Music Business and Trend Mongering

I think one of the under reported consequences of Apple’s decision earlier this month to drop DRM from their files and to offer variable pricing is that the labels, via Apple, have extended something that has essentially been missing from the record industry for several years – the replacement cycle.

The music replacement cycle, where music consumers upgrade from less convenient carriers of music to more convenient models (think vinyl ->8-track ->Cassette ->CD ->mp3), was a main driver of the record business economy throughout the late 80s and 90s, and a major part of the reason that labels started floundering in the early part of this century. There are few things more convenient than digital music, and although there are other ongoing efforts to kick-start a new format (like those crazy slot music devices), nothing has come along yet to really get folks to repurchase their digital catalog. Which is what makes the $.30 upgrade by iTunes so interesting.

There have been over 5 billion DRM iTunes tracks sold over the past 6 years. iTunes is offering anyone who has purchased a DRM download to replace their track for a new, higher quality, DRM free download for $.30 each. If ?uestlove from the Roots is any indication (he twittered that he is converting his entire collection of 6000 iTunes DRM tracks), this could be a pretty significant revenue stream and a semi-serious revival of the replacement cycle. Although I think it’s unlikely that continuous upgrades to digital will keep this kind of replacement cycle happening (but who knows?), It’s interesting to see the labels leverage their new, happier, variable pricing relationship with Apple in this way. The good news is that indie artists working with a low cost distributor like CD Baby will get about .18 per upgrade (CD Baby takes a 9% cut from the 20 cents, paying 18.2 cents to artists).

It just got a whole lot harder for online music retailers to compete with iTunes. Although I stop purchasing music from iTunes years ago to buy only DRM-free music (I settled on a monthly subscription with eMusic – which will still be my jam for more obscure left-of-the-dial music for the time being), the announcement by Apple on Tuesday that they are immediately dropping DRM (Digital Rights Management) from 8 million tracks changes things slightly.

Here’s what this announcement means to me:

A) Labels are continuing to relinquish more control over their product (which is a good thing).
B) It’s likely that iTunes market share will increase over and above their already commanding 70%+ of the legal online download market (which is not a good thing for competition).
C) Other players (like the leap year bug plagued Zune) will be able to play music from the Apple store (but only after it is converted from AAC to MP3, which iTunes can do, but is not ideal).

The truth is, aside from folks that are deep in the music business, how many consumers are really going to notice a difference? Do many casual music fans with an iPod know that iTunes had DRM files to start with?

Overall, the fact that Apple is removing DRM is definitely a step forward for the music industry. But I do tend to think that the real game changer for online music will be some sort of collective licensing model along the lines of what the EFF proposes. According to the IFPI, the ratio of unlicensed tracks downloaded to legal tracks sold is about 20 to 1. There are extreme opinions on both sides of the very complex collective licensing model discussion, but finding a way to monetize this traffic in a way that positively affects artists will have a much greater impact to the music industry than Apple’s DRM announcement. Baby steps!

After accumulating (way too many) CDs since 1987, I’m making the move to converting my collection to digital. The prices of external hard drives have decreased to the point that it makes sense to rip my CDs to a lossless format, and the truth is, while I’m a big fan of liner notes and artwork, I’ve had it with CD storage. And moving the collection is nothing short of a horror show nightmare.

The major problem with digital music for me has been playing my music at home. I’ve been using the Airport Express to wirelessly stream my digital collection to my receiver, which is a huge step up from listening to digital music on tinny computer speakers, but even then it’s still inconvenient to have to control my music selection from my computer using iTunes.

The Slimbox Duet solves this problem for me. The Duet is a two-part (hence the name) digital music solution consisting of a receiver, and the thing that really makes this product special, the remote control device. Modeled after the iPod interface (but with a slightly less responsive scroll wheel), the remote control component hooks up to the digital music library on my external hard drive, allowing me to stream anything from my collection to my home stereo – without getting up from the couch. Also, the system is compatible with streaming radio services like Pandora, Rhapsody, podcasts, and other online resources like the incredible live music archive found at www.archive.org. I’ve had the duet set up for a week, and it’s like a whole new world to me.

While the Slimbox can play virtually all audio formats, it cannot play DRM files – including almost anything purchased on iTunes (which uses Fair Play DRM). All the more reason to purchase from DRM-free online retailers like Amazon, eMusic, or the new Napster mp3 store!

Surely as a response to Amazon’s more competitive pricing structure for DRM-free music, iTunes has announced that they will drop the price of their iTunes Plus songs (256kbps, DRM-free) from $1.29 to $.99. iTunes Plus includes songs from EMI as well as a number of larger independent labels. Amazon’s mp3 store, which launched on September 25th, offers DRM-free songs for between $.89 and $.99. The battle is likely to continue as it’s clear that the majors, and in particular Universal, are not pleased with Apple’s dominance of the online music world (70% of all digital music sales are currently through iTunes).