DRM-Free music does not spell the end of iPod/iTunes domination

Much like the previous post, this post is not a new article.  However, I do not believe I have published this anywhere else.

This article was written on or around April 9, 2007.

In February, Steve Jobs, the co-founder and CEO of Apple, Inc., wrote a somewhat controversial piece entitled “Thoughts on Music”.  In it, he wrote that Apple would gladly sell music DRM-free, if given the opportunity by one of the Music labels.  Many people were surprised by this, believing that, if such a deal was struck, it would break the link between the iPod and iTunes, and end the dominance of Apple in both markets.

One of the music labels was listening, and on April 2, EMI announced that it will sell all of its music with a DRM-free option.  The tracks, which will cost 30 cents more than the DRM’d counterparts, will also be encoded at 256 kbps, making them “indistinguishable from the original recording”, according to an Apple press release.

Some people believe this will hurt Apple, because people will now be able to purchase tracks from the iTunes store and put them on non-Apple MP3 players.  While this may be possible, the iPod will not take a significant hit.  The iPod was a success because of its simplicity – both navigating the device and transferring songs between the Computer and iPod (using iTunes).  Though they have changed the form factor and added capabilities (photo, video, podcasts, etc), the iPod has stuck to its simplistic roots – and that is why it is the best-selling music player.

There is a belief among people that the iPod has had continued success only because people feel ‘locked’ into the iPod/iTunes system.  In reality, the average iPod carries very few tracks that were actually purchased from the iTunes Store.  According to Steve Jobs “Thoughts on Music”, the average iPod has only 22 iTunes-protected songs on it, although iPods are almost always full.  This means that, if someone wanted to get out of the iTunes ecosystem (and was not smart enough to burn the tracks to CD and re-import them in their new music player), they would lose around $20.  This cost is negligible compared to the cost of a new music player, such as the Zune or Sansa Connect (both which retail upwards of $200).

I do concede that there will be some people who will take this opportunity to purchase a non-Apple branded MP3 player, upgrade to DRM-free tracks, and leave the iPod and iTunes behind.  However, there will also be people who start purchasing from iTunes to cover some of this lost revenue.

Overall, the transition to DRM-free music is a win for everybody.  Consumers now have more rights over the music which they purchase; Apple will see stronger music sales (which will compensate for the slight drop in iPod sales), and other music players will see a slight uptick in sales of their players.

technorati tags:iPod, iTunes, Apple, DRM