So now we can guess why Apple has clung so tightly to DRM, which has all but disappeared from major label digital music retail in recent months. It remains a powerful bargaining chip.
The tech giant is negotiating with the music business to offer unlimited downloads from its iTunes store, the FT reports today. Money would be levied either on Apple's music players, giving the punter access to iTunes downloads for the lifetime of the device, or for a monthly or annual subscription fee, as with Rhapsody, Napster or eMusic.
It's not an unprecedented move. Nokia has invested heavily in an actuarial model [*] for its "Comes With Music" initiative - where the phone owner gets unlimited downloads "free" with the phone, and also gets to keep them. Nokia is reported as subsidising the program by as much as $80 per phone. The FT suggests Apple is only prepared to pay $20 per device. Nokia has only signed Universal Music, the world's biggest label, while Apple is reportedly trying to strike a deal for as much of its iTunes stock as it can.
It isn't clear at this stage whether the customer can keep the music once the subscription is terminated. Napster and Rhapsody's subscription services are really rental models or "radio with limited caching", whereas eMusic, because it sells DRM-free music, has no such restrictions. Nokia takes the middle ground: selling DRM music, but with the technical restrictions not preventing the phone owner keeping the music.
The music business is keen to see subscription models introduced to make up for CD sales that are falling off a cliff, and per-unit digital sales that are flattening off, leaving the business far smaller that it was. But as articulated by IFPI chairman John Kennedy here in January, the music business fears that users would abuse the service.
"You can't have a subscription model where somebody on a monthly model of say $10, [can] go on in January, download six million tracks, and leave in February," Kennedy said.
Nor is it clear how much "iTunes Unlimited" would cost. But we can guess what the music business has in mind. The FT cites "an industry executive" - and we can safely assume this executive isn't Steve Jobs - touting a survey in which the sweet spot is $7-8 a month for unlimited downloads, or a one-off payment of $100 per iPod or iPhone. But for what, exactly?
Again, it isn't clear, but keep in mind that the music business is negotiating two kinds of actuarial deals with network operators, consumer electronics manufacturers and institutions. These are:
- "Legal P2P" - unlimited file-sharing between members on the network, or between members of participating networks. File-sharing is encouraged, with royalties distributed proportionately, based on exchanges.
- "Covenant not to sue" - a one-off upfront payment to rights-holders to an institution, network or manufacturer that grants a limited licence, and permits certain forms of file-sharing to be "tolerated". Royalty distribution not based on exchanges.
Now follow the money. PlayLouder MSP and Omnifone's MusicStation are examples of the first kind of deal. Nokia's Comes With Music and the Apple "iTunes Unlimited" deal reported today fall into the second.
There are subtle distinctions between the two models, but the former has two advantages. Since the former model positively encourages flows of music, it provides an economic incentive for people to build further businesses based on flows of bits. No such incentive exists in the CN2S approach, where the rights holder simply walks off with the loot up front.
If DRM is your concern, you can see which of the two models provides an economic incentive for DRM-free music, and which doesn't. But you should be concerned about the long-term implications of such deals, too.
An 'iTunes Unlimited' deal for iPods and the online store would almost certainly face regulatory scrutiny, as it grants Apple a powerful retail monopoly on digital music distribution. It may also face legal challenges from collection agencies and the indie sector, who fear being cut out of the loop. But it also ensures there's no economic incentive for DRM to be removed - which many consider a major step back for consumers. Why? Because it appeals to the dinosaur element at the majors.
While publishers and indies have long favoured legalising (ie, licensing) P2P, and letting the bits flow, the major labels have feared surrendering control. Apple helps them out hugely here, because it allows the Big Four to strike private deals (cutting out publishers and smaller labels) and thwart licensed P2P business models where file-sharing is encouraged. So the CN2S model appeals to the anti-competitive instincts of the major labels and Apple alike, and DRM is the essential ingredient of that appeal.
Unfortunately - going by Reg comments - many of our keyboard warriors are still fighting yesterday's pigopolist, without realising how tomorrow's pigopolist will screw us. ®
[*] What's an actuarial model? It's where the party involved manages risk by taking out an insurance policy, usually in the form of an upfront payment - rather than trying to control every use of the good.