Who would have guessed that on a random Tuesday in February, Steve Jobs would decide to drop a bomb on the music industry. But that’s what he did today, on the Apple.com website:
There are a lot of good summaries on the web already. Here is the one from Don Dodge, for example. If you are not into reading long missives, I can summarize the article, Powerpoint-style:
- Digital Rights Management (DRM) for music doesn’t work. 97% of all music on iPods is ripped from DRM-free CDs sold every year.
- Critics who want Apple to open up FairPlay don’t understand that if they license it, it’s likely to be cracked constantly. The only thing holding it together is that Apple controls the hardware, the software, and the music protection.
- The only rational solution is for the music industry to stop requiring DRM on their music, and go with an open format like MP3 or AAC. Every iPod ever made supports it.
For those of you not familiar with Digital Rights Management, DRM is the software that is built to prevent people from illegally copying files, like Music. For the iTunes Store, Apple uses a DRM called FairPlay which limits the number of machines you can play the music on. Right now, there is a lot of legal controversy in Europe over the fact that this DRM also “locks” people into the Apple iPod, because once they buy music on iTunes, they can’t play it on other devices.
This missive from Steve Jobs was unexpected, largely for some pretty significant reasons:
- Everyone expects Apple to support “closed-systems”. It’s part of the baggage from the whole Windows vs. Mac debate from the 1980s.
- Apple has sold over 2 Billion songs on iTunes. Apple doesn’t seem to need a DRM-free world.
- The lock-in from iTunes & the iPod seems like strategic genius, and the basis of a new monopoly. On the surface, this feels like a magnanimous gift. Selfless, even.
There have been a lot of calls in the industry to give up DRM lately, but a lot of them have to do with the fact that people don’t want to accept a world where Apple controls the entire music industry (which is where it is heading right now). Bill Gates, for example, proclaimed a while ago that he supports a DRM-free approach to music.
Personally, I thought the DRM-free approach was the only way the rest of the industry would be able to crack Apple’s stranglehold on digital music. I see DRM-free music as the natural response to a monopoly, similar to the response of Linux to Windows.
However, now that I read Steve Jobs’ note, it make sense on so many levels for Apple to issue this statement now. In fact, I don’t know why I didn’t see it sooner. By issuing this statement, either:
- Steve knows the Music industry will not go DRM-free, so his lock-in is secure. However, by going on the record this way, he lines up a plausible defense to the legal challenges in Europe, and avoids the perception of Apple as the gluttonous monopolist. More importantly, he paints a bullseye on the real monopolists – the four big music publishing houses.
- Steve believes that the iPod brand and product are so dominant now, that even without lock-in, they win majority marketshare in the music player market, like the Walkman before it. In fact, the lock-in is likely over-rated, since such a small percentage of music is actually locked anyway, and the margins in the music are terrible.
- Steve is not liking the tone and progress of licensing discussions with the TV and Movie industry, and he thinks that if a precedent can be set with Music that DRM is bad, then that will open up a world of video content to Apple & iTunes.
It’s hard to imagine the music industry embracing a DRM-free world. Fundamentally, they still believe that as copyright-holders, they have the right to control distribution at a fine-grained level to maximize profits. And of course, they are correct, they do have that right.
What they didn’t predict, however, was that attempts to enforce that right would lead to a consolidation of their distribution channels, which would shift market power from them to Apple. And now, they have too choose between a rock (Apple market power) and a hard place (DRM-free music).
I’ll end here with my favorite passage from Steve Jobs’ letter:
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.
I couldn’t have said it better myself.