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With a one-two punch, Apple (Nasdaq: AAPL) is in the process of lowering the price of its iTunes Plus DRM (digital rights management)-free music songs from US$1.29 to 99 cents while at the same time adding 2 million songs to its iTunes Plus library. The additional songs, which come from music megalabel EMI -- along with a good many from independent labels -- will give Apple the largest DRM-free catalog in the world, the company said.
However, Amazon.com (Nasdaq: AMZN), a newcomer on the scene of digital music sales 
, also says it has about 2 million DRM-free songs online, so the battle over the biggest DRM-free catalog may be a never-ending fight. Either way, Amazon's MP3 music library also includes songs from EMI -- as well as from Universal Music Group, which is not currently letting Apple sell its songs free of Apple's FairPlay DRM system.
Better Quality
Apple iTunes Plus songs are encoded at a higher bit rate -- 256 kbps (kilobits per second) using AAC (Advanced Audio Coding) encoding -- than its regular iTunes songs, so iTunes Plus tracks will now come in at a higher level of audio quality, though they'll sell at the same price as their lower quality cousins.
In addition, iTunes Plus songs can be used on a variety of computers and music players, letting consumers move their music around easier than before. Copying songs for friends, however, remains illegal.
Previously, iTunes customers could upgrade regular iTunes songs to iTunes Plus songs for 30 cents -- the difference between the $1.29 and 99 cents price. With the new price drop, will customers still have the opportunity to upgrade?
"If you have a song you want to upgrade to iTunes Plus, you can still upgrade for 30 cents," Jason Roth, a spokesperson for Apple, told MacNewsWorld.
Power Player
The iTunes Store is the world's most popular online music, TV and movie store and has become the No. 3 overall music retailer in the U.S., Apple says, surpassing Amazon and Target. The iTunes Store features the world's largest catalog, with more than 6 million songs, 550 television shows and 500 movies. iTunes has sold more than 3 billion songs, 100 million TV shows, and 2 million movies.
The music industry, while benefiting from Apple's dominance in online music retailing, has also been critical of Apple's power. One point of contention is the company's strong stance, backed by CEO Steve Jobs, of selling all music at 99 cents per track. The music industry has wanted the ability to sell tracks online at higher prices or on a subscription basis, and when the biggest online retailer won't play ball, it's hard to jack the price on popular hits.
Of course, Apple has had a mutually beneficial relationship with the music industry. The fact that the music industry has previously required DRM schemes gave Apple an excuse to tie its popular iPods to its iTunes music store, though the company's public stance is now firmly in the DRM-free camp.
The Irony of Competition
"It's pretty ironic, because Apple went with the $1.29 tracks as a lure to get the major record labels in, but only EMI came in, and EMI was someone Apple didn't need to lure anyway because EMI was already committed to DRM-free. But [iTunes Plus] was a way for Apple to get the major record labels to come around, and they never did," James McQuivey, a vice president of research for Forrester, told MacNewsWorld.
"Meanwhile, the market gets even thicker and iTunes gets even more successful, so that when Amazon.com comes knocking and says, 'Hey Universal, we've got EMI signed up and we'd like to get you signed up as well,' Universal finally goes and says, 'Yeah, let's try DRM-free with you' -- even though it'll be at a lower price point for a lot of those tracks," he explained.
Instead of a relatively stable 99 cents or $1.29 price per song, Amazon.com's huge customer base and business model of competitive lower prices has the potential to turn music into a commodity-priced business that trains consumers to buy at the lowest possible price -- definitely not the result the big music industry players were looking for.
"Warner and Sony BMG are going to be very upset -- they're going to like that there's a competitor to iTunes, certainly, but DRM-free is not something they're excited about, and lower prices are definitely not something they're excited about," McQuivey noted.
Rapidly Changing Landscape
"If you look at Warner, who just lost Madonna -- not to a competing label, but to a concert promoter -- that's a huge seismic shift in the nature of how a major star is repped," McQuivey said. "It really goes to show you that, even for someone who is as far into the music industry as Madonna is, she's still capable of seeing that the old labels just don't have it anymore."
It's hard to say how much Amazon.com is getting for each sale of an MP3-based song, so while it's selling tracks for a mere 89 cents, it might be turning a higher percentage of that sale over to EMI and Universal than what Apple turns over for its songs.
Either way, "The music labels are still sensitive about the perception of music becoming cheaper," McQuivey said. "There is a mental block in their minds, that if tracks are only worth 89 cents, then an album is only worth about $8. ... If they keep trying to hold the price point artificially high, as if they are still selling plastic disks, and meanwhile consumers find illegal ways to get it for free, you lose the chance to reset consumer expectations somewhere in the middle."
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