Rohan Kohli
02/28/07, 10:19 AM
Below is an article from Coolfer (http://www.coolfer.com) regarding the recent happenings in the EMI/no-DRM situation.
Making the rounds right now is a story that EMI asked online retailers to make cash advances (http://www.internetfinancialnews.com/financialblogtalk/news/ifn-6-20070226EMIUpdateDRMFreeTalksHalted .html) in exchange for the right to sell its catalog in the open MP3 format.
What strikes me about this move is the lack of takers. Look at the factors that are believed by many to be truths. Here are three things about MP3 that are held by many to be true: First, people will pay more for MP3s. Second, labels will sell more music if they ditch DRM. Third, DRM does not stop piracy and should be removed.
EMI needed an insurance policy. It wanted retailers to share in the risk. The cash advances were its insurance policy. If the three items above hold true, logic dictates that EMI's insurance policy will never be exercised. Piracy will not increase -- but sales will increase. If the three items above hold true, digital music sellers will make more money. Increased sales of more expensive files is a double-shot to the top line. If the three items above hold true, there is all reward and no risk.
So EMI asked companies to put their money where their mouths are. If there's no risk, EMI's offer implied to retailers, then share in the reward.
Turns out there were no takers of EMI's offer. Turns out there are gaps between EMI's estimate of risk and retailers estimate of the reward.
I understand EMI's point of view. Retailers are asking EMI to bear all the risk and assume none of it themselves. EMI's proposal was to shift some risk to its retail partners. Maybe its requested advance was just too high. Maybe they set it too high to see what counteroffers they would get. One thing I can ascertain from this is that retailers were not turned off by simply the idea of paying an advance.
Making the rounds right now is a story that EMI asked online retailers to make cash advances (http://www.internetfinancialnews.com/financialblogtalk/news/ifn-6-20070226EMIUpdateDRMFreeTalksHalted .html) in exchange for the right to sell its catalog in the open MP3 format.
What strikes me about this move is the lack of takers. Look at the factors that are believed by many to be truths. Here are three things about MP3 that are held by many to be true: First, people will pay more for MP3s. Second, labels will sell more music if they ditch DRM. Third, DRM does not stop piracy and should be removed.
EMI needed an insurance policy. It wanted retailers to share in the risk. The cash advances were its insurance policy. If the three items above hold true, logic dictates that EMI's insurance policy will never be exercised. Piracy will not increase -- but sales will increase. If the three items above hold true, digital music sellers will make more money. Increased sales of more expensive files is a double-shot to the top line. If the three items above hold true, there is all reward and no risk.
So EMI asked companies to put their money where their mouths are. If there's no risk, EMI's offer implied to retailers, then share in the reward.
Turns out there were no takers of EMI's offer. Turns out there are gaps between EMI's estimate of risk and retailers estimate of the reward.
I understand EMI's point of view. Retailers are asking EMI to bear all the risk and assume none of it themselves. EMI's proposal was to shift some risk to its retail partners. Maybe its requested advance was just too high. Maybe they set it too high to see what counteroffers they would get. One thing I can ascertain from this is that retailers were not turned off by simply the idea of paying an advance.