Unrestricted music...welcome to the future

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skruggie

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I just found this article when surfing the net...

Universal bypasses Apple to sell unrestricted songs online; It will partner with Best Buy, Wal-Mart and Amazon but not iTunes.
Los Angeles Times (Home Edition) - August 10, 2007 - p C-1, Business; Business Desk
By Joseph Menn and Dawn C. Chmielewski
Times Staff Writers
Moving to blunt Apple Inc.'s growing power, the world's largest music company is bypassing the iPod maker to sell thousands of songs in an unrestricted digital format through many other online music stores.

Universal Music Group said Thursday that it would begin selling current and back albums -- from a collection of stars as diverse as 50 Cent, Maroon 5, Amy Winehouse and Johnny Cash -- without anti-piracy software that restricts their use.


Online retail partners include Best Buy Co., Wal-Mart Stores Inc. and Amazon.com Inc. -- but not Apple's iTunes music store.

A power struggle between Universal and Apple Chief Executive Steve Jobs accomplished what years of consumer complaints could not: persuading the top recording company to remove the digital handcuffs that try to prevent people from illegally sharing their music.

"It seems like a bold-faced move to blunt Apple's influence," said Mike McGuire, vice president of research at Gartner Inc.

Universal called the effort a test to see how sales and piracy rates would be affected when it sells songs in the MP3 format, which can be copied freely and played on any computer or mobile device.

The lack of software will make it easy to put copyrighted music on file-sharing networks, but doing so is still illegal. Universal said it hired a firm to monitor piracy during the test period, from Aug. 21 to Jan. 31.

Publicly, Universal said it excluded Apple so that iTunes could serve as a "control group" to make sales comparisons easier. Songs sold through iTunes are wrapped in digital rights management software that prevents them from being shared on more than a certain number of computers and played on devices other than Apple's iPod and iPhone.

Universal Music CEO Doug Morris said in a statement that the test would "provide valuable insights into the implications of selling our music in an open format."

But people familiar with Universal's strategy cited another strong motivation: to help Apple's competitors in order to reduce Jobs' growing clout with the music industry.

Cupertino, Calif.-based Apple's dominance in digital music sales -- Apple is the No. 3 music retailer overall, according to NPD Group -- has given the company major leverage in negotiating pricing, availability and other issues with the major record labels.

Apple began selling music only four years ago. But with digital downloads replacing CDs for millions of people, Apple's supremacy in the fast-growing online business has left it trailing only Wal-Mart and Best Buy in overall music sales.

"That's far too much power for anyone to have, especially someone who has not seen things eye to eye with the music labels in the past," said James McQuivey, an analyst at Forrester Research. "So Universal, and I would expect others, have said, 'We need to get hands on this market. We need to stimulate growth in more than one place.' "

Apple declined to comment.

Analysts and industry executives said that whatever Universal's motivation, consumers would benefit, especially if the other major labels follow suit.

"One of the biggest frustrations for the consumers is that there are too many formats out there, and what they play on an iPod might not be able to be played on other MP3 devices," said Mehrdad Akbar, director of Best Buy's music sales.

Aram Sinnreich, a senior analyst at Radar Research, said digital software locks annoyed law-abiding consumers while doing nothing to stem piracy. CDs have no restrictions, so their songs can be turned into MP3s and spread online.

Universal's move follows a decision in April by EMI Group, the world's fourth-biggest record label, to sell MP3s on iTunes and elsewhere. EMI executives have said they saw an increase in sales as a result, especially in Europe, where the company had a stronger position to begin with. The company declined to comment on Universal's move.

EMI's unprotected tracks have a higher sound quality and are sold for $1.29, instead of the standard 99 cents. Universal expects most retailers to charge 99 cents for its unencumbered tracks at various quality levels.

Universal recently refused to commit to long-term distribution through Apple, a move that gave Universal the right to offer exclusive tracks to smaller retailers.

Analyst McQuivey said Universal's strategy probably wouldn't cause consumers to flock to Apple's rivals. But the announcement comes at the right time for online bookseller Amazon, which he said was preparing to make a serious bid for the online music market.

It also put pressure on the two other major labels, Sony BMG Music Entertainment and Warner Music Group, to follow suit.

"It's less a question of whether they do it and more a question of when and to what degree," said Susan Kevorkian, an analyst at research firm IDC.

Rob Glaser, chairman and CEO of RealNetworks Inc., hailed the Universal test as a milestone in the development of the digital music market.

"When you get the biggest music company in the world putting this much content out, and it's the second company to do it, I think it's a tipping point," Glaser said.

McQuivey predicted that if unrestricted music catches on, Universal will be forced to offer the same unencumbered tracks through Apple's iTunes.

"You'd be foolish not to take advantage of the billions of tracks being sold there," McQuivey said. "It's like being a hamburger supplier and refusing to sell to McDonald's 20 years ago."
 

kylo4

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Interesting article, nice post. However the writer got some facts wrong, like stating that Apple sells mp3's on iTunes, which isn't true (obviously).

