The good news on the innovation/transformation front—a.k.a. “let’s run around in front of the lead customers’ parade”—this week was EMI’s announcement that it will sell music on iTunes without digital rights management. European consumer advocates have made it clear to Apple that using DRM to prevent paying customers from playing the music they’ve bought on iTunes on non-Apple devices is not OK. Apple is facing lawsuits in France and Norway as well as pressure world-wide. “It’s my music, I bought it; Let me play it when and where I want” is clearly a moment of truth for customers.
“I won’t buy DRM-protected music...Why would I pay money for something that limits how I can use my computer? I view such products as broken.” Asheesh Laroia, graduate student, Johns Hopkins University
Steve Jobs responded to the mounting clamor in February 2007 with an open letter to the big music labels, asking them to allow Apple to drop DRM protection from their digital music sold via iTunes. Steve found an early ally in Eric Nicoli, the head of EMI. On April 2nd, EMI became the first of the big record labels to announce that all EMI music will be available via iTunes in a non-DRM protected format, starting in May 2007. Owners of EMI music tracks purchased via iTunes before that date will be able to upgrade their EMI catalog to the higher quality, non-DRM-protected versions easily (for a fee).
EMI has little to lose by opening up. Its sales of digital music lag the rest of the industry.
Apple had a lot to lose by NOT opening up—many teens and young adults already boycott the iPod because they resent the restrictions that iTunes’s Fairplay rights management places on their use of the music that they legally purchase and download.
In responding to this customer moment of truth, Apple and EMI came up with an interesting offer: Pay a 30 percent premium and we’ll give you higher fidelity music (256 kbps vs. the current 128 kbps) that you can play on any and all devices you choose. This is very smart. Audiophiles care as much about the quality of the sound as they do about the freedom to listen on any device.
Note that removing digital rights management doesn’t make it legal to post the music you’ve purchased on a free-for-all file-sharing site. But digital rights management hasn’t thwarted music piracy anyway, since music is distributed on non-copy-protected CDs and anyone can copy music from a CD onto the Internet today.
It will be really interesting to see whether EMI’s music sales increase with DRM removed and whether Apple is able to convince other labels to follow suit. We think that addressing this customer painpoint creatively will yield profitable results for both EMI and Apple.
Addressing Another Moment of Truth in the Music Biz: I Just Want One Song!
The Apple iTunes strategy got many things right from the outset. One of them was: “Let me buy a single track; not an entire album.” In today's New York Times, Tony Sachs and Sal Nunziato explain why sales of music CDs are down. It's not piracy--it's because record labels produce albums with a single hit track, overprice the albums and wonder why nobody buys them. This was the pattern of customer behavior that informed much of the design of iTunes.
Keep Pricing Simple, Consistent and Fair
Customers appear to like the one-price-per-track simple pricing model as well--$.99 per track. The most recent EU complaint against Apple relates to this pricing model issue. Today, iTunes' per-track pricing varies by country in the EU. British customers pay more than do Dutch customers for the same track of music. This is not consistent with the EU's common pricing goals. Steve Jobs blames this practice on different countries' different national variations in tariffs and regulations. This cross-border pricing discrepancy is clearly unsustainable in an era of digital goods and transparency.
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