UK-based digital download store 7digital.com revealed yesterday that Sony BMG, a division of Sony Corporation (NYSE: SNE), had joined the other major music labels to offer high-quality MP3 files without anti-piracy technology from the store. The new deal brings 250,000 tracks to the format, making 7digital the largest digital rights management (anti-piracy technology)-free store in the UK with 4 million tracks offered. 7digital also launched new sites in other regions of Europe, and announced plans to launch a store in North America by the end of the year. CEO Ben Drury told Billboard that the U.S. store will be managed from an office in San Francisco.

Opening a store like 7digital, where music fans can purchase high-quality MP3 tracks from all the major labels would be a strong challenge to the dominance of Apple Inc. (NASDAQ: AAPL)'s iTunes Store in the United States. Drury told Billboard as well that consumers are more likely to buy MP3 formatted albums over the DRM albums generally offered in stores like iTunes and that the average "transaction" on 7digital' site is around $8. The CEO also welcomes the pending launch of a MP3 store by Amazon.com Inc. (NASDAQ: AMZN) in the United Kingdom, since it will promote and provide more choice to consumers looking at formats without DRM and stores without subscriptions.

High quality DRM-free MP3 files work on across all platforms and devices, meaning that consumers that do not own Apple's iPod can buy tracks for other devices. Overall a U.S. 7digital store would be a true competitor for iTunes and could boost the music labels if prices drop and more digital tracks are bought as the CD slowly declines.

Apple, Inc. (NASDAQ: AAPL), the world's most iconic brand that just can't do wrong at the moment, opened its largest retail store recently in Boston. What's amazing is that it was conceived eight years ago, before the iPod even existed and before Apple made its march back into the limelight as the premier maker of portable consumer electronics.

The store, originally planned to be a single story, now has a three-story layout, with the first floor displaying the Mac laptops and desktops which are the company's bread and butter. Make no mistake: the iPod's halo effect that so many journalists have written about for years now is causing Mac sales to soar.

Add the iPhone into the mix and Mac sales are being pumped up even more. Just what Apple CEO Steve Jobs wanted, and it's happening. The new Boston location, arguably Apple's flagship retail store, can accommodate up to 1,000 customers per day. It's a green store too, with vegetation growing on the roof and a rainwater recycling system to boot. Yes, Apple's New York City store might be more architecturally innovative, but it doesn't have the size of the new Boston location. And, Apple won't have a problem keeping the new location filled with eager customers.

Wal-Mart Stores, Inc. (NYSE: WMT) recently lost its crown as the top seller of music to Apple, Inc.'s (NASDAQ: AAPL) iTunes digital music store. But now Wal-Mart is fighting back.

America's largest retailer is abandoning "digital rights management" (DRM) on its digitally-downloaded music files. That means that any device capable of playing an MP3 file (the universal, non-protected digital music file format) can now play music purchased digitally from Wal-Mart.

As urged by Apple CEO Steve Jobs in 2007, music industry heavyweights are finally starting to drop the insistence on protecting digital music files. Wal-Mart's change of stance here should go a long way in swaying other large online digital music stores from dropping cumbersome and intrusive DRM from online music offerings. And there's another huge reason Wal-Mart is changing its mind, most likely: its entire music collection -- if switched to the MP3 format -- now becomes playable on all of Apple's iPods (and the iPhone).

If Wal-Mart wants to remain relevant in the digital download world, this is the way to do it. It's incredible to think that Apple's digital-only music sales surpassed Wal-Mart's physical CD and digital download sales, but it did. And it's a testament to how customers want their music delivered these days. The $15 CD? It's already toast, although there are still hundreds of millions purchased, even in 2007. Digital music files are taking over and killing the CD business slowly but surely. Although Wal-Mart's entire online music collection offering is not yet available in MP3 format, it has made the first step in that direction. And that first step is a doozy.

The days of music distribution have changed. They're not changing, they've already changed. Nothing indicates this more easily than a leaked report from research brain trust NPD Group that indicates Apple, Inc. (NASDAQ: AAPL) has surpassed longtime #1 music retailer Wal-Mart Stores, Inc. (NYSE: WMT) as the world's largest music seller.

Here's the kicker -- Apple does not sell a single physical piece of music. It's all digital. The company's iTunes digital music store sells music, videos, television shows and movies to all those bazillions of iPod users around the world. Now, it just took out the world's largest retailer in terms of selling the most music. This even though Wal-Mart sells more CDs than anyone in addition to its very sizable music download service as well.

