Seeking Success In Unprotected Music

By Will Morgan

One day early in February, Apple CEO Steve Jobs posted a news item on his company’s website titled “Thoughts On Music.” The lengthy brief was, in reality, more of a manifesto, petitioning record executives to abandon digital rights management (DRM), the copy-protection technology that limits the burning and sharing of digital music files purchased online. DRM’s influence spreads industry-wide and affects both artists and consumers on a global scale by regulating interoperability between digital retailers and media devices.

As Jobs presently sees it, the music industry has three routes to choose from regarding the future of DRM — its current path, “with each manufacturer competing freely with their own ‘top to bottom’ proprietary systems for selling, playing and protecting music,” he explained; licensing Apple’s own DRM technology, FairPlay, to competing distributors to increase interoperability; or to entirely abandon DRM and let all companies play on a level field. His letter effectively served as an ultimatum-of-sorts for the four majors — Universal, Sony BMG, EMI, and Warner — who, as Jobs took great care to emphasize, are responsible for implementing DRM in the first place.

The apocalyptic tone of the letter, however, is largely due to the fact that Jobs is effectively scuttling the market share that his own iTunes (2 billion songs sold) and iPod (90 million sold) enjoy (FairPlay ensures that tracks bought through iTunes can only be played on the iPod). The question then becomes: Why would Jobs want to demolish the FairPlay system, which has made Apple the industry leader in digital music retail, in favor of adopting DRM-free technology?

In the last 10 months, DRM has seen its base contingency waver in increasing increments. Steve Jobs’ call represented a strong form of dissention, and it put the public spotlight on record executives to take a firm stance. Roughly two months later, such a stance came, and Jobs was able to make good on his promise that iTunes would embrace DRM-free music. On April 1, EMI announced that it would be making its full digital catalog available without copy-protection technology on iTunes. The move was monumental, and with Apple putting its muscle behind the decision, DRM’s integrity has never been so unstable.

But the truth is that, outside of public pressure from Jobs, labels are facing frightening financial outlooks, as first quarter CD sales dropped an astonishing 20 percent from a year earlier. Reliance, naturally, has shifted dramatically on to digital sales, but recent figures indicate a certain leveling in percentage growth from week to week for online music purchases. While the outlook is stormy for major-label players, independent artists are in a unique position given both the tendencies of their consumer base and their high level of control over the distribution of their music. Understanding DRM’s immediate and future implications will enable independent artists to reap the rewards of various promotional and sales platforms designed to avoid the pitfalls of copy-protection technology, and many will soon find that DRM-free services are profoundly independent-friendly.

THE iTUNES PERSPECTIVE

Regardless of its reputation in independent circles, iTunes warrants attention purely based on its sales volume. It is the number one digital music retailer in the world. Its catalog, although many presume otherwise, has considerable depth. At press time, its top selling songs were by major-label heavy hitters Beyonce, Akon, and Fergie, but its top selling albums were by indie gurus Modest Mouse, SXSW darling Amy Winehouse, and former American Idol contestant Elliot Yamin. Arcade Fire and LCD Soundsystem also breached the Top 10. Combined with proven selling power, iTunes holds a precious position in the digital music trade.

The choice that artists must make, then, is an intangible and difficult one: iTunes’ market strength or the freedom of mp3? eMusic’s VP of Label Relations, Rob Wetstone, presents the topic in another light: “A lot of people assume that we have a much deeper catalog than iTunes, but that’s only because we promote it.” In terms of content, eMusic and iTunes are on somewhat equal footing; it’s how eMusic treats its content that separates the two. Wetstone should know — he oversees the relationship eMusic enjoys with over 13,000 independent labels, the underpinning for the company’s 2 million tracks and status as the world’s largest retailer of independent music. “iTunes isn’t a true competitor,” says Wetstone. “We’re focusing on the 25 and older demographic — more sophisticated, more fanatical. 35 to 37 years old on average. iTunes is 12 to 20. We don’t target the urban mainstream.” eMusic’s most visible handling of its considerable catalog, however, is in selling all tracks in mp3 format. For Wetstone, given the state of affairs in the music industry, the buzz generated through sharing music greatly outweighs the financial risks. “The music industry is in such horrible straits that it’s about growing [your potential],” says Wetstone.

His opinion is one shared by many others. “The worst thing that can happen to a musician is to never be heard,” notes John Buckman, founder and owner of Magnatune. “Obscurity, not piracy, is the worst outcome.” To combat obscurity, Buckman’s company empowers the consumer, thereby generating word-of-mouth. Magnatune not only lets consumers choose at what price they want to purchase independent music, but also encourages them to share it with three friends. And, of course, all the tracks are sold without DRM technology, which Buckman considers a dramatic competitive advantage. His point is one not to be ignored. No DRM allows both eMusic and Magnatune to emphasize community interaction and exploration. “When you go to iTunes, you have to know what you’re looking for,” says Wetstone. “There are a lot of barriers there to discovering new music...There’s no conversation on iTunes.” Wetstone also highlights the fact that digital music retailers employing DRM tie consumers in to the service, limiting them to certain media players. “Steve Jobs’ letter clues you in there,” he continues. “A closed ecosystem doesn’t work.” What both Buckman and Wetstone’s companies seek to maximize is the underground appeal sparked by communicative, adamant audiofiles — a level of exchange and interaction allowed by interoperability that few independent artists can afford to lock out.

