MARGARET WARNER: In a move that could reshape the online music business, Apple said yesterday it will drop anti-copying protections on all songs sold through its popular iTunes store. Apple also said its songs will be offered at three different prices rather than today’s flat 99-cent rate.
ITunes is now the nation’s number-one music retailer. And digital music sales rose nationwide last year to more than 1 billion songs, while CD sales fell.
To explain Apple’s move and what it may mean, we turn to Connie Guglielmo, a technology reporter with Bloomberg News.
And, Connie, thanks for being with us. First, give us a sense of the scope of this. How many people are affected?
CONNIE GUGLIELMO, Bloomberg News: Well, in the United States, at the end of 2007, about a third of U.S. adults had an iPod, an Apple iPod media player, or some other media player. That’s up from 20 percent the year before.
In the past year, Apple has introduced new players. They’re the most popular maker of iPod players in the U.S., and so that number has risen.
Apple drops copy protection
MARGARET WARNER: So what will these two changes announced by Apple -- let's take the first one, having to do with how you can use the music you buy -- what will it mean for all those consumers who are buying their music online now rather than on CD?
CONNIE GUGLIELMO: The biggest change was that Apple decided to drop its copy protection. Of course, this was allowed to them by the music companies which set the terms of the licenses for music.
But what it means is that, without copy protection, a user who buys a song can now make copies of it, can move it around among different devices and equipment, PCs, cell phones, even different media players.
Before, you were tied to the iPod. If you bought music from Apple's iTunes store, it pretty much had to run on the iPod player. So it's giving consumers a lot more flexibility in what they can do with their music.
MARGARET WARNER: So what's to prevent a consumer now who buys something from iTunes from sharing it for free with his or her friends?
CONNIE GUGLIELMO: Well, there's actually nothing preventing them from doing it, just like there was nothing preventing someone who owned a record player with a vinyl from making tapes of those music and passing that among friends.
What Apple and the music labels are trying to do is make it more convenient, easier, even less expensive to buy your music so the incentive to want to illegally copy a song goes down.
You mentioned the price change: 69 cents, that's the price point that they're hoping that most of their songs will sell at. And they're hoping that that will convince people that it's just not worth making illegal copies.
Price changes in both directions
MARGARET WARNER: But, meanwhile, as a result of the price change, the hotter songs, the more popular ones will actually cost more than they do now.
CONNIE GUGLIELMO: They will. The record companies want the flexibility to set prices. Say, for new releases or a hot new song from the latest artist, those might sell at the higher price of $1.29, but perhaps just for a limited time.
Again, the music companies want you to buy your music digitally. They don't have to produce CDs. They don't have to make packages. They don't have to ship them to the stores. So they're going to do things that will try to convince you that it's better to buy your music online.
Perhaps you'll get more tracks if you buy an album digitally versus going to the store and picking up a CD. Maybe they'll offer you an interview with the artist who made that song if you buy the song in a digital file. And, of course, they'll play around with the pricing. It might start out at $1.29. And then they might drop it to 99 cents or even 69 cents.
Music companies wanted price change
MARGARET WARNER: So is it fair to say, from now the business perspective, that this announcement yesterday represented a compromise, a deal between Apple and the big music companies, that is, each team got something it's wanted for a long time, but had to give up something?
CONNIE GUGLIELMO: That's fair to say. According to the analysts that we talked to, Apple wanted to offer their music at a set price, 99 cents a song. They wanted to make it easy and simple for the consumers to buy. The music labels wanted to offer that variable pricing. They wanted to decide what their music should sell for.
Now Apple is in a more competitive world than when they started selling music. Amazon.com sells music online. MySpace is offering music online. They offer that music without copy protection. Apple wanted to be able to do that, so people we talk to say it was a trade-off. Both sides got what they wanted.
Majority still buy CDs
MARGARET WARNER: Now, despite all the ballyhoo over this, is it still fair to say that a majority of people buy their music the old-fashioned way or somewhat old-fashioned way on CD?
CONNIE GUGLIELMO: Yes, that's true. Last year, about 65 million albums were sold digitally versus more than a total of 400 million albums that were sold. So it is a small percentage, but that's where all the growth is.
And the reason, again, that the copy protection removal was important is, if you think about what's happened in the video world, we've had all these different formats: Beta, VHS, DVD. Every time those formats or standards come out, you have to buy a new piece of equipment to run it.
Well, what Apple has done by removing the copy protection -- and, again, Apple is the most popular seller of online music -- is, in short, that your music can move around among devices and hopefully will work on whatever someone comes out in the future, whether it's a new iPod or some other amazing player.
MARGARET WARNER: So, briefly, you do think this foreshadows the day when a majority of the music we listen to we will have acquired digitally?
CONNIE GUGLIELMO: I think that there is a definitely a trend that more people are buying music online, but I don't think those other formats will go away. I think there still will be DVD sales. There are still vinyl sales of albums.
But, again, it's a matter of convenience, price. If you see -- if you're listening to the radio and you hear a song, and you suddenly decide, "Wow, I would love to buy that song," I can do it in 10 seconds on my computer.
So it's all about, again, convenience and price to consumers. And if the record companies and people like Apple can make it easy and simple for you, we're going to see that trajectory continue to rise.
MARGARET WARNER: Well, Connie Guglielmo of Bloomberg News, thank you.