Labels About To Eat DRM

Digital Rights Management (DRM) has been a dismal failure. My music industry students at USC knew it before anyone because they are part of the generation that helped neuter it. We know why labels like DRM. It protects their rights and in their fantasy helps sell more music.

Now the labels are getting ready to swallow the bitter pill and give up on trying to manage DRM. It is in their best interest to do it now, but they will probably drag it out. Revenue from digital downloads and mobile content is down. Even iTunes sales are down and if the Christmas spike materializes once the figures are in, the trend is still off. Apple has problems with iTunes. They are being sued in federal court over allegations that iTunes DRM is a monopoly. The judge in the case refused to throw it out. Apple is now planning to defend itself. Apple in turmoil doesn't help the record industry.

It's no secret that the labels want iTunes to have a major competitor. That competitor was supposed to be Microsoft and its new Zune hand held device. But the Zune hasn't been a hit since it was introduced in late Fall and Microsoft's version of DRM will suffer along with Zune sales.

There are lots of challenges on the horizon not the least of which is a move by MySpace along with SnoCap to start a music download service that would allow artists to sell music right from their profiles in the MP3 format. No major labels are on board yet, but indie artists and unsigned acts will be the focus of the experiment.

The labels have tried everything to maintain their DRM position, but they are losing the battle. The same generation that blew up the business plans of established labels will end up dictating that they will not accept DRM. How could this be? How could the marketplace be more influential that the labels? The Internet has brought democracy to the music business. The labels don't get to choose whether DRM is a keeper. Consumers do.

What young people seem to want is the ability to use the music they want. They want to be able to transfer it to the various devices they own without respect to digital rights management roadblocks. In fact, they might be more willing to buy music if they could use it on the devices of their choice. If this no protection approach survives it could be a boon to digital music sales. But labels have been hard-nosed in their opposition, but that is changing.

Some record company people are even advancing the idea that they should be selling music from digital downloads as MP3 files without DRM. It will happen sooner or later, but the labels need to choose sooner. Why fight them there (at DRM) so they don't have to fight them here (on mobile music).

Look for the labels to get religion in the year ahead. They've got lots of serious problems including the end of the growth cycle for ring tones -- a big way they makeup losses from CD revenue. There is not too much on the horizon that bodes well for traditional labels which is precisely why they need to act now, disable DRM policies and concentrate on the business of finding and recording artists. If they don't act it could be too late. The marketplace has spoken and the question is not whether labels have heard their voices. It's when they will admit to the mistake and embrace scrapping DRM.