Apple passed Best Buy Inc. (NYSE: BBY) as the second-largest music retailer just recently, and now it's on top. All by using the mighty download as its vehicle of choice to get content to its customers. Is the music industry a different world than it was just five years ago? I'd say more like a different universe. Movies and television shows -- you could be next. In fact, the transition may already be far, far underway.

British-based Play.com, a privately-based retailer, has launched a new download store in direct competition with Apple Inc.'s (NASDAQ: AAPL) iTunes Store in the United Kingdom. PlayDigitial will offer tracks without digital rights management (DRM) technology from privately-held EMI Group and independent labels, in a move that looks similar to iTunes current offering of DRM-free tracks at lower prices. The store will still offer DRM tracks at higher prices than the DRM-free tracks and is in talks with other labels to bring more DRM-free tracks into the store.

Play.com's new store comes in advance of Amazon.com Inc.'s (NASDAQ: AMZN) sister store in the UK, Amazon.co.uk, opening a similar store with DRM-free tracks. The U.S. store recently opened its own MP3 store in full with DRM-free tracks from all the major labels, not simply limited to one major and independents. According to Billboard, the UK version of iTunes controls 70% of the market there and the store is also being forced to bring prices down to common prices with other European nations. PlayDigital and the eventual Amazon download store in the UK will work against that control and price drops.

It seems odd that the "fight" against digital rights management continues, considering that it has essentially been over in the United States since last month when Amazon's MP3 store gained access to tracks from all the major labels without the technology. Obviously different laws exist for agreements with companies in different countries, but until DRM is dropped completely, moves like this are going to continue to occur. Unfortunately for Apple and the iTunes Store, the drive against DRM technology that was started about a year ago is no longer under the company's control, with stores like Play.com and Amazon.com taking the lead and gaining better deals with the music labels.

Yahoo Inc. (NASDAQ: YHOO) may be interested in offering a music download service that is free of digital rights management (DRM), similar to Apple Inc. (NASDAQ: AAPL)'s iTunes plus and Amazon.com (NASDAQ: AMZN)'s music download service. It's safe to say that the end is coming near for proprietary, restricted, protected music downloads that are incompatible between different types of music players and music download services.

The only problem is that Yahoo! did not started the initiative earlier and has left the competition to take the initial market share pie of music download lovers who want music free of use restriction. It's not that Yahoo! made a bad choice here; it's jumped on the bandwagon with every other music download provider. It's just that it may be too late for it to take any significant market share, unless it offers something compelling the competitors don't.

Yahoo! has apparently been talking to large music labels such as Universal Music Group, Sony BMG Music Entertainment, Warner Music Group Corp. and EMI Group to allow music from all those global catalogs to be available on the new service (rumored to be out sometime this year).

In terms of strategy, this makes sense for Yahoo! The company, which has failed with many of its paid subscription offerings in recent years, will most likely supply advertising in some form with this new service to grab the revenue it hasn't been able to make headily with its monthly paid music subscription model. Just don't look for unprotected MP3s to become a core component of Yahoo!'s revenue any time soon.

A commercial on this year's Super Bowl will promote free music downloads from Amazon (NASDAQ: AMZN)'s new MP3 store. The company has lined up the four largest record labels to offer music without digital rights management. Apple (NASDAQ: AAPL) only has a similar relationship with one -- EMI.

According to The New York Times, "Consumers who buy Pepsi drinks will receive points that can be redeemed for music downloads at a special section of the Amazon site. Amazon and Pepsi, a brand of PepsiCo (NYSE: PEP), will give away up to a billion songs."

The deal may be born from the music industry's hatred of Apple as much as from any love for Amazon. Industry estimates indicate that over 70% of all song downloads come from iTunes. That puts Apple in a position to dictate pricing and revenue sharing to the major music labels. With CD and physical album sales falling, that leaves music publishers in a bad position.

The dark side of the alliance with Amazon is that it has to work well. If music companies fail in their attempt to get around Apple, they may have to come crawling back to be "friends" with Apple again. That set of meetings may not go well.

Douglas A. McIntyre is an editor at 247wallst.com.

