.

Analysts have suggested that Jobs might be trying to deflect pressure from the European Union regarding the interoperability question to the record labels. But Jobs said Apple had concluded that if it licenses FairPlay to other companies it could no longer guarantee to protect the music it licenses from the major record companies.

“Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it?” Jobs wrote on the Apple Web site (www.apple.com/hotnews/thoughtsonmusic/). “The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy.”

But senior record company executives disagreed with Jobs’ assertions, saying they doubted they would start selling music without protection any time soon.

“How can you be in the digital business of content and say you’re not going to protect it?” said one executive who spoke to Reuters on condition of anonymity. “So is the film and TV industry looking at doing this? I can guarantee you they’re not.”

Jobs estimated that only about 3 percent of the music on the average iPod is purchased from the iTunes store and therefore protected with a DRM licence. Because of that, “iPod users are clearly not locked into the iTunes store to acquire their music,” Jobs wrote.

Jobs also said that more than 20 billion songs were sold DRM-free on CDs in 2006.

Music industry watchers, particularly at independent music companies, have intensified calls in recent months for the majors to sell their music without copy protection.

Apple’s alternative is the only way we’re going to get complete interoperability,” said Tim Bajarin, president of Creative Technologies, a Silicon Valley consulting firm.

in: Reuters