Jobs’ (almost) masterful essay

Governments around the world have been looking into opening up the DRM on the iTunes music store to increase competition amongst them and amongst music players. I have blogged on this issue here and here. 

Today, Steve Jobs has posted an essay on the subject. It is very well written and its economics are very clear. Jobs first tells us that (a) music publishers require a DRM system that is uncompromised; and (b) Apple considers that the only way they can maintain an uncompromised system is to keep it all in-house and not license Fairplay to others. With both of these conditions present, it is out of Apple’s hands and so competition authorities should look elsewhere.

But Jobs goes on:

• Are iPod owners really locked in? No, he shows that on the average iPod only 3% of music is purchased from the iTunes store. What this means is that very few users are locked in to the iPod and when it comes down to it they have chosen to do so because they could always have got their music like most other people (buying CDS, which he mentions and illegal downloads, which he doesn’t).
• Why not let music play without DRM? Jobs says, “fine with me.” Indeed, 90 percent of music sales are DRM free now.

Indeed, he says, blame them. I want a freer world:

So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies.

Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly.

An excellent point. That should smooth relations with them nicely.

But what could Apple do? Is it squeaky clean in the market power department? Why can’t Apple also offer other DRM formats on its iTunes store and let customers choose? That would (a) allow iPod users to choose what they want to get locked-in to; and (b) allow other music players to purchase from the iTunes store. There would be two positives from this for Apple — (i) its users would be happier and so iPods would be currently worth more to them and (ii) they could sell to the fraction of listeners without iPods — but one negative, there would be more room for entry by non-iPod music players. Two out of three ain’t bad.