Itunes and the Digital Music Industry

iTunes and The Digital Music Industry

On April 28, 2003 Apple revolutionized the music industry by creating the iTunes Music Store. For the first time consumers were able to purchase digital music that was immediately ready for download onto their iPod mp3 players. However, since the start songs downloaded from iTunes have protected by a digital rights management (DRM) scheme known as fair play. Soon after Apple opened their store several other companies opened competing stores, each with their own unique DRM scheme.

Most DRM schemes automatically assume that the consumer will try to illegally share music and enforce rules to prevent this. Apple restricts back up copies by only letting the song be copied to seven computers. They also restrict the file format to their proprietary ACC which makes iPods the only compatible device. Perhaps the most interesting restriction is that Apple reserves the right to change at any time what you can do with your music. They have already exercised this right by reducing the number of copies from ten to seven several years ago [1].

There are several competitors who have modeled their distribution after Apple. However, Napster 2.0 takes a very different stance on digital music distribution. They charge customers a monthly subscription fee and allow users to stream and download as much music as they want. However, if customers want to copy music to their mp3 player, or burn songs to a CD, they music pay extra. Napster also uses Microsoft’s WMA format for their DRM scheme which makes Napster incompatible with the iPod. Both Apple and Napster are United States based companies and therefore must abide by our laws. However, a Russian website called allofmp3.com offers DRM free music. Customers are allowed to select format and bit rate and receive a copy that lets them do what they want with their music. This company goes against everything the record companies stand for and they have been trying to shut it down.

Ever since file sharing became commonplace, record companies have complained that they have lost billions of dollars in revenue. Record companies have produced studies backing this claim, while file sharing advocates have produced reports saying the effect is indistinguishable from zero [2]. While the true impact probably lies somewhere in the middle, record companies have insisted that DRM schemes can be used to prevent customers from sharing music online. Price point has also become and issue for record companies. The standard price for online music is $0.99 per track. Record companies have stated numerous times that they would like to increase this amount, but music stores have resisted. Even though the costs associated with selling digital music downloads are much lower than that of physical media, these cost savings aren't passed on to consumers. DRM schemes also force customers to purchase the same song multiple times. For example, suppose one downloaded a song from Yahoo! Music, to play on their Microsoft mp3 player. However, a year later they purchased an iPod. Since the music purchased from Yahoo! would not be compatible with their iPod, they would have to purchase the song a second time from iTunes.

The iTunes music store has come under fire lately in several European countries. Germany, France, Norway, Denmark, and Sweden have all filed complaints with Apple over the fact that iTunes customers are locked into playing music on an iPod [3]. France was the first to pass legislation that went into effect August 2006, forcing Apple to allow iTunes music to be played on competitor’s mp3 players and allow music from rival stores to be played on the iPod [4]. Several other European countries have followed suit and set deadlines for fall 2007. These countries are not only focusing on Apple. They are able to look ahead and envision a day when all forms of entertainment are available online and want to preemptively strike against monopolies in the entertainment market. The United States government has been slightly slower to take action than its European counterparts. The Digital Millennium Copyright Act passed in 1998 gives record companies the power to add DRM schemes to their music. However, no bill has been passed that allows customers freedom of choice when it comes to music and mp3 players. There are several resolutions in both the House of Representatives and Senate that would give consumers rights in the digital music front, but so far none of them have been made into law [5].

There are also several technical implications of DRM schemes. Right now, consumers are still able to play records that their grandparents purchased in the 1940s. However, there is no guarantee that iTunes will exist on the dominant computing platform twenty years from now. Linux users are also by large excluded from the digital music revolution due to the