Apple, labels focus on copy protection

updated 7:54 a.m. ET May 7, 2007

LOS ANGELES - The last time Apple Chief Executive Steve Jobs took on major recording companies, he refused to budge on his 99-cent price for a song on iTunes.

As a new round of talks ramp up this month, however, Jobs has opened the door to higher prices — as long as music companies let Apple Inc. sell their songs without technology designed to stop unauthorized copying.

Jobs contends that would "tear down the walls" by allowing consumers to play music they buy at Apple's iTunes store on any digital music player, not just the company's iPods.

Although most of the major labels insist that safeguards are still needed to stave off online piracy and make other digital music business models work, one company has already struck a deal with Apple.

Last month, Britain's EMI Music Group PLC, home to artists such as Coldplay, Norah Jones and Joss Stone, agreed to let iTunes sell tracks without the copy-protection technology known as digital-rights management. The DRM-free tracks cost 30 cents more than copy-restricted versions of EMI songs and feature enhanced sound quality.

The other major labels — Warner Music Group Corp., Vivendi's Universal Music Group, and Sony BMG Music Entertainment, a joint venture of Sony Corp. and Bertelsmann AG — will be watching closely to see how the unrestricted EMI tracks sell.

"At this point, no one can ignore Apple or what Apple wants, given its position in the marketplace," said Michael Gartenberg, an analyst with Jupiter Research. "The fact that they were able to do this deal with EMI puts more pressure on some of the other labels to follow suit."

Bigger bundles
For their part, at least two of the recording companies will ask Jobs to sell a wider variety of content in digital bundles of songs, videos and other multimedia, according to two recording company executives familiar with their companies' plans. They spoke on condition of anonymity, citing the confidential nature of the negotiations.

Apple already sells some bundled tracks, but the music companies hope expanding those offerings will boost online revenue and help offset lagging CD sales.

Apple and the recording companies declined official comment on their negotiations.

Four years ago, the majors bought into Jobs' one-price-fits-all vision and agreed to such licensing terms at a time when online music services were failing to attract significant interest from music fans.

Since then, the popularity of Apple's iPods has swelled and the sleek devices now dominate more than 70 percent of the digital music player market, by some estimates.

While studies have suggested that only a fraction of the music on most iPods is actually purchased on iTunes, the service has ridden the iPod's coattails and helped cement its position as the top-selling online music service and one of the biggest music retailers overall.

That's given Apple considerable leverage in its dealings with the recording industry.

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