The digital music biz may be about to change its tune.
Industry insiders say an open letter released by Apple CEO Steve Jobs on Tuesday could presage a move by some, or even all, major labels to start selling songs without antipiracy protection in the open MP3 format in the near future.
Potentially radical development would neutralize Apple critics and break the world of digital music wide open.
Jobs’ message was delivered in an unusual 1,800-word essay, “Thoughts on Music,” on Apple’s Web site. He asked major music labels to abolish digital rights management (DRM) software that many say is wildly inefficient since it doesn’t exist on CDs, and pirated music is widely available on the Web.
“This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat,” Jobs wrote.
Apple critics complain that, because of DRM, songs purchased through iTunes can play only on the iPod — which has about 80% market share — and not on other devices.
Removing it would help Apple deal with pressure from several European governments, which complain that because Apple’s DRM system can’t work with any device besides the iPod, it is anticompetitive.
While no major labels have announced plans to start selling tracks as MP3 files, it’s believed that at least one could do so in the near future. EMI is the most likely candidate, as it has already tested selling several singles online as MP3s and the company said it was pleased with the results.
“The lack of operability between a proliferating range of digital platforms and devices is increasingly becoming an issue for music consumers,” said diskery spokesman Adam Grossberg. “EMI has been engaging with our various partners to find a solution.”
If such a move is indeed imminent, Jobs’ letter could be a way to pre-empt them by putting Apple ahead of the issue.
There have been significant shakeups in the executive hallways of Sony BMG’s Columbia Records and throughout EMI in the past few months. With new executives looking to establish their own ground rules, these labels may be more receptive to ideas that previously seemed heretical, like selling their music as MP3’s.
Numerous indie labels already sell DRM-free songs via digital retailer EMusic.
Many critics have noted that by tying iTunes downloads to the iPod, Apple has been able to boost sales of the music player, on which it makes big profits, through its popular musicstore, which has very tight margins.
But in his letter, Jobs shifted attention to the big labels, which account for about 70% of music sales and have thus far demanded DRM.
“Much of the concern over DRM systems has arisen in European countries,” Jobs noted. “Perhaps those unhappy with the current situation should redirect their energies toward persuading the music companies to sell their music DRM-free.”
By stating he’d be glad to sell music without antipiracy protection, Jobs is essentially declaring his confidence that the iPod can continue to post huge sales without being tied exclusively to iTunes, and vice versa.
That’s a much easier position to take now, considering that three years of exclusivity between the two have helped them to reach their position as market leaders.
“Now he holds all the cards because he owns this market,” said Forrester Research analyst James McQuivey. “I don’t think he would have said this two years ago.”
Despite Jobs’ openness to switching to the MP3 format, the exec was dismissive of another potential solution many have suggested to Apple: licensing its FairPlay DRM system to other online music retailers. That would let them sell music with antipiracy software that could work on an iPod.
Jobs claimed that by revealing the technology to others, it would be more likely that the antipiracy protection would be broken, and Apple would have to coordinate fixing it, a potentially difficult task.
But that hasn’t been a problem for Apple’s only major competitor in antipiracy software, Microsoft. It licenses Windows Media to numerous musicstores, and the major labels have embraced it without concern that it is more easily breakable.
If labels did embrace MP3 music, Apple would likely need all to sign on to switch over iTunes. Since it doesn’t want to confuse consumers, the company currently sells all songs on iTunes with DRM, even though many indie diskeries don’t require it.
If the labels do switch policies, the biggest winners could be smaller musicstores like Napster, Rhapsody, and Yahoo Music that have long been itching for the ability to sell music that works on an iPod.
(Phil Gallo contributed to this report.)