The Fall of DRM
In an effort to combat piracy the music industry has experimented with alternatives in the physical medium on which music is sold as well as piracy thwarting technological blocks. First, the industry tried to upgrade from the standard CD format to more difficult to pirate high audio quality SACD or DVD-Audio albums. These were largely viewed as superfluous and costly because they often required the purchase of a new player to listen to them. Next, the industry adopted DRM, a technological system limiting the total number of devices a song would play on. This system failed because fans continued to illegally download millions of mp3s and quickly found ways to convert their DRM protected files to unlocked mp3s. Barney Wragg, head of digital music for EMI and former Senior Vice President for digital music at Universal Music, had an epiphany in summer of 2006, “I realized that as an industry we’d kind of been smoking crack.” After eight years of fighting the mp3, major labels were beginning to accept that selling DRM-free music was necessary for survival and, with Mr. Wragg pioneering the way, EMI was the first major label to become DRM-free. Other major labels were soon to follow. Universal Music abandoned DRM in summer of 2007, and a few months later Warner and Sony BMG had no choice but to join the movement by making their entire catalogs available DRM-free via Amazon.
Upon realizing that no adequate technological protection system existed to effectively stop piracy, the record industry shifted its approach. Rather than protecting their music files with DRM or by threat of litigation, record labels would simply provide enough incentives to induce consumers to purchase CDs. Once such incentive is added value content. Alicia Keys’s hit album As I Am was released in late 2007 chock-full of added content, including: 30-second audio files for ringtones and ringbacks, mobilephone wallpapers, and digital videos, which were also distributed through YouTube and MySpace. Inducement through added content proved to be a smash for Ms. Keys when As I Am sold more than 3.5 million copies. Ian Rogers, former general manager of Yahoo! Music, articulated it well when he said “[t]he record companies are all realizing they’re not in the CD business anymore.”
Much to the surprise and luck of the record business, another income stream emerged. Continue Reading…