However Universal just said it was an experiment, and they'll probably follow afterwards by putting the AAC tracks on iTunes. All they care about is money, and iTunes can net them a lot of it.
 

kornchild2002

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I don't understand why Universal wouldn't opt to also use the iTunes Store. I guess Universal holds some pretty serious grudges. They screwed over Sony after investing in one of their failed formats. Universal put all sorts of money behind the UMD movie format then it failed and Universal had a choice between HD-DVD and Blu-ray (the later being Sony's format). They went with HD-DVD.

If these songs from the other stores use either the mp3 or mpeg-4 AAC format then we should have a problem loading them onto our iPods. I know that Wal-Mart and Best Buy use the WMA format but I think Amazon (or maybe Yahoo) uses the mpeg-4 AAC format.
 

bdb

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Maybe Apple didn't want to participate in a six-month "test"? Everyone seems to believe this is permanent even though Universal said (twice) that it is not.

And of course, if piracy goes up - even if its for reasons completely outside than this test (hasn't it always has been going up?) - they could end the test saying that they were "right all along" about the inverse relationship between DRM and piracy.
 

Code Monkey

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kornchild2002 said:
I know that Wal-Mart and Best Buy use the WMA format but I think Amazon (or maybe Yahoo) uses the mpeg-4 AAC format.
Amazon is supposed to start selling non-DRM mp3 tracks at some point in the future. Yahoo is strictly WMA-DRM at this point, though.

Still, it really doesn't matter. Until I can buy FLAC for less than the physical CD they won't be able to take their kids out to McDonalds with what I'll be spending on downloaded music a decade.

I just don't get it. For the $30 a month my pedestrian DSL account costs, you get enough bandwidth to upload a good 300 albums.

That means, even if I assume that my DSL connection represents a zero profit bandwidth cost, the delivery of a lossless album is around $0.10. There's no reason for all this format and DRM futzing from them as far as I'm concerned. Just give me the same thing I get when I buy a CD for a fair price considering that you can deliver it to me for less than the cost of the tray insert and booklet included with a physical CD.
 

kornchild2002

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bdb said:
Maybe Apple didn't want to participate in a six-month "test"? Everyone seems to believe this is permanent even though Universal said (twice) that it is not.

And of course, if piracy goes up - even if its for reasons completely outside than this test (hasn't it always has been going up?) - they could end the test saying that they were "right all along" about the inverse relationship between DRM and piracy.
Or maybe Universal didn't want to include them. I do know that if the iTunes Store was included with the test, sales would be solid. Maybe this is a ploy to show that people don't want DRM free music. They see that the sales are low (since they are blocking out the iTunes Store) so they will revert back to the DRM standard.
 

Code Monkey

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kornchild2002 said:
Or maybe Universal didn't want to include them. I do know that if the iTunes Store was included with the test, sales would be solid. Maybe this is a ploy to show that people don't want DRM free music. They see that the sales are low (since they are blocking out the iTunes Store) so they will revert back to the DRM standard.
I suspect it's more seeing if the profits netted by selling it themselves in a fully iPod compatible format offset the sales loss they'll likely experience by not selling through iTunes. The market has already spoken: if your music won't play on iPods, it won't sell, but we have never had a big label sell direct in an iPod compatible format. If it works well enough, why would you sell through iTunes and give Apple a cut? Estimates put Apple's gross cut around 20%-25%, that means you can suffer a similar drop in sales and still not lose a penny selling direct.
 

S2_Mac

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This is more like a 6-month experiment to see if Universal can take some of the wind out of Apple's sails (er, sales ;-). Universal wants higher prices/tiered prices and Apple won't play ball. So Uni is giving best possible terms to other retailers hoping that someone can knock Apple off its pins; the more fractured the retail market becomes, the more influence Universal can wield.

Any idea how crappy the bitrate's going to be?

What a racket for these guys, with grossly lowered retail production and distribution costs ("pirates" aren't the only to save $$ on digital transmission ;-). Wonder how hard the lawyers are working to get this revenue declared as "licensing" rather than sales, so Universal can pocket more of the cash....
 

bdb

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Code Monkey said:
I suspect it's more seeing if the profits netted by selling it themselves in a fully iPod compatible format offset the sales loss they'll likely experience by not selling through iTunes.
The article says they're selling through Amazon and Realnetworks, not on their own. I think thats the smarter move, though I know others disagree. I've seen too many cases where companies try to get into something in which they have no real experience (e.g. a label trying to become a high-volume web storefront), and they get in over their heads very quickly.

Its hard to imagine that they're just trying to be customer-friendly...we'll see. The notion that they're trying to get into flexible pricing makes more sense to me, especially given Amazon's recent acquisition of the flexible-priced Amiestreet. Most of these labels make their money off of a few hit songs, so it makes sense that they'd want more for those songs.
 

Code Monkey

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S2_Mac said:
How long will it take for someone to find the algorithm, and unmark the files...?
You can't unwatermark a file unless you have access to an original recording and can essentially cut and paste to replace the sections that have the altered audio (and if you had the original, why are you bothering?). Audio watermarking has become sophisticated enough that you can transcode all the live long day and by the time you've finally rendered it untraceable, it will be equally unlistenable. I've seen proof of concept papers where they took original files and reduced them to, I belive, 24 kbps (or something in that neighborhood) and the watermark is unaltered.
 
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