In the United Kingdom, retailers have "urged the music industry to drop piracy protection for online downloads after new figures showed the average Briton has bought fewer than three digital tracks in the past three years" according to the Financial Times. The Entertainment Retailers Association also states that anti-piracy methods have inhibited growth in the digital market and are "working against the consumer interest." The three tracks in three years figure is slightly hard to believe, but another point in the article made me think about the upcoming holiday season and digital music players.

The Financial Times remarked that the ERA is urging the music industry before the Christmas season because hopes are that digital sales could grow tremendously in January for consumers that want to load up their new players. While the average user might not be able to tell the technological benefits of Digital Rights Management (anti-piracy) free tracks, they can certainly enjoy the ability to easily transfer said track without having to worry about the tedious protection measures. Unfortunately, anti-piracy protection seems to inevitably require the consumer to sign in and confirm purchases, no matter the length of time since it has occurred.

DRM-free technology (anti-piracy) software has come under fire since February when Apple Inc.'s (NASDAQ: AAPL) Steve Jobs challenged the music industry to drop usage of the technology. So far the challenge has only been partially successful with London-based EMI the only music company to fully drop DRM and offer higher quality tracks for sale in various digital stores, including iTunes. The other music companies have not been as quick to adopt a DRM-free position, with Universal Music Group the only other label even beta testing files without it.

With EMI Group PLC (LSE: EMI)'s announcement Friday that its new Digital Rights Management technology-free tracks now available for sale on Apple Inc. (NASDAQ: AAPL)'s iTunes Store are performing well, will the compact disc finally go to the grave, as has been speculated for the past few years? Coolfer, a music industry site, notes that this may be one explanation, but can this truly be the case? Certainly the quick growth of DRM-free tracks is impressive, but is it long-term or simply a new service that consumers have embraced quickly and will cool?

For this listener, the differences in DRM-free tracks, "regular" iTunes tracks, and CD tracks are indiscernible, so the advantages between $1.29 iTunes Plus tracks versus CDs are nil. It is my belief, and this is strictly from someone who cannot let go of physical albums, that the curiosity with DRM-tracks has led to slight CD sales drops for specific EMI albums but these will not be permanent. After all, this new service is just another in a long line of "new services" that has challenged CD sales, and the CD is still with us. No, it is not in the same position it may have been 10 to 12 years ago, but it refused to die, or rather we refuse to truly kill it.

I am of the opinion that digital sales will eventually destroy prominent CD sales, but as long as the audio CD is manufactured, someone will purchase it. Even so, the CD as a tool, not simply as a device to hold music, will survive. After all, it is not always advantageous or simple to play music in a car from an iPod or other mp3 device. The transmitters to transfer the iPod signal to car radios exist, but the CD player still often comes "standard" in so many cars (I have a base-model car and it came with a CD player, so I'm using that as my example).

Despite an announcement early last week that EMI Group PLC had entered negotiations with the European private equity firm Terra Firma about a buyout, reports now indicate the Warner Music Group (NYSE: WMG) and several other potential buyers intend to make bids for the British music company. According to Forbes.com, the offer from Terra Firma is five pence higher than the most recent bid from Warner, which was 260 pence in February. A year ago, Warner offered EMI a bid of 320 pence per share, which was rejected. Terra Firma is also still seeing competition from other private equity firms, like New York-based Cerberus Capital Management.

Reportedly the deal with Terra Firma is being considered heavily because it carries the least regulatory difficulties from the European Commission concerning the creation of a monopoly. Since 2000, the repeated negotiations between EMI and Warner have hit a roadblock because of those fears. Last week's announcement also carried the indication that the Terra Firma bid was more "attractive" in the eyes of the Commission. In addition to Warner's new bidding intentions, former EMI CEO Jim Fifield also made an announcement he intends to bid 278 pence a share for his former company, with backing from the Qatari royal family and Geneva-based private equity firm Corvus Capital, even though they announced no further interest last Wednesday.

