Analyst: DRM-free Music Good for iPod

by , 7:55 AM EST, February 7th, 2007

Steve Jobs's open letter against DRM blames the recording labels for the copy protection embedded in digital music tracks. Should the labels ever agree to distribute online music without copy protection, that would translate into a win for the iPod, according to Piper Jaffray analyst Gene Munster.

The open letter from the Apple CEO was posted on the company Web site on Tuesday, and is generally assumed to be a response to demands from European countries to open the copy protection used at the iTunes Store so that other companies can sell iPod-compatible music downloads and iTunes-compatible players. Apple claims it can't open or license its FairPlay technology without risking violating contracts with the recording labels, and would prefer to remove DRM altogether - something the labels aren't likely to agree with.

"In posting this letter Jobs is making a statement that Apple does not advocate DRM - it is the music companies that require its use," said Mr. Munster. "Therefore, Jobs absolves Apple of the criticism of a 'closed' system and redirects it toward the music labels."

If the music labels agreed to sell songs without built-in digital rights management technology, the big winner would be Apple.The iPod+iTunes combination already controls over 70 percent of the market, and that number would likely climb if the player wasn't limited by incompatible copy protection schemes.

Mr. Munster commented "Consumers choose a device first and a music service second. Apple is confident, justifiably given the iPod's leading market share, that increasing usage of online music services based on an open platform will sell more devices and most of those devices will be iPods."

Even if consumers purchase an iPod, but use download services other than iTunes, Apple still comes out ahead. The increase in iPod sales will more than offset the loss of customers to competing music services.

Mr. Munster is maintaining his "Outperform" rating and target price of US$124 for Apple's stock. Apple is currently trading in the pre-market at $84.47, up 0.32 (0.38%).

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