The (Non-)Economics of DRM
According to the NPD group, market share for online music sales is as follows:
Market share for online music retailers:
- Apple iTunes: 67%
- eMusic: 11%
- Real Rhapsody: 4%
- Napster: 4%
- MSN Music: 3%
It’s no surprise that Apple holds the majority of the market considering the 80%+ share of the portable player market enjoyed by Apple’s iPod. The bottom three companies are are nearly statistically insignificant with sub-5% shares of the market. All of these companies are backed by major corporations with massive advertising budgets, boast over a million tracks to download, and carry all the major label artists. However, they also sell DRM-laden music and have not been able to offer customers any compelling advantages over the iTunes Music Store.
However, the number two spot is worth some serious consideration. eMusic.com is a privately-held company that offers absolutely no major label artists. They don’t have corporate wealth backing them or the ability to sell any Top 40 music. How did they manage to double and triple the sales of companies like Microsoft? By listening to what their customers want instead of what music labels want. They are the only large online music store to give customers non-DRM restricted, high-quality MP3s that play anywhere. No licensing fuss, no clumsy and intrusive authorization to play the music, and no hassles playing the music on nearly any device in existence:
Like Napster and Rhapsody, eMusic is a subscription service. Unlike those of its competitors, eMusic customers fully own the songs after downloading, with no restrictions. How does it do that? EMusic’s songs are unprotected MP3s, which means they play on any device. Rivals sell copy-protected songs aimed at preventing unauthorized trading on file-sharing networks.
USATODAY.com - EMusic’s pitch: Download song and own it
The most interesting part of eMusic’s strategy is the reasons behind it. eMusic is privately owned by Dimensional Associates, a private equity investment company. Their goal is to make as much money as possible. Their decision to offer DRM-free music was not ideological. It just made business sense:
“It’s really not a philosophical decision; it’s a practical one,” says Pakman. “Early on, the belief was that we had to sell music in the only universally compatible format that existed. TiVo was just about to come out with MP3 playback on their machine and we didn’t know if that was going to be big. There were a bunch of MP3 players on the market, including the iPod, and that market was growing. There were MP3 car stereos happening. There weren’t any phones, but you can see that’s where it was going. Everyone was putting MP3 in their device, so why not sell in a format that works in all those places?”
Making money selling music without DRM: the rise of eMusic : Page 1
By building a top-notch roster of indie and jazz artists and by offering a product that people want to pay for, eMusic has eaten the lunch of much larger companies. Most importantly, they have done this with a niche audience and a limited range of music product. Imagine what the major labels and companyies the size of Microsoft could accomplish if they started selling products people wanted to buy instead of crippling their products to the point of uselessness.
technorati tags:drm, microsoft, msn, music, real, realnetworks, mp3, emusic, napster, economics
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There is one other “large online music store to give customers non-DRM restricted, high-quality MP3s”: Allofmp3
Despite their “unfair” advantage, where might Allofmp3 place in that list if they released their sales figures?
[…] Unfortunately, PlaysForSure was not much of a success compared to Apple’s iTunes Music Store. Apple still controls 80% of the market and no PlaysForSure store has more than 4%. […]
[…] While Emusic has shown the business potential of selling unprotected MP3s, it’s audience is older and more likely to care about file format. With Jesse McCartney, Yahoo! Music is testing the viability of MP3s with a mainstream teen act. This will act as a test case for future MP3 offerings: Labels and Netcos will be watching sales of the album, which Yahoo! will promote heavily throughout its network of Web sites to see whether consumers are more interested in buying unprotected MP3 files and whether it has any impact on piracy. […]
[…] Microsoft claims that it has no choice but to continue to fight this battle. They claim that they will be driven out of business if they can’t protect music their partners sell with DRM. However, there is good evidence to refute this claim. Emusic.com doesn’t use DRM to protect the music it sells, yet it has been far more successful in the marketplace than any store that uses Microsoft’s PlaysForSure DRM system. Viodentia seems to agree. In the interview, he suggested that his application might allow online music stores to see that DRM protection is not what makes their services valuable: I think FairUse4WM is a good thing for the industry — it demonstrates that the entire world doesn’t turn upside down when there’s no effective protection on content. I doubt subscription based services are impacted — programs exploiting the analog hole were already widely spamvertised. The value of a subscription is the continuing access to new titles, which isn’t dependent on the protection. I wonder if any subscription company will publicly admit that FairUse4WM was good for them. Interview with Viodentia at Engadget […]
[…] This sounds like an incredible deal for anyone who wants to sell music or other media online but that doesn’t have the money or fame to reach other venues like the iTunes Music Store. In addition, this service allows independent artists to offer customers a better product than existing online music stores that are laden with DRM restrictions. Files Forever is the first service that allows purchasers to “loan” their purchases to their friends legally or redownload purchased files an unlimited number of times if the originals are lost. […]
[…] While Bleep.com is a still fairly new in the online marketplace, it has managed to win a major award on the strength of it’s high-quality, DRM-free offerings. While independent labels continue to eat a large share of online music sales, major labels still refuse to give customers high-quality music that plays anywhere. […]
[…] Microsoft will no doubt respond quickly because they believe that their business model depends on having effective DRM in place. However, there is good evidence to refute this claim, at least for pay-per-track downloads - the largest part of Microsoft’s business . Emusic.com doesn’t use DRM to protect the music it sells, yet it has been far more successful in the marketplace than any store that uses Microsoft’s PlaysForSure DRM system or the Zune Marketplace. […]