By Richard Menta 4/5/07
The recent deal between Apple and EMI to end DRM on the latter's tracks means that the iPod will no longer be the only portable that can play music purchased from iTunes. Furthermore, competing services like Napster and Rhapsody can now sell tracks that can play on America's number one DAP once those first open tracks go on sale in May. When these tracks do appear it will not be in the MP3 format, as many assumed, but rather Apple will sell files in the more modern AAC codec. This makes sense for Apple as AAC is the underlying codec for iTune's FairPlay format. But this decision could have severe ramifications for Microsoft whose competing WMA codec - with and without the PlaysForSure DRM scheme - is now less compelling for both player manufacturers and download services to license.
Because they are cut out of the FairPlay format most of the iPod's competitors chose two other digital formats. The first is the ubiquitous MP3 format, which was not designed to utilize DRM. The second is the WMA format, which comes in several variations that are DRM-enabled. A small number of digital portables also offer compatibility with Ogg Vorbis, AAC, ATRAC3 and other codecs, but the majority settled on the MP3/WMA formula as most of the competitors to iTunes sold tracks in WMA. That would have been fine for these manufacturers if iTunes didn't own form 75%-80% of the paid download market. Also, not all players utilize the same version of WMA as some don't support PlaysForSure.
The other truth is, while the average iPod owner may have a thousand tracks on their DAP, only a few dozen are purchased from the music stores if any are purchased at all. Yes, the iTunes music store already has 2 billion tracks served, but that has come over a four year period. The overall volume for paid downloads right now relatively modest, so paying licensing fees to support several different DRM-enabled formats is not the most compelling for manufacturers right now.
With the EMI deal, Apple has opened it up up a whole array of paid content in the AAC format, content that gives competitors access to the iPod and the iTunes music store audience. But most competing digital music portables and stores don't use AAC - yet.
Real's Rhapsody service, MTV's growing Urge service and Napster will no doubt shift to AAC as soon as they can. So will the makers of DAPs. And PlaysForSure? Microsoft's recent Zune strategy had made things much more problematic for them.
After pushing PlaysForSure WMA for a few years and gaining minimal traction, Microsoft decided to copy the iPod/iTunes lock-in strategy by developing its own player dubbed the Zune. With Zune came a brand new DRM format that only the Zune could play. Hey, if Apple can use DRM to their advantage so can Microsoft! In the process Microsoft alienated the companies who were earlier convinced by them to adopt PlaysForSure.
We all know what happened next, Zune flopped. Now in the light of Apple's new DRM-free direction, Microsoft's attempt to copy Apple's earlier closed format strategy comes off as obsolete. Granted, no one was buying anyway, but now Microsoft's former clients have less reason to keep their allegiance to WMA.
It is highly likely that all future DAPs will add AAC capability as soon as possible. Those introduced for this summer won't have enough time, but many that appear this fall for the holiday sales season will. Those services and players that support PlaysForSure will continue to support it for now, because the other major labels still require DRM to sell their music. But, if EMI's DRM-free strategy pays off that could change rapidly.
If it does change, WMA without DRM will continue to be supported by Microsoft and the Windows operating system. The Zune Marketplace will no doubt start selling EMI tracks this way soon. But the online music services and portable player manufacturers will no longer need WMA. There is a strong chance they will simply shift the WMA licensing fees to pay for AAC rather than continue to support both. If that happens the WMA format will be marginalized.
So Microsoft is hoping for Apple's new deal to fail. Granted, there is no guarantee it will succeed. Consumers will pay $1.29 for DRM-free tracks on iTunes, a 30% premium over Apple's standard $0.99 price. In our opinion, $0.99 is high and price is the bigger reason consumers don't purchase more tracks online. Furthermore, because they only operate in the closed iTunes/iPod environment many iPod owners don't even realize that the tracks they buy on iTunes won't work on other MP3 players. I have met more than a few people who think the files they purchase from iTunes are in the MP3 format. Interoperability is not a conscious issue for them and neither is DRM.
But DRM is a big issue for those who are digitally saavy. If they choose to
pay extra in strong enough numbers then that will usher the end of DRM quicker
than anything else. If that happens WMA will continue to exist, but its days
as a leading codec may be over.
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