Apple this week has issue no press release, but simply implemented what everyone was talking about back in January, DRM free music across its entire 10 million track empire, and variable pricing from $0.69 up to $1.29. Apple had 8 million tracks done, and promised at the time that it would prepare DRM free versions for the last 2 million tracks by the end of March, and it has more or less finished that on time.
You still need an AAC player to play them, not an MP3 player, but converting to MP3 is trivial, even if it loses some of the quality.
The DRM free tracks are 256-Kbps AAC encoding, which Apple thinks means that the quality is as good as the original recording. It calls all these songs iTunes Plus, and they are now free of burn limits and digital rights management (DRM). In other words they are not encrypted.
There is a $0.30 charge to upgrade old $99 encrypted songs to the new $1.29 unencrypted versions.
At the same time the variable, but still rather clear pricing formula is in place, with three levels of pricing, so that record labels can charge 30 cents more for new chart topping singles, and 30 cents less for old favorites which have stopped selling.
Back in January this was described as a victory for the record labels over Apple, but Apple showed considerable resistance to variable pricing for 5 years while it got on with dominating portable media players with its iPod and iPhone ranges. It is only now that it has a position of massive strength, and when its phones have the backing of half of the leading cellular operators around the world that Apple has felt that its massive market share in media players won’t be damaged by either of these moves.
You no longer have to have an iPod to play your iTunes music, but most people are not planning to throw their favorite music device away, and some of the tracks are cheaper. If anything this was brought about, due to the various new pressures on the iPhone, from the huge number of music and video and applications stores that have launched in the past year. In the cellular world Apple is not going to have it all its own way, it knows that, and since most of these stores offer DRM-free music, and allow downloading direct to the phone or via a PC, Apple refused to allow an edge to Nokia, Sony Ericsson and Samsung, and all the operators that do not sell iPhones.
In April 2007 it was Apple’s CEO Steve Jobs who wrote the open letter to the industry talking about going DRM-Free, and was seen as a founding Father of the DRM-free music push, even though it was EMI which finally trusted to luck and shifted to a DRM-free model at the time.
Also Apple’s pricing change is pretty much contained in the EMI deal of 20 months ago as well. The 256 kbps DRM-free tracks had cost $1.29 each and Apple is clearly now charging that for DRM-free tracks for everyone plus offering the same price to labels for premium pricing if they want to charge it. The only real change is allowing older favorites to be charged as low as 69 cents. Apple’s income from the iTunes Music Store is unlikely to change for the same amount of music sold and if anything it will go up, not down.
Back in January Apple changed iTunes so that 3G attached iPhones can buy songs directly so that the iPhone iTunes experience is far closer in service level to the Walkman and Nokia Music Store, which previously were actually better if anyone ever looked seriously at them. Now these new tracks sync back to the PC rather than only one way to the phone.
It is still true that Apple makes more money out of selling an iPod than selling the captive music for them from iTunes, but over the coming two years this was bound to transition to a position where iPods sell less, because the iPhone sells more. Apple will still have much of its music tied into its devices through its Fairplay DRM, and most iPhones will sell on the back of that vast potential music collection. In the future Apple might offer an iTunes application (DRM-free) on ANY phone, which could be a good way for it to attack the BRIC countries with music.