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Sony BMG Opens DRM-Free Content to Amazon

With another nail in the coffin, are the record labels finally ready to lay digital rights management (DRM) to rest?

Amazon.com announced yesterday that later this month, it will begin selling downloads of MP3s from Sony BMG with no DRM restrictions.

With the addition of Sony, which had been the last holdout among the four major records labels, Amazon's MP3 store will offer a vast library of music with no usage restrictions.

That may help it knock Apple's iTunes Store from its perch, where it has long been able to dictate the pricing and availability of digital music.

Sony BMG made its DRM-free catalog available through Amazon before reaching out to iTunes, following the lead of Universal Music Group and Warner Music Group, which both continue to embed DRM on all music sold through Apple's online music store.

The lone exception, EMI Music opened its DRM-free music catalog to iTunes last spring.

The DRM-free downloads from Amazon are compatible with all major music players, including Apple's iPod and iPhone and Microsoft's Zune, with none of the copy or usage restrictions imposed by Apple's FairPlay technology on most iTunes offerings.

"Our Amazon MP3 customers will be able to choose from a full selection of DRM-free music downloads from all four major labels and more than 33,000 independents that they can play on virtually any music-capable device," Bill Carr, Amazon's vice president for digital music, said in a statement.

With the clear (if unstated) goal of taking on iTunes, the Internet's largest retailer launched Amazon MP3 in September, making good on its announcement in May that it would build an online music store offering only DRM-free songs.

Amazon's store now offers 3.1 million songs, encoded at 256kbps and available exclusively in the MP3 format.

Pricing for most individual tracks on Amazon MP3 ranges from 89 cents to 99 cents. More than 1 million tracks, including the 100 best-selling songs, are priced at 89 cents. Complete albums range from $5.99 to $8.99.

The beauty of a DRM-free world is not lost on Apple CEO Steve Jobs. Last February, Jobs wrote an open letter to the music industry lamenting the strain of DRM.

"Imagine a world where every online store sells DRM-free music encoded in open licensable formats," Jobs wrote. "In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players."

"This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat," he added.

Apple offers its own DRM-free music through iTunes Plus, launched in May. In addition to EMI, thousands of independent labels have licensed their music to Apple without copy and usage restrictions, but the other three major labels remain stubborn holdouts.

Apple recently normalized the pricing model of its DRM-free music to the standard 99 cents per song, a move which many viewed as an effort to head off an emerging challenge from Amazon.

That the major labels have gravitated to Amazon's DRM-free service is indicative of their commitment to break free from Apple's stranglehold on pricing.

It's a move that suggests the labels still don't fully have consumers' interests in mind, said Michael Goodman, director of the Boston-based research firm Yankee Group, which recently announced a study predicting the "demise of the record label."

"It's a classic example of the record industry taking one step forward and two steps back," Goodman said in an interview with InternetNews.com.

Goodman said that in their attempt to break Apple's hold on the industry, the record labels are handicapping the market. To him, the record labels' recent partnerships suggest less about the unique synergies of an alliance with Amazon than they do about the desperation of an ailing industry looking to get out from under Apple's thumb.

The problem? "What the consumer wants is Apple," he said. "In the end, Apple will laugh all the way to the bank."

The iPod will remain the preferred portable-music player, Goodman predicted. If so, this will continue to make acquiring music through iTunes much easier than with Amazon or other online retailers.

With its flexible pricing model -- a very appealing feature to the labels -- Amazon could gain some edge in the market. Yet 10 cents cheaper per song might not be enough to overcome the convenience of the streamlined iPod/iTunes compatibility, Goodman said.

"There is a tidal wave of DRM-free music coming, but it's also an example of short-sightedness of the record labels, of how they're implementing their DRM policy," he added.

At this point, Amazon's best competitive hope may be its huge DRM-free inventory, solidified in large measure with today's announcement. But alliances with the major labels will come to mean less over time, the Yankee Group predicted in a recent study.

The firm warned that digital revenue would be insufficient for labels to recoup losses from plummeting CD sales.

It also noted that the proliferation of digital content would strengthen musicians' control over their own music, creating a more direct relationship between artist and consumer -- ultimately marginalizing the label.

Goodman pointed to the unprecedented announcement from the British band Radiohead last year that it would allow consumers to pay whatever they wished for a download of its new album In Rainbows.

Trent Reznor, front man of the band Nine Inch Nails and an outspoken critic of the labels, recently made a similar move with an album he produced, distributing the collaborative effort with Saul Williams on the Internet and giving consumers the choice of downloading it for free or paying $5.

Though Reznor has since expressed disappointment at how few people opted to pay for the download (roughly 20 percent), the message, to Goodman, is clear: "Bands don't need record labels for distribution anymore."

In the coming years, as more artists' contracts expire and go unrenewed, the labels will become increasingly irrelevant as the momentum behind digital distribution continues to build, he predicted.

"All the big-name acts, where record labels really make their money from, are abandoning them," he said.