What’s Going on with DRM? – by “Daniel P”

A few years ago, my friend copied a bunch of music from his brother’s hard drive to his new iPod. His brother has awesome taste in music, and since my buddy didn’t have to pay anything for it, I thought he got a pretty sweet deal. We were talking about this while driving around and listening to the White Stripes.

“Dude!” he said all of a sudden. “This sucks! I can’t play blue orchid on this iPod cuz I don’t have the license for it.”

“Ah shit man,” I replied. “It’s because of DRM.”

“DRM sucks.”

Yup. It does. Used to be that if you bought a CD you could do whatever you wanted with it. Listen to it anywhere, let your friends burn it, or burn it yourself and hand out the tracks. Music CDs (not CD-ROM media) by definition cannot have DRM applied to them because its not standards compliant. Guessing the music industry didn’t like this too much and was getting ready to release another CD technical standard with built in DRM.

But they didn’t have to. People dropped their CDs and started using digital files. When online music stores appeared on the scene, they just limited they ways you could use the files you bought from them. Let’s look at how:

Exclusivity – If I download “Fell in Love with A Girl” on x music downloading site, I can only play it on user end hardware or software affiliated with that site. For a while (maybe still now) music downloaded using Kazaa could only be played on Windows media player. Music from the Wal-Mart and Napster stores can only be played on products with Microsoft “plays for sure” certification, something iPods don’t have. iTunes’ version of DRM, fairplay, limited the number of devices an individual song could be stored on. Apple also only allowed files downloaded through iTunes to be played on Apple products and a select few Motorola phones.

Fees – Copies of music have a price. Napster charged an extra $5 dollars per month if you wanted to play the music you downloaded through it on a portable music player. Good thing I can fit my laptop in my pocket when I got to the gym. Napster actually had the worst deal ever: you lost access to all the files downloaded using it if you didn’t pay your monthly subscription fee. That’s just lending music on a monthly basis.

A lot of music stores recognized that DRM-free music has its price. Apple initially sold such files at an elevated price. Now all files on iTunes are DRM free and popular songs cost $1.29, thirty cents more than the standard price per song the store was unveiled with. Napster’s done away with its DRMed wares too.

I’m sure there’s someone out there asking, “Where did you go, DRM’d music? I miss you.” I’ve got a few guesses. Stores probably realized that DRM’d music is really annoying for users. It limits where and how they can play it and makes copying your music from your old computer to a new one really painful. They also realized that people would be willing to pay a bit more for music without DRM. In Apple’s case, thirty cents more. And I bet there’s some calculation out there that says the extra thirty cents generates enough money to outweigh revenue lost due to piracy. The last reason is the iTunes stores. It’s got 25% of the digital music market in the U.S. If it doesn’t have DRM’d music then any site that does is going to lose to it. Also, don’t forget the iTunes store’s buddy, the iPod. It has a whopping 74% of the U.S. mp3 player market, further cementing Apple’s hold on the stuff we’re listening to.

Looks like Apple is calling the shots in the online music market. But at $1.29 per song, who’s using it? Look at the numbers again.

iTunes market share = 25%
iPod market share = 75%

Most people who download music have a music player. Most people with iPods use iTunes. If most people with iPods bought music from iTunes, its market share would be far more than 25%. A lot of pirates still in town.