CONSIDER THE CONSUMER

Magnatune’s business model speaks directly to the benefits (both financial and promotional) of providing consumers with complete flexibility when it comes to purchasing music. “When you buy an album on Magnatune, we ask ‘How much do you want to pay?’ from $5 to $18, and half goes to the artist,” explains Buckman. “The average is $8.15, and [the consumers] get no benefit from paying more, other than feeling good about it and supporting an artist and a company they believe in.” Buckman points out that this act of good faith literally jolts fans into paying well above the minimum price. “It shocks consumers to be trusted in this way, and they reward the gesture with their generosity. 20% of buyers volunteer to pay more than $12.” By offering up DRM-free tracks, Magnatune is able to increase artists’ value while still turning them a profit. Wetstone echoes Buckman’s thoughts, noting that the ability to share music instills a sense of satisfaction in the consumer. “The prime beneficiary is the consumer,” says Wetstone. “eMusic allows consumers to own their own music — copy it over to however many computers they want and to whatever digital music player they have. It’s the consumer that wins...eMusic encourages a lot more exploration, trading and sharing of people’s own musical discoveries. It’s cool to send music off to someone.” The fans that are given free reign to share their musical tastes with others, as a result, become increasingly passionate, spending greater time researching and purchasing music, and again introducing friends to it. It’s all part of what Buckman refers to as “the warm, fuzzy feeling of doing the right thing” — artists, by offering up DRM-free tracks, are demonstrating the value they place on their fans to be conduits for good music.

“BETTER THAN FREE”

It is true that the condition of the music industry has begun to lend itself to a DRM-free structure, but part and parcel of this transition is the sustained popularity of the peer-to-peer (P2P) network. While many would argue that P2Ps also do an excellent job of encouraging word-of-mouth, it is a promotional source that artists have very little control over (and from which they do not make any direct profit). Subsequently, digital music retailers have had to develop unique business models to compete with the proliferation of these networks. “The real competitor to Magnatune is P2P; it’s totally free music,” says Buckman. “To survive, Magnatune needs to offer something that is better than free.” His point is that when artists choose to distribute their music through a DRM-free service, they are giving their fans access to a bevy of features valuable enough that they are, in turn, willing to show their support through actually purchasing content. “[Better than free] means reaching out and offering all the benefits of free, such as full previews, no DRM, high-quality audio, but adding benefits, such as perfect-quality WAV files, artwork, ease of finding music...and helping fight the Big Music Machine in a positive way,” concludes Buckman. Not to mention, DRM-free services are able to play off of the community interaction that defines sites like MySpace, attracting fans and giving them reason to stay and explore. The eMusic editorial staff, who Wetstone characterizes as “100 Jack Black characters from High Fidelity,” publishes a daily online magazine that offers up spotlights and reviews to guide users. Likewise, the eMusic Neighbors and Message Boards program promotes the type of listener interaction that has made DRM-free services successful for artists. eMusic wants fans to stick around, experiment and “get lost in the site,” says Wetstone. Magnatune has exactly the same goal — and it all serves to increase an artist’s chance of being discovered. “Magnatune lets people stream entire songs and entire albums before buying, which causes people to spend hours [on our site] every day trying to find music they might want,” says Buckman. “The average visitor to Magnatune spends 2 hours and 40 minutes at the site, which is one of the longest average site visit times of any web site on the internet.”

And the effort seems to be paying off. In late March, eMusic introduced its Connoisseur program in response to heavy consumer demand. Consisting of three monthly subscription plans, each of which sets the price of individual tracks at 25 cents, the program allows users to download 100, 200, or 300 songs a month.

THE OUTLOOK

Both eMusic and Magnatune are engaged in a sort of balancing act as DRM-free services. As Buckman notes, “We’re always very aware of the balance between free versus pay, and getting that right is extremely difficult.” DRM has been an important facet of music distribution and retail for quite some time, but only recently has its viability come under the major-label microscope. Yet, independent artists, labels, and services have been quick to adopt the more fan-friendly mp3 format, and its benefits are becoming more and more aligned with the direction of the music industry as a whole. The movement also has a certain amount of corporate weight behind it in the forms of Yahoo! Music executive David Goldberg, an outspoken proponent of unprotected files, and EMI. Likewise, many companies have come to embrace unprotected file formats and unique payment options, among them Weedshare.com, ClassicFM.com, and AmieStreet.com.

Tracking DRM

July 2006 — Yahoo! sells Jessica Simpson mp3 single

Sept. 2006 — Yahoo! sells Jesse McCartney album in mp3 format

Oct. 2006 — Barenaked Ladies release DRM-free album online

Nov. 2006 — EMI releases Lily Allen mp3 single

Dec. 2006 — EMI sells Norah Jones and Relient K mp3 singles

on Yahoo!

Feb. 6, 2007 — Steve Jobs publishes “Thoughts On Music”

Feb. 9, 2007 — Warner Music Group rejects Jobs’ request

Feb. 9, 2007 — EMI begins DRM-free research

Apr. 1, 2007 — EMI announces DRM-free catalog available through iTunes