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Major Record Labels Adopt ACS

The online community is buzzing today over the announcement that Universal Music plans to "give away" music online through a new service called SpiralFrog (which is also negotiating with other major labels including EMI).  The approach is not particularly innovative – the service will be ad-supported, something people like Terry McBride from Nettwerk has been advocating for months and other sectors (television, radio, online gaming, newspapers) have been offering for some time.  Moreover, the service is likely to face some challenges – by relying on DRM that is not compatible with the iPod, it is leaving out a large part of the market. 

That said, there are at least two bigger points worth making.

First, despite repeated denials from the industry that it would ever be willing to entertain alternative compensation systems for music, that is precisely what they are doing here.  While this is ad-supported rather than levy-supported, the end-result is the same – consumers get music that feels "free" yet is paid for through mechanisms that do not involve traditional sales or fee-based downloads (how artists are paid through the ad-model remains to be seen).  By supporting the notion that music can be made available to consumers for "free", the industry will help drive down pricing on music and eventually seek a compensation system for P2P.

Second, note that Universal plans to make this service available in both the United States and Canada.  This further affirms the view that anti-circumvention legislation is a non-factor when it comes to encouraging online innovation (though it can serve as a barrier).  Businesses will respond to the market and government should stay out by not incentivizing the use of DRM.  The industry may repeatedly claim that it needs DRM protection to enter the marketplace, yet its actions regularly prove otherwise.

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