iTunes Music Store Goes DRM-Free

At Apple's final year at Macworld San Francisco (and, therefore, perhaps the final Macworld ever) there were several announcements that piqued the interest of the crowd during Apple VP of Marketing Phil Schiller's first - and last - Macworld San Francisco keynote address.

In contrast to the past few years, much of the focus was on the Mac platform itself, bucking the trend of iPhone and iPod Touch announcements that have caused so much angst for those exhibiting in Las Vegas at the Consumer Electronics Show. The one non-Mac related topic that Schiller addressed concerned iTunes, with implications for the streaming media space that run parallel to some of the recent reporting we've done.

First, Schiller mentioned the numbers behind the iTunes Music Store. The company now has more than 75 million credit card accounts, and has sold more than 6 billion songs protected via the Apple FairPlay digital rights management (DRM) from a library of more than 10 million songs.

"We are now the biggest and easiest legal way to purchase music," said Schiller, adding, "we are now the number 1 music channel in the U.S., surpassing Wal-Mart's physical music sales revenue in 2008."

Schiller then went on to state that the music labels had agreed to begin selling content on a variable pricing model. While Schiller did not provide details, he noted that pricing will begin on April 1, 2009.

"Starting in April we'll have 69-cent as well as $1.29 songs," said Schiller, quick to point out that the 99-cent price point will still cover a majority of music. "We also expect many more songs to be sold at 69 cents than at $1.29."

Apple had toyed with the $1.29 price point last year, when EMI, one of the four major music labels, agreed to sell DRM-free songs via Apple's iTunes Plus file format, which encodes songs at 256Kbps AAC versus the standard 128Kbps AAC used for the FairPlay DRM files.

"All major labels have agreed to put up their entire iTunes libraries for DRM-free purchase," said Schiller. "This means we have 8 million songs converted today, with additional 2 million finished by end of the first quarter."

Those who already checked iTunes after today's announcement found a single-click option to purchase DRM-free upgrades to their existing library for 30 cents more per song. This is in line with the $1.29 iTunes+ model that Apple has charged for EMI DRM-free songs.

One assumption made is that songs at 69 cents, 99 cents, and $1.29 will all be DRM-free purchases, so a question that lingers is whether consumers should upgrade their music now or wait until variable pricing goes into effect later this year. Upgrading now pushes the price of all upgraded songs to $1.29, but after April 1, the new model for songs that are to be sold at $1.29 appears to be based on factors like popularity rather than the price to purchase as DRM-free content.

In other words, there is the slim possibility that those who upgrade later will be able to do so for free, if the songs that were purchased for 99 cents before variable pricing goes into effect (and before DRM-free versions of the song are available) are available for 69 cents on April 1. There is also some question about a discount Apple is providing for doing bulk upgrades. If certain songs aren't available now—in other words, are among the 2 million songs not already converted to DRM-free versions—the question is whether the songs will also qualify for a bulk upgrade price.

Regardless, Apple's complete move into DRM-free music has been planned for over a year, since the time Steve Jobs sent an open letter to the music labels and consumers regarding the benefits of dropping DRM.

Another issue that remains is how long Apple will support DRM-based music that has been purchased over the past six years. As we reported in 2008, several attempts were made by the likes of MSN Music, Wal-Mart, and Yahoo to shut down their DRM servers. Each of those announcements was met by consumer demand for music to be made available for a longer period of time than the companies originally wanted to, and none of those companies had made the repeated point that consumers own the music they purchase from iTunes. So it remains to be seen how long Apple will support FairPlay DRM files, and whether they will eventually force consumers into an upgrade-or-lose-the-music option.

Finally, Apple announced that iPhone users can now purchase music on both WiFi and 3G cellular network connections, which is interesting given the fact that bitrates for DRM-free songs will double. While nothing was mentioned about the purchase of movies or TV shows on the iPhone, the implication is that the same price, selection and quality will be available and will now also wirelessly sync back to computer that has iTunes.

All in all, this makes for an interesting start to 2009, with the YouTube-Warner dispute adding a few new wrinkles now that the biggest music store on the planet has chosen to allow variable pricing and is on its way to accomplishing its mission of moving away from digital rights management.