Pepsi to offer 1 billion DRM-free tracks via Amazon

Two music label titans, Sony and Warner Music Group, are increasingly being pressured to follow in the footsteps of their peers are remove the DRM restrictions on digital download versions of tracks in their vast catalogs. The pressure stems partially from the planned announcement of a free download promotion sponsored by Pepsi that will take place through Amazon's online music store. The download promotion will be included in 5 billion of Pepsi's soda bottle-caps, with customers needing to collect 5 caps in order to receive one free download. Pepsi ran a similar, but much smaller-scale promotion in conjunction with Apple's iTunes Music Store in 2004, offering 100 million free tracks, of which about 5 million were redeemed. Amazon's store is DRM-free.

According to PC Magazine Amazon will pay labels around 40 cents per track. "This compares with the 65-70 cents labels currently receive from Amazon for digital track sales and the 70 cents they get from Apple. [...]A mazon has captured about a 3 percent market share of the digital download channel, Billboard estimates. The store has a 6 percent market share of all CD sales."

In addition to the promotional opportunity that might be missed by not having a DRM-free catalog in time for the Amazon promotion, Warner and Sony will soon have to contend with Wal-Mart's pending decision to pull both companies' Windows Media Audio format-only catalogs sometime around the beginning of 2008. Wal-Mart carries only 2 percent market share in the digital download arena but sells about 22 percent of all physical CDs.

CD sales are down about 18.6 percent this year, while digital track sales have surged from 142.6 million tracks in 2004 to 735.4 million

The insistence by major music labels on digital rights management (DRM) for online stores is having a damaging ripple effect on retail music shops as well, says the head of Britain's Entertainment Retailers Association, Kim Bayley. The executive notes that while physical stores still see high profile releases and seasonal increases, the hesitation by buyers leery of either restricted direct downloads or higher-priced CDs is neutering the effect.