The iTunes Store went live with its new increased prices this week. Most coverage, NYT and LAT included, led with the fair and balanced news that the store was raising the price of many hit singles to $1.29 and lowering more obscure tracks to 79 cents.

In reality, since the $1.29 price will be for the most popular songs, the ratio in terms of sheer number of sales will be highly skewed to the new high price, and should in the short term significantly increase the income at the store.

That’s what all the talk about more “flexibility” in the prices was all about: Selling things for more money.

In classic record industry fashion, this does indeed look good in the short term, but not in the long term.

Why?

The downside for the labels is that the price hike came only after they agreed to remove the DRM from the iTunes.

Did Jobs get the best of the labels yet again?

Imagine two teens buying music. They are used to buying songs for 99 cents. They notice the price is higher … but the restrictions on just emailing a downloaded song to a friend has been removed.

Aren’t the labels giving them a rationale to buy the track once and send it around to their friends? And as the learning curve for that rises, won’t the rate of sales for the higher-priced songs start dropping?

“Oh, Madison, we shouldn’t—file-sharing is illegal! It’s stealing!”

“Oh Barlow, don’t be silly. They just jacked up the prices! And besides, they specifically changed it so we can just email songs. They want us to!”

There will be a learning curve, of course, but how long is it going to take 14-year-olds to get into the habit to emailing any song they buy to a half-dozen friends?

Greg Sandoval at Cnet was first to report that Apple has finally cut a deal with Warner, Sony and Universal to sell DRM-free tracks on iTunes.

The catch—Steve Jobs is apparently retreating from his long-time insistence on a 99-cent consistent price:

Apple has cut deals that will finally enable iTunes to offer songs free of copy protection software from the three largest music labels, according to two sources close to the negotiations. In exchange, Apple has agreed to become more flexible on pricing, the sources said.

Note how even Cnet is using the phrase “become more flexible on pricing” in its record-industry preferred way, as a euphemism for “raise prices.” (See my previous discussions of this tendency here.) The piece is a little too-industry friendly overall:

The good news is that the price of catalog music is falling to 79 cents per song. The labels will get an opportunity to price some hit songs for more than 99 cents but eventually those songs will drop to 79 cents, according to one source.

Before iTunes users get too worked up, they should remember that song prices at iTunes haven’t increased in five years. According to the Consumer Price Index, a 99-cent song in 2002 would be worth $1.17 today.

Since the bad news was “flexibility,” the good news makes things seem all better. The real bad news, which the piece doesn’t say flatly, is that the hit songs of the day Apple is going to allow the companies to charge more for will of course make up a huge percentage of a day’s typical sales.

As for the CPI, the peer-to-peer networks offered music for the competitive price of zero in 2000. Today, adjusting for inflation, the price there is still … free.

Last graf of the Cnet piece:

Not only will new music downloads be free of copy-protection software, but Apple and the labels will begin removing DRM from music already available in the iTunes Store, the source said. However, it’s unclear what will happen to songs that have already been purchased.

Removing the DRM from already purchased music would be an important and somewhat ameliorative gesture by the labels how wrong their insistence on DRM was.

—–

The question of selling non-handcuffed music raises the question of how much the companies are going to be sacrificing in sales. Without the copy protection, purchasers will be able to do what comes naturally: Email a friend a song, right after purchasing it at the iTunes store.

It’s possible to pass along legitimately purchased music to friends right now in any number of ways, ranging from simply letting them rip a store-bought CD to the more laborious one of burning a physical CD from one you bought on iTunes (i.e., thereby removing the DRM) and letting them import that.

The new way, obviously, is going to be easier, and ironically enough it’s going to hit the hits, most minor and major, most heavily, because someone who eagerly buys a new Beyoncé track will presumably have a friend or ten who are interested in it as well and can now immediately and easily pass it on. If you’re digging up an old song from Nirvana’s first album, by contrast, it’s unlikely you have ten friends who are going to want it that same minute.

You’d think, in fact, that the industry would charge less for hits (to encourage people to buy it online rather than get it from a friend) and price catalog higher—if you want that old Nirvana song, you’ll pay the extra quarter, and the chances are lower a friend of yours would have it.

I think Jobs, for all his severity, was appealing to the better nature of people with consistent pricing. In a world where you don’t have to buy, the image of an industry playing fair, for once, on pricing couldn’t have hurt.

Microsoft did it, and so did Yahoo. Now Wal-Mart is giving its customers an object lesson in the downside of digital rights management. The store sold MP3s heavily laden with DRM, and required the store to authorize the  use of the music you bought on a new computer. The multibillion-dollar business has given up the DRM ghost and is moving to MP3s, but it’s too cheap just to keep that part of the business open, so it, like MSN and Yahoo before it, is warning previous customers that they should burn their songs onto CDs and then re-import them to get around the DRM markings*.

