Major Labels

Inside The Major Label Negotiations With iTunes

Two years after Steve Jobs declared that DRM was dead and a year after Amazon launched its DRM-free download store with all four major labels, the vast majority of tracks on iTunes are still delivered with a little piece of code that restricts transfer and use. What is taking so long?

Perhaps deep down Steve Jobs doesn’t really want to unlock iTunes.  After all, Apple has profited greatly from the closed loop between the iPod and iTunes. But since early summer, reports have come from all corners that iTunes, which currently offers only EMI and some indie product DRM free, was very close to a deal with the other three major labels to drop restrictions completely.

Months later their is still no deal.  Sources tell Hypebot that each label is looking for a different concession before they allow iTunes to drop DRM:

  • Warner Music Group wants variable pricing on the track level including some hit product above $.99 cents.
  • Sony BMG wants to work with iTunes using the agency model.  As it is with Rhapsody, Amazon and others, Sony BMG is the actual seller of tracks and iTunes woulc be the agent delivering them. Sony BMG’s concern is that competition will drive track prices lower and the agency model allows them to maintain complete control.
  • Universal wants watermarking on the individual track purchase level.  Apparently other download stores have agreed or are close to agreeing to do the same. How it will effect consumers remains unclear.

Three major labels with three very different sets of demands. Will Steve Jobs bend that far? Will the labels blink?  It’s hard to see why either side is in any hurry to ammend their position. After all, iTunes with DRM already sells more tracks than anyone else and consumers who want their downloads DRM-free now have mulitple alternatives.

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  1. Correct me if i’m wrong, but if a song says “iTunes PLUS” by it, isn’t it DRM-free? If so, that’s easily the majority of what I see and buy. But then again, I like iTunes best as a store, and I own the iPod. No complaints.
    If I were the majors, I’d be far more worried about the trend of big names going independent. THATS loss of control.

  2. Weren’t there rumours that iTunes was considering going the ways of unlimited downloads via subscription, or as a bundled-in benefit with the purchase of one of the iPods or the iPhone? I hope negotiations can get to that sometime soon..

  3. Taking into account Apple’s notorious desire for control, they would ever accept the terms of Sony’s agency model, Warner’s variable pricing, or Universal’s watermarking. And how much more market share would they nab if they did accept all those terms?
    These negotiations won’t go anywhere without a massive shift in the current market conditions or consumer sentiment.

  4. Maybe the majors are trying to keep DRM in because they see it as a competitive disadvantage to iTunes, and it is in their interest to create more competition in the market. After all MP3 is selling the same tracks with no DRM. Right now iTunes represents 80-90% of digital sales for most labels.

  5. Thats an amazingly high percentage for iTunes, they did a great job of creating a whole new system for purchasing and listening to music by building the best hardware (iPod) and decent software (iTunes).
    I don’t think the Big three have much negotiating power left and its only getting lower each day. I would love it if new artist discontinued signing with anyone and just used the internet for sales and promotion of their music. If its good enough, it will be viral and sell. All the while they should be performing live shows which is where most of the money is made anyway.

  6. One thing I’ve never understood – shouldn’t the labels be begging Apple to take out the DRM, not the other way around? Two reasons:
    1) There’s no real evidence that consumers are flocking to non-DRM stores. Look at Amazon.
    2) iTunes FairPlay DRM songs only work with iPods. Every new song sold gives consumers another reason to never switch away from their iPod collection. If you have hundreds of songs from iTunes store, are you going to throw all that way just to get the Zune? Or burn and re-rip the songs at a lower song quality, something that the normal person will never do anyways?
    That means each iTunes sale helps maintain the iPod monopoly, and as well as the iPod/iTunes duopoly. The big 3 are actually doing Apple a huge favor right here.

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