Rivals fear spread of piracy after Apple/EMI music-video deal

By | April 8, 2007 at 12:13 PM

Media industry executives and analysts have expressed surprise and
alarm at last week’s decision by EMI, the record label, to start
selling music videos without the protection of anti-piracy software.

The decision was a little-noticed part of the company’s ground-breaking
deal with Apple that made all of EMI’s catalogue available on iTunes in
a format that can be copied and played on any digital device without
restriction. That deal, announced with fanfare by EMI chief executive
Eric Nicoli and Apple founder Steve Jobs, was hailed as ushering in a
new digital music era.

EMI is expected to begin announcing deals with other online retailers
within the next few weeks, and Apple is planning to give the record
label’s music a big promotional push when it starts selling the
premium-priced restriction-free versions next month. Rival record
companies are beginning behind-the-scenes preparations to follow suit,
should EMI’s experiment prove successful in boosting digital music

Songs from EMI artists – from Lily Allen to Tina Turner, Coldplay to
Queen – will all be made available in a higher-quality format free of
so-called “digital rights management” (DRM) software, which allows the
retailer to control how many devices the song can be played on. While
labels have previously insisted on DRM to prevent illegal copying, many
in the industry have come to believe that the restrictions are
deterring people from buying songs and may be driving them on to
peer-to-peer file-sharing networks such as LimeWire – where pirated
music, free of constraints, can be downloaded without paying.

EMI said it would also strip all its music videos of DRM and is not
raising the price of a download, which is $1.99 in the US and £1.89 in
the UK.

David Pakman, chief executive of eMusic, the next most popular online
music service after iTunes, said the decision to abolish DRM on music
videos came as a surprise. “The reason DRM is not working in music is
because it has never been present in music. CDs are not copy-protected
so copy-protected digital music defeats consumers’ expectations. But
every DVD you have ever bought, you have been unable to copy.”

Mr Jobs, who had a second career running Pixar film studios and now
sits on the board of Disney, which acquired it, insisted last week that
video content such as television programmes and films would remain
DRM-protected. Hollywood is certainly insisting that it do so.

With more video available through iTunes and other online stores, film
and TV producers are determined to prevent the rampant piracy that
afflicted the music industry, but most content is already available on
file-sharing networks. The risk is that internet users will get into
the habit of downloading video for free before the industry can get
them into the habit of buying DRM-protected content.

One media industry executive said that EMI’s restriction-free video on
the iTunes site was setting an unwelcome precedent. “We are perplexed
as to why EMI has done this and surprised at their thoughtlessness,” he

Supporters of EMI’s decision say that music videos are different to
other types of video content since they have traditionally acted as
promotional tools for music sales rather than sources of revenue from
consumers in their own right. In fact, selling standalone music videos
at all represents a useful new revenue stream, they claim.

Apple is believed to be making a slightly higher profit on EMI’s
DRM-free songs (39 cents, compared to 29 cents on copy-protected songs,
according to industry rumours) and has promised to give a major push to
EMI songs when it starts selling the new format next month. Since
iTunes accounts for more than 80 per cent of paid-for digital
downloads, that alone could alarm EMI’s rivals, SonyBMG, Universal and
Warner Music.

These companies are all watching EMI’s experiment closely. Most industry observers believe they will follow suit.

The argument for not doing so is that unprotected songs will quickly
find their way on to file-sharing networks where they can be freely
downloaded, meaning that fewer people will actually buy them.
Ultimately, it will come down to the numbers – and probably quite

Mr Pakman said EMI will find its move is not contributing significantly
to piracy, but that it does contribute usefully to its bottom line.
“This is the beginning of the end of DRM in music. Paid-for downloads
are dwarfed in number by the billions of songs on peer-to-peer
networks, so that differential can’t get much worse.”

EMI expressed confidence in its decision, saying it came after a string
of experiments with DRM-free music, including on some Norah Jones songs
last year.

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