Story from Technologizer here.  Writes Harry McCracken:

Remember, Wal-Mart’s music was promoted with Microsoft’s PlaysForSure tagline, one of the hollowest promises ever made in the history of personal technology. I don’t know how much it would have cost Wal-Mart to keep its DRM servers chugging, but I suspect it could have come up with the dough if it had considered PlaysForSure to be an obligation rather than hollow marketing copy.

(Link via Mac Daily News.) Both M’soft and Yahoo eventually backed down in various ways; Wal-Mart should simply just replace the inferior product it sold people with DRM-free MP3s.

* And again, this process merely illustrates how weak the DRM was in the first place.

Yahoo is now saying it will compensate, in some unspecified way, customers who were going to get screwed over with the closing of the Yahoo Music Store.

(The screwing came from the DRM-encased songs the company was selling. The songs wouldn’t disappear with the closing of the store, but Yahoo was basically refusing to spend the money to maintain the back-end technological component that would allow the customers to, say, move the songs to a new computer.)

Now, says a story in Information Week, the company is going to … well, do something:

Carrie Davis, spokeswoman for Yahoo Music, confirmed that the digital rights management servers would be taken down, severely limiting the use of the files. However, Yahoo did not intend to abandon its customers. “You’ll be compensated for whatever you paid for the music,” Davis told InformationWeek. “We haven’t said exactly what we will do, but we will take care of our customers.”

This is just for those who bought actual songs from the store. The subscription service is being merged with Rhapsody.

 —————

Previously in Hitsville:

Another object lesson in DRM rights

A few months ago, MSN shut down its music service. It was called, creatively, “MSN Music.” Microsoft wanted to consolidate its music services around the Zune and a new music service called the “Zune Marketplace.” Because the company had the music it sold people DRM’ed within an inch of its life, the shutting down of the store made the customers’ hold on their music iffy.

DRM, which stands for “digital rights management,” means that there is secret programming inside the digital products you buy that gives the company that sold it to you various kinds of control over them even after they are purchased.

You can imagine the use being innocuous. There’s nothing wrong with renting a movie for a modest fee, downloading it to your computer, and then having it disappear after a week.

But there are obvious potentials for abuse from two sources—Microsoft and the music industry—that have never been good at customer care.

So anyway, people who’d been buying (not renting or subscribing to) music from the MSN store were told earlier this year that the store was going away. More than that, Microsoft also told people that, basically, it was not going to put any more resources into doing the behind-the-scenes housekeeping that kept the DRM going after August.

It didn’t mean that the music was going to go away from customers right away; just that they wouldn’t be able, most importantly, to move the music to new computers. (In Microsoft Corporatespeak, the company said it would no longer “authorize” the new computers.)

Now we’re seeing a version of the same thing happen with Yahoo music.

LA Times blog on the story here:

This afternoon, Yahoo alerted customers of its erstwhile downloadable music store that it would no longer provide support after Sept. 30 […]. The upshot: starting Oct. 1, said customers won’t be able to revive frozen tracks or move working ones onto new hard drives or computers, because Yahoo won’t be providing any more keys to the songs’ DRM wrappers. But hey, they can always buy MP3 versions from Yahoo’s new partner Rhapsody!

Among the many consumer-unfriendly things about this is that the companies involved don’t even bother to couch what they are doing in plain terms; all of a sudden one company has to “authorize” your computer. Yahoo’s note to customers is even worse:

After the Store closes, Yahoo! will no longer be able to support the retrieval of license keys for music purchased from Yahoo! Music Unlimited, and Yahoo! will no longer be able to authorize song playback on additional computers.

“Retrieval of license keys”!

There’s a way in which all of this is good, in heightening-the-contradictions terms. Each time customers are screwed over in this fashion, there’s a whole new class of people who’ve been given an object lesson in both DRM and also the way these companies play the game.

Back to Microsoft. After the company started getting screamed at for the MSN Store’s shuttering, the company backed down and said it wouldn’t start screwing over its former customers for another year and a half. One of the Cnet bloggers talked with the Microsoft guy who was responsible for the debacle. He makes a point that, if you think about it for a second, makes a little bit of sense:

[M’soft marketing director Rob] Bennett defended Microsoft. He said the company never wanted DRM on its songs.

“Had we had the ability to deliver DRM-free tracks at the time, we absolutely would have done that,” Bennett said. “We talked to the labels at the time about that. As a company, we have continued to push for this. Zune has a subset in their catalog of DRM-free MP3s. Now, the industry is making progress. The labels are understanding the downside of DRM when its used the way they wanted to use it, they end up punishing the users who bought music legally more than those who want to circumvent the system.”

