Apple Stokes a Digital Music Standards War

Apple's recent deal with EMI to sell DRM-free songs from the publisher's catalog on iTunes may clinch the iPod's AAC format as the industry standard

by Arik Hesseldahl

A few months ago I was at a big family dinner at Capsouto Frères, a fancy French bistro in Tribeca. One of the partygoers runs a small computer and electronics shop and considers himself an authority on computers and consumer electronics. His opinions on Apple (AAPL) and its products bug me (to put it simply).

I held my tongue as he chattered on about all the supposedly fascinating things he was doing with his Microsoft (MSFT) Windows machines. We barely know each other, and he had no idea what I write about for a living. But when the subject turned to the iPod, he gave me an opening I couldn't resist. "Oh those iPods," he said dismissively. "People are always bringing them into the shop with complaints, and they don't even play standard MP3 songs like all the others."

"Absolutely not true," I said, breaking my silence. "I don't know where you got that idea, but it's patently false."

A Popular Misconception

His convoluted explanation, as best I could understand it, was that he thought iPods played some "Apple-only" format, which he called ACC (it's actually AAC, as in Advanced Audio Coding, and it isn't "Apple-only"). I explained that the iPod plays every major digital audio format save two, Windows Media Audio (WMA) and Ogg Vorbis.

He had somehow gotten it into his head that all online music stores, save iTunes, sell MP3s on which there are no copy restrictions. Noting that he was vastly misinformed, I told him that in in fact no online music store sells unprotected MP3s—the exception being eMusic.com—while Napster (NAPS) and Yahoo! Music (YHOO), for instance, sell heavily protected WMA files, which are compatible with a wide range of portable players, but not the iPod. Where he got his set of ideas, I don't know.

I was reminded of our conversation earlier this week when Apple (AAPL) announced a deal with British recording label EMI Group (EMIPY) to sell music on iTunes that has been shorn of its digital rights management (DRM) copyright protections (see BusinessWeek.com, 4/3/07, "Will the Apple-EMI Deal End DRM?"). And guess what? The newly unprotected catalog of EMI songs (sans the Beatles, for now), which will sell for $1.29 a track, will be encoded as 256-kilobit AAC files.

Loosening the DRM Stranglehold

The accord marks a fundamental change in the digital music landscape, a feat Apple is pulling off with increasing regularity of late. If I were an employee of Microsoft and involved with its confusing digital-music efforts, built around its highly DRM-protected WMA format, I'd be sweating right now.

But one of the truly remarkable aspects of the pact is how Apple is pulling it off. Having floated the rhetorical trial balloon for selling unprotected music files via iTunes in his landmark essay "Thoughts on Music," Apple Chief Executive Steve Jobs in hindsight appears to have been deliberately ambiguous about the file format he preferred. It's now clear why. He didn't mean selling unprotected MP3s, but unprotected AAC songs. The decision will have important long-term effects, especially as more labels follow EMI's lead.

Using AAC is brilliant for several reasons. First, for Apple, whose stated market aim is to do everything in its power to sell more of its highly profitable iPods (and beginning in June, presumably profitable iPhones), the choice of AAC means more non-Apple devices will be able to play songs purchased on iTunes.

Before the EMI deal announcement, the AAC-formatted songs sold on iTunes were encoded in Apple's DRM technology called FairPlay (see BusinessWeek.com, 10/25/06, "Apple, Tear Down This Wall"). When FairPlay is no longer an obstacle, other players that support AAC can give their owners a ticket to the iTunes party.