February 8, 2007 5:18 pm

Digital music rights furore deepens

Edgar Bronfman, Warner Music’s chief executive, on Thursday slapped down Steve Jobs’s suggestion that record companies do away with copyright protections for digital music in order to spur the market’s growth.

Mr Bronfman, speaking to investors as Warner announced its earnings, called Mr Jobs’s argument “completely without logic or merit” and said his company was committed to the continued use of copyright protections, known as digital rights management, in the same way that software makers and film studios safeguard their intellectual property.

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Mr Bronfman is the first head of one of the major record companies to publicly reject the Apple chief executive’s suggestion, which was published as an open letter on Tuesday. Several, however, have privately fumed about the idea, calling it disingenuous.

The goal of making it easier to play music on different devices, they said, could be easily achieved if Apple would licence its own DRM software, known as FairPlay, to competitors – something that European regulators are pressing it to do.

As the dispute dragged on, Warner’s earnings reflected the shaky state of a music industry struggling to offset a continued erosion in the CD business with new digital sales. For the quarter, Warner’s revenue fell 11 per cent from $1.04bn to $928m while its net income slid 74 per cent to $18. At midday, its shares had dropped more than 5 per cent to $20.31.

While digital revenues increased 45 per cent to $100m from the same quarter a year ago, they dipped $4m from the previous quarter, underscoring some analysts’ concerns that the furious growth in digital music sales was beginning to moderate.

Mr Bronfman acknowledged that it had been “a difficult quarter.” Yet he laid most of the blame on the company’s release schedule, which included big acts such as Madonna and Greenday during the same period last year.

Michael Fleisher, Warner’s chief financial officer, said the changes in the digital business reflected its maturation. “As digital becomes a more meaningful part of our total revenue, it’s going to fluctuate,” he said.

Warner’s performance could play into its bargaining position with Apple as it and other record companies prepare to renegotiate contracts with iTunes that expire in a few months.

The record companies are frustrated that Apple reaps most of the benefits of online music through sales of its iPod while the music they supply is often pirated or discounted. Yet they have been forced so far to accept Mr Jobs’ conditions because Apple dominates the online market at a time when they are desperate to demonstrate progress in their digital businesses.

Mr Bronfman expressed hope that the two sides could cooperate, but added: “Frankly, manifestos in advance of those discussions are counter-productive.”

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