Digital Rights Management: Amazon Versus iTunes

Everyone has heard of Amazon and iTunes. Chances are, you have also heard about the controversies surrounding file sharing and MP3s. But another three-letter acronym that is controversial these days is DRM – Digital Rights Management.

With much fanfare, Amazon entered into the online music distribution business on September 25, 2007. Its major selling points? DRM-free music that is cheaper than Amazon’s biggest online competitor – iTunes. What is DRM, and why does it even exist? How else is Amazon’s new store different from iTunes? And what will the competition likely do to the music industry?

A Brief History of File Sharing

To understand why DRM exists, a bit of history is in order. Precursors of modern day file sharers have been quietly sharing digital files for decades – first through bulletin board systems and later through Internet relay chat. Then Napster debuted in 1999 and blew the doors off of a previously low-key file sharing scene. Utilizing a clean graphical interface as well as a centralized server, Napster brought file sharing to the masses.

Unfortunately, Napster also enabled massive copyright infringement, and this infringement did not go unnoticed by the major record labels. The Recording Industry Association of America (RIAA) blamed digital file sharing and mass copyright infringement for plunging sales. Court battles ensued, and Napster was shut down in July of 2001.

The Rise of iTunes

Napster left a void in the online music distribution market, and other music software as well as large corporations rushed to fill it. Apple, leveraging the iPod’s popularity, debuted its iTunes Online Music Store in April of 2003. Using the iTunes software, one can browse the catalog and buy singles or whole albums with only one click of the mouse. The songs are then downloaded to a computer and can be uploaded to an iPod.

iTunes is wildly successful, selling, to date, over three billion songs. It is now the third largest music retailer in the country. Unlike Napster, Apple negotiated with the record labels for licenses to distribute music and agreed to cut them a share of iTunes’ revenue.

Digital Rights Management

The RIAA, however, had not forgotten what file sharing programs like Napster can do. It feared that copies of music purchased on iTunes would still be illegally distributed. Thus, the RIAA continued to pursue a two-fold strategy of continued legal action against file sharers as well as development of technologies to discourage and prevent file sharing. Collectively, these technologies are called Digital Rights Management, or DRM. While the name ostensibly implies increased freedom on the part of purchasers of products incorporating DRM, in practice, DRM has served to restrict consumer usage of digital music in order to prevent or discourage file sharing.

For example, Fairplay is the form of DRM that can be found on the majority of music sold through iTunes. Fairplay imposes several restrictions on usage: it allows a track to be played on up to five computers simultaneously and permits a particular music playlist containing a protected track to be copied onto a CD up to seven times. Most significantly, Fairplay-protected tracks cannot be copied onto the vast majority of rival digital audio players including models produced by Microsoft and Creative. Other popular DRM methods include audio track watermarking or copy protection software bundled with audio CDs.

Amazon Music Store Versus iTunes Music Store

The new Amazon music store is different from iTunes in three important respects. First, the two stores are structured differently. Second, Amazon’s songs are not protected by DRM. The final major difference is a difference of price.

In terms of structure, Amazon demands only a web browser – unlike Apple’s music shop, which requires the iTunes software. Buying a track on Amazon, however, is more complicated – a three-step process that requires selecting the song, confirming a credit card and then confirming a “shipping address,” even though the song is delivered online. Although Amazon permits one-click purchases of an entire album, there is no equivalent to another convenient Apple feature: check boxes next to individual tracks. Amazon’s downloader, however, downloads faster than any similar utility available, and its songs are generally higher in quality than its competitors’. Better yet, Amazon will automatically add newly purchased songs to one’s iTunes or Windows Media Player library – which means they are available to your player immediately.

The second major difference is that all of Amazon’s songs are DRM-free, so they can be uploaded onto a device of a user’s choosing, including an iPod. Songs from iTunes, on the other hand, are protected by Apple’s DRM so that they can only be played on Apple devices. DRM-free songs can also be purchased on iTunes, but the price for such songs is higher than that of protected songs. While this difference in versatility may make Amazon songs seem like the better option, there is a trade-off. Because Amazon does not protect the songs it sells through DRM, many record companies are hesitant to sell their music through the Amazon store. Only two of the four major labels, EMI and Universal Music, are participating. The other two, Sony BMG and Warner, appear reluctant to offer music without DRM protection. As a result, Amazon has a much narrower song selection than iTunes.

It should be noted, however, that while Amazon’s songs are DRM-free, customers are still limited in how they can use the music. Instead of using software for protection, the restrictions are in the user agreement, a contract you automatically agree to when you buy the songs. Amazon’s agreement states that you “agree that you will not redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, sub-license or otherwise transfer or use the Digital Content.” This is clearly not as protective or easily enforceable as DRM methods of protection.

The final major difference between Amazon and iTunes is price. Amazon is currently selling its DRM-free songs at $0.89 each; iTunes, on the other hand, sells DRM-protected songs at $0.99 each and DRM-free songs at $1.29. The $0.40 difference gives Amazon a competitive advantage that should not be underestimated.

How Will This Affect the Industry?

Once Apple announced in April of this year that it would make DRM-free tracks available through the iTunes Store, it seemed likely that other DRM-free stores would open. The logic is that if you are going to put your music out there in a way that can be infinitely duplicated, you might as well offer near-infinite ways of collecting money for it. So, the announcement of the Amazon store is not much of a surprise (particularly since rumors had been circulating since at least April of 2007).

Many reviewers have commented that the Amazon store, with its low-cost, DRM-free, higher-quality tracks, presents a compelling alternative to the iTunes Store. Moreover, Amazon already has many customers’ credit cards stored on its servers, and owns a powerful recommendation engine technology, which will recommend tracks that you might like based on what you have downloaded in the past. The only major drawback, as previously discussed, is that Amazon offers only about one-third of the tracks available on iTunes.

There seems little doubt that Amazon is a serious competitor to iTunes, and it seems that, as always, customers will ultimately benefit from this competition. If Amazon sells billions of MP3s, the two major labels that have so far resisted selling DRM-free tracks will likely feel pressure to join Amazon. But Apple will benefit from a successful Amazon store, too. The more digital tracks available in the marketplace, the greater the need for digital music players like iPods and iPhones, where Apple makes its real profit; neither device, nor the iTunes jukebox software itself, has faced a serious competitor.1

Update October 18, 2007:

By Marc Friedenberg From the Columbia Science and Technology Law Review: On October 16, Apple announced that it has lowered the price of its iTunes Plus songs, which are not DRM-protected, from $1.29 to $0.99. In addition to songs from the EMI library, tracks from a number of independent record labels are also available as iTunes Plus downloads. Clearly, this move eliminates some of the allure of the Amazon offering; nevertheless, many of Amazon’s songs are still cheaper, costing only $0.89.

Although iTunes Plus songs now cost the same amount as DRM-protected iTunes songs, Apple is charging $0.30 cents per song to upgrade previously-purchased songs to DRM-free status.

By Marc Friedenberg, Michael Nguyen, Ehi Oviasu, Zen Zhang and Sarah Calvert. Originally published at the Columbia Program on Law and Technology blog.

  1. The profitability of the iTunes Store has been a subject of some controversy. There seems little doubt, however, that the iPod and iPhone lines are far more profitable. []

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