Amazon.com (NASDAQ: AMZN) and Sony BMG, a joint venture of Sony Corp. (NYSE: SNE) and Germany's Bertelsmann Media Group, announced yesterday that Amazon's new MP3 store will soon carry the label's entire catalog. This move makes Amazon.com's MP3 store the only digital store to offer consumer's Digital Rights Management-free MP3 tracks from all four major labels, with Sony BMG joining privately-held EMI Group, Warner Music Group (NYSE: WMG), and Vivendi (OTC: VIVEF)'s Universal Music Group.

Previously, Sony had announced a new promotion of album cards, which would allow listeners to download DRM-free MP3s, but it was limited to only about three dozen albums. The new agreement brings the entire catalog to Amazon.

The major point here is that Amazon's store now offers tracks that are playable on virtually any platform or device, from Microsoft (NASDAQ: MSFT)'s Zune and Apple (NASDAQ: AAPL)'s iPod to various off-brand players. In a press release given to Ellen Livshin of OutCast Communications, Amazon.com Vice President for Digital Music Bill Carr revealed this very fact: "Our Amazon MP3 customers will be able to choose from a full selection of DRM-free music downloads from all four major labels and over 33,000 independents that they can play on virtually any music-capable device." U.S. Sales head for Sony Thomas Hesse echoed these sentiments and added that the label is "excited to be working with Amazon as they continue to build new markets for digital music."

I've remarked before that the Amazon.com MP3 store would increase competition and drive the digital market forward, and with this announcement it seems that many predictions about the online music realm are being realized, albeit much earlier than expected. Many had pointed to mid-year as the time when DRM technology would disappear completely, but as we can now see, that timeline will be January, at least for one store.

The move is also a potentially devastating blow to Apple's iTunes Store, which had headed up the move away from DRM but has not great success, managing to score only the EMI catalog early last summer. Whatever the case may be, the Amazon.com move will increase the competition and hopefully begin the revitalization process the music industry needs. All they have to do is promote it and get consumers interested.

With the monumental changes the music industry experienced in 2007, this year has large shoes to fill in order to see if the developments will continue or stall. One of the biggest developments that will likely continue to change is the place of anti-piracy technology, namely the use of Digital Rights Management software (DRM). It's been quite a while since EMI Group plc (ADR) (OTC: EMIPY) decided to halt its use of the technology (last April) and since then the other majors have been slow to adopt similar stances, while EMI has changed hands (literally) becoming a part of European-based private equity firm Terra Firma.

Sony BMG, a merger between Sony Corp. (NYSE: SNE) and Germany based BMG, have recently debuted "MP3 cards" which will enable consumers to buy DRM-free albums from stores versus buying the tracks strictly from an online store. The program is intended to "bring digital stores into the physical retail space" with Sony BMG using the website MusicPass.com to allow buyers to retrieve albums. In essence, Sony hopes that the program will expand both the digital and physical markets. Apple (NASDAQ: AAPL)'s iTunes Store debuted a similar program with Starbucks (NASDAQ: SBUX) last autumn, but the new program will see a larger market due to the retail stores chosen to stock the cards.

Finally, the other major development is the band's Radiohead online-only decision to initially release an album without label involvement. Although this kind of move will likely not be repeated across the board, some bands have mentioned intentions to follow the direction and offer new music in a similar method. The problem with this method is that Radiohead is a firmly established act with a large fan base. New acts and smaller groups will still need to rely on the music industry to further their names unfortunately. It is unlikely that this method will ever be viable for a band unless they are firmly established and can foot the bill without label money. Of course, Radiohead itself has labeled the release an "official" leak, which means that it conforms to similar patterns that album releases face, albeit one from the band itself and not fans getting material out illegally before the CD is released.

It seems that the future of the music industry will rely on these kinds of developments, even if they are not successful. The benefit they bring to the industry is a new level of excitement and interest peaked in changing business practices and models.

Napster (NASDAQ: NAPS) -- the mother of all file-sharing services that in 10 years' time has found itself one among many digital-music services struggling for its very survival -- is hoping its new move will attract more users. Today, Napster CEO Chris Gorog said the company is shifting to MP3 downloads free of digital-rights-management software [subscription required], or DRM.

The move is expected to occur sometime in the second quarter, but Napster has yet to finalize the arrangements with some of the four major music companies - Sony Corp. (NYSE: SNE), Warner Music Group, EMI Group and Vivendi SA's Universal Music Group. The final three on this list recently began selling MP3s on the download service available through Amazon.com (NASDAQ: AMZN). Sony has yet to report plans to sell its tracks as MP3s, but is reportedly expected to come forward soon.

