Pepsi did a big promotion with Apple a few years back to give away iTunes songs, and the latest news is that Pepsi has crossed over to the other side and will be doing a similar promotion with Amazon.com offering free DRM-free downloads from all the big labels… except Universal Music. This story actually demonstrates two important points. First, the fact that the labels themselves apparently are pushing this as an alternative to doing the iTunes promotion, shows how some of the bizarre industry logic has twisted things around. The major labels were originally the ones who were totally adamant that iTunes needed to carry DRM, which actually is part of what made Apple so powerful in the first place — creating tons of lock-in among customers who wouldn’t switch to another provider. However, that is coming back to haunt Apple, as the labels are more reluctant to allow it to also offer DRM-free tracks. No doubt, Steve Jobs recognized this fact a year ago when he called for the labels to drop DRM.
A second, perhaps more important point, is that this once again shows that there clearly are business models surrounding “free” music. One of the points that we’ve tried to make when people claim that there’s simply no incentive for anyone to create music if the customer is getting it free is that there’s always going to be incentive for someone to pay for the music in some form or another. In this case, it’s Amazon and Pepsi who are paying for the music itself ($0.40/track) recognizing that giving away that music for free helps both of them promote their own businesses. In other words, the music is acting as a resource to make their own business models more valuable. I think I’ve heard that idea mentioned before somewhere. Of course, that doesn’t mean the record labels have figured this out. And, it’s especially not surprising that Doug Morris has refused to let Universal Music go along with this, as he’s already made clear that he doesn’t believe in the concept of promotional goods, no matter how much damage it might actually be doing to musicians under the Universal Music umbrella.
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