… but if you think about it for more than a second, you think—wait, but wasn’t Microsoft the company that’s been aggressively marketing DRM to Big Content all these years?

What these moves force consumers to do in the event is the final insult. They have to burn their DRM’ed songs to a normal CD … and then rip them back into their computers as MP3s. The point being that the DRM offered the companies involved no real protection in the first place.

I noticed an oddly big two-page ad in Rolling Stone for the DVD release of 21, the Kevin Spacey movie from earlier this year. (Metacritic rating: 48, ouch.) The copy of the ad, in big letters, advertises this:

2-Disc DVD includes a bonus digital copy of the film. Unlock it in just minutes and play it on your computer or PSP!

Now, is that really a powerful sales pitch? Who wants to buy something and “unlock” it? Who wants to buy something and then unlock it in a process that takes (”just”) “minutes”? And wait, the movie’s on a disc, right? Can’t I already play it on my computer like any other DVD?

Hmmm; I guess it means that in addition to just watching the disc on my computer, I can save it as a digital copy on my computer to watch when I want. But wait—isn’t that what all that “DRM” stuff is about? I can’t just save it to my computer. That’s, like, a federal crime!

Or something.

Wait, that must be what the second disc is for!

So, let me get this straight. The company has a video file (i.e., a movie) it wants me to buy in physical form, on a disc. But it doesn’t want me to save it to my computer, so it spends money developing and implementing a digital rights management system I don’t want, which it attaches to the video file before it sells it to me on that disc.

Then, even though it completely contradicts the thinking that went into selling me the disc, it then comes up with a scheme that will allow me to save it to my computer, but only by spending more money to put that on a separate disc, and charging me more for that, too.

Now, I’m tempted to say, can I just buy the second disc and not the first one? But I assume that the second one doesn’t work as a normal DVD.  So now, instead of selling me one simple product that might do what a normal, sentient person might want, it is selling me a complex, two-part product that does contradictory things, and on top of that takes out crazy ads featuring jargon that just confuses potential customers further.

And this is all before I get the thing home, allowing me to watch all the FBI warnings, in multiple languages, of course, in peace.

You know those sci-fi movies about robots or androids, where a human is talking to an android, and it’s not clear yet whether the android is in fact alive or not, and then, in little increments, the android displays some flaw—a quick short circuit, or a metal lapse—and the line between human robot suddenly becomes clear?

(The classic one is one of the the opening sequences of Blade Runner.)

That’s the weird feeling I get when I read about the latest manifestation of secret DRM controls. You think you have comfortable, helpful appliances in your home. But it turns out they are something else—beings whose allegiance isn’t to us.

There’s talk on the tech sites about how some people who tried to record American Gladator on their computers the other night found that they couldn’t. Tivo owners were fine; it turns out that if you were using your Windows Vista machine as a TV recorder (which they are designed to do), the show didn’t record, and users got a message saying the broadcaster had prohibited the recording.

It seems as though NBC had activated a hidden digital switch in the signal that doesn’t allow the show to be recorded, though that’s not 100 percent clear:

The question of whether NBC Universal issued a flag for American Gladiator has yet to be answered. The network said last week that it needed time to look into the matter. Microsoft’s spokeswoman did not offer any information on whether NBC Universal activated a flag. The software company did, however, inform us that accidents do happen.

“In some cases content may be incorrectly flagged in the actual broadcast, which may affect the consumer’s TV experience,” Microsoft’s spokeswoman wrote.

My emphasis. Note how the borg spokeswoman talks like a robot, too. In this case, “affect the consumer’s TV experience” is being used instead of the human phrase “make our product not work the way we said it would.”

We can see here Microsoft being more concerned with its corporate partners than its customers. We can also see how Big Media’s senseless war on piracy hurts customers most of all. People who still want to see American Gladiators will just get it off the torrent networks. (Indeed, since they couldn’t get it the legitimate way, they will in effect be pressured into learning how to get it the illegal way. In this sense, the war on piracy is becoming another one of those wars the prosecution of which in itself creates new enemies.)

Discussion on Slashdot here.
Ars Technica story here.
Extensive consumer discussion here.

The Ars story has the best detailing of how insane this minor but telling incident is:

Both American Gladiators and Medium were affected, and Microsoft admitted to CNET that Windows does adhere to some sort of broadcast flag that is based on FCC rules. The problem with Microsoft’s explanation is that those “rules” were actually disarmed and then ignominiously butchered by the scissores of the DC Court of Appeals back in 2005, owing to the FCC’s lack of jurisdiction over the way that consumer electronics devices are manufactured. Various attempts of reviving the idea by passing it into law in Congress came to nothing over the years (does anyone but the National Association of Broadcasters really want the government defining feature lists for TV sets?) and mandatory enforcement of the idea has largely died the death it deserves.

