DRM Death Knell?

A new year-long download promotion may spell the death knell for digital rights management (DRM). The Pepsi promotion, which will be formally announced during the Super Bowl on February 3, will advertise a possible one billion downloadable MP3 files, which will be available through Amazon.com's download service, which does not feature DRM. We have not been able to obtain a list of participating labels to date, but since EMI, UMG, and Hollywood Records already participate at Amazon's MP3 store, they're probably involved. Less certain are Sony BMG and Warner Music Group (WMG), who seem to be sticking as much at the 40¢ per song (compared to 65–70¢ from Amazon or 70¢ from iTunes) offered by Pepsi as at the lack of DRM—although neither label has yet offered unprotected digital files.

The last time Pepsi offered a download promotion, it teamed with Apple, offering iTunes files, which do have DRM. Pepsi expected to give away 25 million songs, but fell short at 5 million. Draw your own conclusions.

It may not matter what the labels want. Wal-Mart is reported to have informed WMG and Sony BMG that it will pull their music files from its WMA Walmart.com store between December and mid-January, according to a November 30 story in Billboard.

Wal-Mart declined to comment, citing its "company policy" of not responding to speculation, although spokesperson Amy Colella did say the company "knows that digital music is important to our customers, and we're very pleased with the recent performance and customer response to our digital music offering."

Perhaps, but Wal-Mart only has 2% of the digital download market, compared with over one-fifth (22%) of the physical CD market in the US. The problem is that the physical CD market is declining a lot faster than the digital file market is growing (nearly 20% this year). That has to make the Bentonville giant nervous.

Of course, if you look at a map of the physical distribution of Wal-Mart's stores, they tend to cluster in the states where high-bandwidth digital access has been slowest in growing. That is changing and Wal-Mart would be smart to remove any roadblocks, such as DRM's lack of cross-platform functionality, before committing to a new music distribution method.

From the days when I was writing corporate speeches for companies like Wal-Mart competitor Kmart, I can attest that the big-box stores spend a lot of money researching questions such as why they lost so much ground so quickly to online retailers like Amazon, even when they offer better prices. As of the last speech I wrote for KMart, the corporate answer was that the store's clientele simply didn't have Internet capability, so they elected to install "Internet kiosks" to allow customers to order online at stores.

Since I've never heard another peep out of that program, I assume it met the ignominious death it deserved. Amazon prospered because it made ordering online simple and removed every obstacle possible. Blogger James Lileks correctly observed that the most dangerous budget buster in the known universe was browsing Amazon while lightly buzzed with "one-click ordering" engaged.

Since Wal-Mart hasn't gotten where it has by backing the wrong horse, we're betting it's going to land on the side of simplicity and interoperability by bidding farewell to DRM. It's about time.

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