Apple, Recording Industry in Negotiations to Remove DRM from iTunes

Today Yahoo! has an AP story on the negotiations between Apple and the recording industry to remove DRM from iTunes. The story suggests that Apple will push for better quality, higher priced downloads that don’t have DRM. EMI has already struck this sort of deal with Apple at $1.29 per download, suggesting that other record companies will be hard-pressed not to follow suit despite protestations that DRM is necessary to stop online music piracy. If Apple gets the deal it wants, it seems to me that the recording industry will have a hard time maintaining the “DRM is necessary to stop online piracy” argument in the future. It may also have significant distributive consequences.

I’m inclined to think that consumers will always spend money on music. This does not mean, however, that the producers of music will capture all of that revenue. Indeed, they never have. People have always split their music budget between paying for music and paying for electronic equipment.  They’ve also spent their money indirectly on brick and mortar retail outlets.
If the music industry is correct in claiming that DRM is necessary to reduce online piracy, then allowing Apple to offer DRM-free downloads should mean that consumers will pay less for music in the long run as more content becomes freely available (of course, this may not actually happen). If so, consumers who save on content will probably spend some of that money on the electronics to access and play freely available music. People will buy more expensive iPods with more features, personal computers, faster internet service, hi-fidelity connections between iPods and speakers, etc. In short, Apple and other electronic and Internet providers will get a bigger slice of the consumer entertainment budget, and recording companies will get less.

There will, of course, be arguments about whether this is good for society. Consumers will benefit in the short run from increased access to music at lower prices. They will arguably suffer in the long run if lower profits mean less production of music, although I’m skeptical that a doomsday “no one will produce music” scenario will result. If companies like Apple are making larger profits through freely available music, they’ll make sure that recorded music is still produced. Yes, by doing so they will subsidize their competition. However, if Apple maintains or extends its dominant position in online music distribution and mp3 player sales, it will still increase its own profits.