Apple unchains iTunes and drops song prices

SAN FRANCISCO -- In moves that will help shape the online future of the music business, Apple said Tuesday that it would remove anti-copying restrictions on all of the songs in its popular iTunes store and allow record companies to set a range of prices for them.

Beginning this week, three of the four major music labels -- Sony Music Entertainment, Universal Music Group and Warner Music Group -- will begin selling music through iTunes without digital rights management software, or DRM, which controls the copying and use of digital files. The fourth, EMI, is already doing so.

In return, Apple, whose dominance in online music sales gives it powerful leverage, agreed to a long-standing demand of the music labels and said it would move away from its insistence on pricing all individual song downloads on iTunes at 99 cents.

Instead, the majority of songs in the store will drop to 69 cents beginning in April, while the biggest hits and newest songs will go for $1.29. Others that are moderately popular will remain at 99 cents.

The music companies are hoping that their eagerly awaited compromise with Apple will give a lift to digital downloads. They will be able to make more money on their best-selling songs and increase the appeal of older ones.

And with the copying restrictions removed, people will be able to freely shift the songs they buy on iTunes among all of their computers, phones and other digital devices, potentially changing the way they listen to music.

Technologically sophisticated fans of digital music complain that DRM imposes unfair restrictions on what they can do with the tracks they have bought. For example, the protected files from iTunes do not work on portable players made by companies other than Apple.

"I think the writing was on the wall, both for Apple and the labels, that basically consumers were not going to put up with DRM anymore," said Tim Bajarin, an analyst with Creative Strategies, a market research firm.

Sales fall off a cliff

The music industry could really use a lift. Sales of CDs fell 20 percent last year from 2007. About 2.4 billion songs were purchased on iTunes in the last year, aided by Apple's expansion into international markets. But that was not nearly enough to make up for losses in traditional retail stores.

Industry pundits have long pointed to DRM as one culprit for the music companies' woes, saying it was a drag on sales because it turned off some customers, while doing little to slow piracy on file-sharing networks.

Apple has been campaigning against DRM at least since February 2007, when Apple's chief executive, Steven P. Jobs, wrote an open letter criticizing the technology. Later that year, Apple reached a deal with EMI, the smallest of the four major record companies, to offer music without the copying restrictions.

But it could never reach the same agreement with EMI's larger rivals. Sony, Warner and Universal allowed other online music services, such as Amazon's MP3 Store, to sell unprotected music, but they withheld it from Apple. Their goal, say industry analysts, was to try to strengthen online rivals to iTunes, which they viewed as having a dangerous level of control over their business.

Apple, for its part, has appeared to resist variable pricing, fearing that it would amount to a price increase for the most popular tracks on iTunes, which constitute the bulk of the sales on the service. It has also said the consistent 99-cent price made things simpler for buyers.

Prodded by hard times

It is not clear what broke the impasse, but the deteriorating economy may have put some pressure on the music companies. "For the major labels, it was clearly time for them to accelerate becoming digital music companies in a macroeconomic environment that is downright frightening," said Greg Scholl, chief executive of The Orchard, a digital distributor of music from independent labels.

Apple said customers would be able to pay a one-time fee to strip copying restrictions from all of the music they have already bought on iTunes. The price is 30 cents a song or 30 percent of the album price. ITunes customers can achieve the same effect by burning all of their music to a CD and then reimporting the music to iTunes, although this reduces sound quality somewhat.

The unprotected songs will also have higher sound quality than the protected versions.