Apple announced on Monday at the MacWorld conference in San Francisco that it has abandoned DRM for all music on iTunes, now including music from the three largest music companies — Universal Music Group, Warner Music Group, and Sony Music Entertainment.  It also announced support for over-the-air downloads to iPhones through AT&T and other carriers that support iPhones.

This deal is, at heart, a quid pro quo with the three majors that had
been holdouts on DRM: they agreed to let Apple drop DRM in return for variable pricing of single tracks and albums.  As a result, music tracks on iTunes now resemble those on Amazon: they are DRM-free and priced variably on both sites. 

The three majors’ insistence on DRM was arguably the only significant piece of leverage that the majors had left against Apple; it’s now gone. Apparently it was worth giving up in order to get variable pricing, which the majors have wanted badly for years.  Apple, in turn, must have realized that its arguments against variable pricing — mainly that it would confuse consumers — may have rung true in 2003-4 but now ring hollow.

Although the hoopla over this announcement has focused primarily on the lifting of DRM, we believe that the aspect that Apple will deliver DRM-free tracks over wireless carriers to iPhones is at least as important to the future trajectory of DRM.  At least some of the major music companies had been hoping to hang on to DRM in the mobile space even as they gave it up for Internet downloads.  This “mobile DRM firewall” was already porous, given that many music phones have USB cables that users can use to transfer DRM-free music from PCs to them.  But Apple’s announcement punches a big hole in the mobile DRM firewall for music. 

DRM for permanent music downloads is now gone.  For the near future, DRM for music will now be confined to paid subscription services like Rhapsody, Napster, and MusicStation; and it will support other new business models, such as those of Nokia’s Comes With Music.  But apart from that, it’s over.