It’s hard to write about “DRM,” or “digital rights management,” because just the name—you have your choice of an acronym or mind-numbing phrase—puts one to sleep.

So, imagine this: You’re reading a book—or listening to a CD. Suddenly, the words evaporate off the page, or the music goes silent. You investigate, and find out that there’s a guy somewhere with a magic wand able to make that happen.

That’s basically the state of affairs in the digital age: Many of the things we buy are magically connected to a company that has the power to do that. DRM is the wand.

Certain Microsoft customers will be finding out about this in coming year, as the company announced this week it was ending its MSN Store, which sold DRM-encased songs. The music isn’t going silent right away, but it will, as people move on to new computers; in Microsoftspeak*, folks will not be able to “authorize” the songs on new computers after August of this year. Over time, restrictions in the DRM will mean the customers can no longer hear them. Says Ars Technica:

The news will likely upset a number of Microsoft’s customers, who bought music from MSN Music before the company launched the Zune Marketplace and decided to ditch the old store. Microsoft’s decision to turn off the MSN Music authorization servers serves as a painful reminder that DRM ultimately severely limits your rights. Companies that control various DRM schemes, as well as the content providers themselves, can yank your ability to play the content which you lawfully purchased (and now, videos) at any moment—no matter what your expectation was when you bought it.

Emphasis added. Microsoft has tens of billions of cash on hand, so as a matter of principle it could easily shell out the small amount of resources it would take to keep “authorizing” the songs, or just turn them into mp3s; it could do that to make it clear that the company’s commitment was to its customers; that DRM is there just to stop piracy, not to stiff users.

But then, it wouldn’t be Microsoft.

*Possibly the most enraging word in the digital lexicon, incidentally, is “support.” The email from Microsoft said:

As of August 31, 2008, we will no longer be able to support the retrieval of license keys for the songs you purchased from MSN Music or the authorization of additional computers.

Support in the IT sense is directly synonymous with “trouble our sorry asses to bother to make this work for you so you can use the product we sold you/do your job.” I can’t tell you how many times I’ve had to deal with IT folks to get my staff iTunes, or RealPlayers, or IM programs on their computers, only to be told blandly, “We don’t support that.” You can always get around it, but it typically involves a long educational process with higher-ups, who initially allow the phrase an entirely unwarranted talismanic force.

“DRM,” as we know, means “digital rights management,” which is the typically polysyllabic way Big Content talks about trying to control the stuff you buy from them. I say “trying,” because as we know the process is impossible and fruitless, leaving in its wake failed technology, consumer confusion, a debilitating war on its customers in the file-sharing legal imbroglio, and a lot of other annoyances.

Here’s one of the basic ones we forget: Along with being useless, DRM is expensive. Here’s a quote from a geeky but interesting story in the NYT today about those new-fangled HDMI inputs we have on the back of flat-screen TVs. As the world of HDMI connections grow (it will soon be typical for a family to need three, for cable, video-game player and Blu-ray), it turns out cost will become a factor:

“The cost of a single additional HDMI connection can be significant,” said Dan McCarron, a display product manager for JVC. Mr. McCarron said that unlike other types of connections, HDMI required a special set of microchips to enable its built-in copy protection. “In addition, there’s an HDMI licensing fee that’s paid on a per input basis,” he said.

Emphasis added! How much does a “special set of microchips” run? Hard to say:

A result is that HDTVs with the most ports are also the most expensive. Although there are a number of other factors in determining the price of a TV, it is clear that HDMI’s have an impact. A 52-inch Vizio liquid-crystal display that has four HDMI ports sells for about $2,500, equal to the price of a 47-inch JVC, a better-known brand, with only two ports.

Ouch! There’s nothing we as consumers can do about that, but the article helpfully dispenses valuable consumer advice when it comes to the cables themselves. They often don’t come with the components, and your local Best Buy staffer, if you can ever find one, will steer you away from a $20 cable to a Monster one selling for $150:

Monster Cable, the leading maker of the high-end cables, argues that the cables are worth every penny. “As HDTV displays get larger, people are positioning their flat-screens further and further away from source devices, and screen resolution and color depth can be degraded by using long lengths of low-quality HDMI cables,” said Noel Lee, the company’s founder whose title is head monster.

True? “Monster would say yes,” CNet [exec editor David] Carnoy said. “We say no.”

Mr. Conroy said there might be a “tiny difference” with $30,000 digital TV projectors or high-end receivers and speakers. “But for anything you’d buy in Best Buy, it’s definitely not worth it.”