BusinessWeek reported Friday that Sony BMG, a joint venture of Sony (NYSE: SNE) and Germany's Bertlesmann Media Group, is finalizing moves to offer music downloads free from Digital Rights Management. Sony's move follows recent comparable efforts by the other three major labels, Warner Music Group (NYSE: WMG), Vivendi (OTC: VIVEF)'s Universal and privately-held EMI.

DRM protections -- largely a downloading standard since the network-crippling heyday of peer-sharing site Napster -- do more than just thwart duplication and discourage piracy. Apple (NASDAQ: AAPL)'s iTunes site uses the protections to lock users into using purchased tracks that work only through its free namesake application and on Apple's iPods and iPhones.

Today Amazon.com, Inc. (NASDAQ: AMZN) announced an agreement with Warner Music Group Corp. (NYSE: WMG) to distribute music through the Amazon.com digital music store. The key feature to these downloads will be the absence of digital rights management (DRM), meaning that customers who download these songs will not be restricted in their use. They will be able to play them with any music player or computer, unlike Apple, Inc. (NASDAQ: AAPL)'s limited format.

Now, more than 2.9 million titles will be available at Amazon, including those by many well-known artists. Warner Music is added to the line-up, which already included Universal Music Group, EMI Group plc (ADR) (OTC: EMIPY), and thousands of independent labels.

Songs on Amazon cost $0.89 to $0.99, with full albums priced at $5.99 to $9.99. These prices are somewhat comparable to Apple's iTunes, whose individual songs sell for $0.99, with album prices varying.

While some consumers and analysts feel that DRM is necessary to protect the financial interests of the artists and record companies, others think that the lack of DRM will actually benefit them more in the long run. By making the music more accessible and transferable, some people think that consumers will be more likely to buy more music. (I agree!)

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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.

A Reuters article this morning reports that British-based music company EMI "wants to cut its funding to the industry's trade bodies... which could deal a blow to the fight against music piracy." Trade groups are the entities that "represent music companies and the fight against illegal piracy." Between the four major label groups: EMI, Warner Music Group Corp. (NYSE: WMG), Universal Music Group, and Sony BMG; the International Federation of the Phonographic Industry told Reuters that over $130 million each year goes to funding companies like it and the Recording Industry Association of America.

Groups like the RIAA have an important mission of course, and this plan would severely limit the fight against piracy, but one music industry giant dropping out certainly would not add too much of a burden. We should not be surprised that EMI is the company to come out with this plan, even before Terra Firma took over in September the music giant had dropped the digital protection against piracy (Digital Rights Management technology) encoded into its media files.

File sharing and piracy costs the recording industry loads of money every year (Reuters estimates that value in the billions) but it seems clear that the music industry cannot fight piracy while undergoing a major shift away from the "traditional" markets it has utilized for over 50 years. CD sales are plummeting while digital sales steadily grow. One label may not be able to change how piracy is tackled, but the current DRM-free approach coupled with new resources to market those products might make a difference. What difference, if any, is still to be seen. Just apply the Radiohead approach to everything and let consumers name the price of music. Many surely have some conscience...

A new report indicates that worldwide music sales will drop some $5 billion by 2011. The 18-page discussion of music sales also indicates that the drop from $31.8 billion last year to $26.2 billion four years from now will also play out in U.S. sales, with a $2 billion drop occurring. The loss is attributable to "plummeting CD sales" and "faster-than-expected declines in sales of physical recordings in key markets."

In reality though, such a loss should not be unexpected. Digital sales are simply less expensive than physical sales and as a result of other high commodities more accessible. Digital growth has taken off this year, following EMI's drop in use of Digital Rights Management technology, which prohibits the piracy of downloaded media files. Of course, the big news and more long-lasting growth was Radiohead's decision to initially release their new album online, DRM-free, and giving fans the option to pay what they want.

The true discussion should be, and in some sectors is, the value of music. Some say Radiohead has lowered that value, while others argue that music is a freedom all consumers should not have to pay extravagantly for. But if, in four years, this report becomes a reality, rather than a prediction, we should be ready to blame the record industry for failing to adapt to the changing market as swiftly as it should have. Consumers deserve the "pay as they want" scheme because it adds a level of excitement (and concern) to the industry that was not there two months ago.