Sunday, August 28, 2005

Strategic errors: creating CD DRM schemes that shut out the iPod

Apple, Digital Music's Angel, Earns Record Industry's Scorn - New York Times

This is a great business article. Apple and the record labels are fighting about Apple's online music store pricing and Apple's iPod only DRM scheme (FairPlay).

Why does Apple have any leverage at all in this fight? Because the alternative to Apple is illegal file sharing -- and there's no revenue there at all.

That's why BMG's DRM protected CD scheme is suicidal:
... BMG in particular has taken steps that may apply pressure to Mr. Jobs to make Apple's software compatible with that of other companies. The company has issued dozens of new titles - including high-profile CD's from the Dave Matthews Band and the Foo Fighters - with software to limit the number of copies that can be made from the disc. The software is compatible with Microsoft's music software, but not Apple's, and as a result music from those Sony BMG albums cannot be transferred to iPods that are hooked up to Windows-based PC's. EMI has been test-marketing similar software with a handful of titles.
So what will a BMG customer do now? Will they give up iTunes, their iPod, and the music they've purchased online? Or will they get the MP3s from friends or strangers? Just guess.

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