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Apple's iTunes To Sell EMI Music Sans DRM, Beatles Not Included

The tracks will be available at a higher audio quality but cost 30 cents more than Apple's regular price of 99 cents a track.
Steve Jobs may not have the Beatles -- yet -- but a licensing deal with EMI Music announced on Monday could mark the beginning of major changes in the music industry's use of copyright-protection software.

The agreement paves the way for EMI to offer its entire digital music catalog free of digital rights management controls on Apple's iTunes music store. The most notable exception to the contract is the Beatles catalogue of recordings -- a long sought-after prize by Apple's chairman and chief executive.

Apple will now set up a two-tier pricing structure on iTunes that would offer DRM-protected tracks for 99 cents a piece, and non-restricted tunes for $1.29 each. The latter would also be available at a higher audio quality of 256-Kbps AAC encoding, which is indistinguishable from the original CD recording, according to Apple.

In addition, Apple would offer customers the option of upgrading their libraries of previously purchased EMI music to the DRM-free format for an additional 30 cents a song. EMI music videos will be available free of restrictions with no change in price.

"We think our customers are going to love this, and we expect to offer more than half of the songs on iTunes in DRM-free versions by the end of this year," Jobs said in a statement. Apple offers more than 5 million tracks on its online store.

DRM technology has been denounced by critics as failing to prevent piracy, while discouraging consumers from downloading music. A major problem with DRM is that it makes it extremely difficult for buyers to play their music on any device. Nevertheless, major record companies have been unwilling to release their catalogs DRM free, fearful that they would lose control over the distribution of their product.

EMI Group chief executive Eric Nicoli said the third largest record company has been talking for a while with a variety of online music stores to distribute songs in an MP3 format without DRM technology. In signing a deal with Apple, the company is telling other major labels that it may be ready to do things differently. "Ultimately, that may be the longer term effect of this," Mike McGuire, analyst for Gartner, said. "The industry may start to view DRM less as an exercise in making better locks and more as a technology to track consumption, or for exposing content."

In its current form, DRM has not made a very good traffic cop in managing content use, McGuire said. The technology, however, could be use in other applications. For example, people could be allowed to download music and listen to it for free several times before being asked to pay for it. The software also could be used to track usage and to add advertising, with the tradeoff being the consumer gets the music at no charge or at a reduced cost.

What the Apple/EMI deal does not mean is an end to DRM, or legal efforts by record labels to stop people from sharing music illegally over peer-to-peer file-sharing networks. "The freeloaders are still going to be out there, and you won't see enforcement efforts stop. They aren't going to go away."

Indeed, illegal downloading of music remains a major problem for the industry. In 2006, 15 million of the 47 million households downloading music used a P2P site, according to The NPD Group.. But despite their smaller numbers, P2P users downloaded 5 billion files in 2006, compared with the 500 million tracks purchased legally.

Jobs in February posted an open letter on the Apple Web site supporting the sale of DRM-free online music. The Apple chief blamed major record labels for the proliferation of the technology that has stymied the market. Apple and Microsoft have the dominant DRM systems required by record labels.

Jobs' call for non-restricted music was seen by many experts as a way to influence European countries like France and those in Scandinavia that have threatened to take legal action against Apple to force it to license its DRM system to other device manufacturers in order to open up the market. Apple's iPod currently accounts for about three quarters of the global market for portable music players.

Whether it's the fault of DRM use, there's little doubt that the record industry is in need of a way to boost overall sales. While download sales are expected to increase to 22% of the market in 2011 from 6% in 2005, total sales are expected to decline to $11.5 billion from $12.6 billion, according to JupiterResearch. CD sales during the same timeframe are expected to fall to 66% of the market from 86% in 2005. Ring tones make up the remainder.

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