EMI has been struggling all year, despite growth since their announcement to ditch Digital Rights Management technology, with lower profits than 2006. On Friday, the stock closed at 275.75 pence, up more since the Terra Firma announcement (but only 3 pence below Fifield's apparent bid). Today it has continued that rise, with figures as high as 277 reported. Warner Music has also enjoyed a slight growth since last week. The stock closed on Thursday at 16.38, and rose to 16.48 on Friday. If the company hopes to make a serious and challenging bid to counter the already agreed upon Terra Firma bid, Warner will have to up the ante significantly.

While pressuring the major labels to drop their use of DRM (digital rights management), Apple Inc. (NASDAQ: AAPL) head Steve Jobs took some time to comment on the rumors about the iTunes Store switching to a subscription-based service. His response was that customers do not seem interested in the subscription model, because they want to own the music they purchase (at least from iTunes). At the same time Jobs told Reuters not to rule out the prospect entirely.

This is certainly good news for Apple, especially considering in the wake of these comments the stocks closed higher than they had been all week last week. The prices closed at less than $94 on Monday, reaching as high as $99.95, before closing .03 lower on Friday. The jump between Jobs's comments on Thursday and Friday was 1.08 as well, but the biggest gain was between Wednesday's closing and Thursday's, with over $3 gained.

These numbers may not be as high as Apple or consumers would like, but they represent strong growth for the company, especially as the summer music season arrives next month and the coming launch of the iPhone in June. If that product and Apple TV are a success, and Jobs can continue to pressure labels to drop DRM, Apple may be in sight of a nice summer.

After reading through this rather technical breakdown on the subject of "digital rights management" that is part of (read: ingrained into) Microsoft Corporation's new Windows Vista operating system (NASDAQ:MSFT), one has to wonder if consumers are just totally losing control over the content they consume. There seems to be none of this "I buy it, therefore I do with it what I want" attitude when it comes to audio and video content producers -- they want (and need for some reason) to have absolute control over when, how and where consumers "consume" their content.

It's hard for me to believe that there is so much rampant content piracy among the minority that the content producers have to "lock down" just about everything to a single device or format. This erases just about any choice consumers should have about how they should be able to control the content. Yes, there may be differences in "owning" or "renting" content, but the mass majority of consumers have no clue about all this mess -- all they know is that they want to enjoy content on their devices and TVs and computers. Is the mass majority a threat to content producers? Not at all.

So, what is the deal here? Perhaps it's just protectionism by the content producers as they wield incredible influence over the hardware and software makers. And maybe, the hardware makers also don't want commoditization of their products at all (which is inevitable in many industries over time). Reading this, though, is not for the faint of heart.

[Disclosure: I own MSFT shares as of 1-26-07]

Wednesday will see the launch of MTV's Urge network and thus the official public debut of Windows Media Player 11, and both analyst and hobbyist early notices are positive. WMP 11 and the MTV collaboration are both very important for the future of Microsoft's media plans. Thus far, Media Player-based music sites have not gained serious traction against iTunes and the MTV brand, with a wide variety of music available at comparable prices, may help. More importantly, though, this is going to be a major test of how well Microsoft can collaborate with a content partner, and that's key to Redmond's media future.   

Dependable but not draconian digital rights management is the core issue for all content providers going forward and it will be the gating factor on how quickly distribution moves to the Internet. Both Microsoft and Apple have spent a lot of time courting and consulting content owners on this topic, both with some success. So far, however, Apple's tightly closed iPod ecosystem (and the elegant and simple software that allows) has given them a tremendous marketing advantage over Redmond. But in the long run, neither content owners nor the consumer electronics industry are terribly inclined toward closed hardware ecosystems. The next phase in DRM is creating true cross-platform, multi-device solutions, and this is where Microsoft has a significant advantage. 

Consumers want to be able to buy media once and then play it back on various devices -- they may decide to start watching a movie on the big screen at home and then finish it on the handheld on the way to work. Thus all of a user's media devices need to be able to recognize that the owner has the rights to view given content, even when both the content and the playback hardware may come from different vendors. That's an enormous technical challenge, but it's the sort of thing that Microsoft has done for years, while Apple has opted for very tight hardware control. 

While both the market and the digerati are focused on Redmond's competition with Google and the future of software as a service, it's worth keeping in mind that there's still a huge collection of digital devices coming down the pike that will use localized media playback software.  It's an enormous market up for grabs and one in which MSFT has only begun to compete. 

Photo Credit: AP/MTV