DRM-free music unlikely

The likelihood of the big four music labels licensing their music catalogs to online stores such as Apple's iTunes store without digital rights management (DRM) protection as requested by Apple CEO Steve Jobs in an open letter yesterday is less than 25 percent, according to Piper Jaffray senior analyst Gene Munster. While such a change is unlikely, the analyst believes Apple would benefit due to increased iPod sales -- given that the iPod dominates the digital media player market. "If this unlikely scenario played out and music labels agreed to sell music DRM free online, we believe it would be positive for Apple and its market-leading iPod+iTunes ecosystem," Munster wrote in a research note obtained by MacNN. Piper Jaffray maintains its 'outperform' rating on Apple shares with a $124 price target.

"Consumers choose a device first and a music service second. Apple is confident, justifiably given the iPod's leading market share (70 percent 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."

The research firm speculates that even if consumers chose a service other than the iTunes store to download music, the changes would prove inconsequential to Apple if iPod sales also increased.

"iPods are significantly more profitable to Apple than iTunes; iPod (35 percent of sales) gross margins are in the 30 percent range while iTunes (5 percent of sales) gross margins are in the 5-10 percent range."

by MacNN Staff