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Jobs talks new iTunes functions, DRM and video, iPod storage [transcript]

During a press conference on Monday, Apple chief executive Steve Jobs announced that iTunes will soon begin selling DRM-free music tracks from record label EMI and later fielded questions on the prospect of DRM-free videos, the effect of higher bit-rate tracks on future iPod capacities and more.

Jobs, who was joined by EMI Group chief executive Eric Nicoli, also revealed that new iTunes Store functionality will allow customers to set their iTunes download preference to DRM or DRM-free tracks only.

A full transcript of the Q&A session that followed the formal presentation has been transcribed by AppleInsider, below. Most answers were provided by Jobs if not indicated otherwise.

Q&A Transcript

Q: When are The Beatles tracks going on and will they be DRM-free?

A: Steve: "I wanna know that too."

Q: Nicoli: "So do I. I think... We're working on it and hope it's soon."

Q: You both talk about simplicity and ease of use for the customer, but doesn't having a split system make things more complicated. And, in the past, I've heard you, Steve, argue against exactly this kind of thing and against high prices.

A: Well I think what's going to happen is really simple: which is, people are going to have a choice. And people are going to make that choice and they're going to set iTunes one way or the other. So as an example for myself, I'd rather pay the extra 20 pence and get the higher-quality DRM-free music. And I'll just set iTunes to say, "whenever that's available, buy that." So I won't be presented with two choices, I'll just be presented with one.

Q:Why not just offer one choice?

A:Why not just offer one choice? Because we don't want to take away anything from people. They can still buy exactly what they've been buying for, in this case 79 pence here and 99 cents in the US. So what we're adding is a choice, a new choice, and people can choose whichever one they want. And I think, again, in our preliminary surveys, I think the majority of the people are going to choose the higher-quality DRM-free version, but we'll find out.

Q: You mentioned that 2.5 of 5 million [songs in your iTunes] catalog will be DRM-free by the end of the year. That's presumably not just EMI Records by the end of the year.

A: That's correct. That's our estimate. That's EMI content plus other content from other labels.

Q: And the second part of my question is: What do you think this will have an impact on the iPod-iTunes relationship in terms of now being able to buy your music on any player and not just on iPod?

A: Well again, you've been able to play all sorts of music on iPod forever. iPods have played MP3s forever. So the only music that has been in question is music you buy off the iTunes store. Now again, you can burn a CD and read that CD back in and it takes off the DRM. So you could then play it on anything else. We compete based on having what we we think is the best music store and based on what we think is having the best music players. And if customers agree with us, we are going to do well. If they don't, well we're going to get a message back that we have to work harder.

Q: How important is this initiative and what it says about Apple's view on DRM to the outstanding disputes with the Nordic consumer groups?

A: Well, you know our point of view has been that we're not offering customers anything here today that they can't get on every CD that's shipped. Right? They get DRM-free music on every CD that is shipped today. So, we're not offering anything online that they can't get on a CD today.

Q: Eric, going forward, if you're going to be rolling this out to mobile services, will this be in developing markets — the Far East and eastern Europe — are they going to have DRM-free music?

A: It will mean that DRM-free tracks are available to all retailers. Yeah, all digital retailers around the world.

Q: Eric, the music industry has talked about DRM being the vital block against unlimited file sharing. What do you think the impact of this is now going to be? Are you now giving people the green light to share unprotected MP3 files as they like?

A: Well, we've always argued that the best way to combat illegal traffic is to make legal content available at decent value and conveniently. And we take the view that we have to trust consumers. The fact that some will continue to disappoint us and continue to steal the music is inevitable. So this doesn't in any way diminish out commitment to fighting piracy in all its forms, and we will continue to do that. At the same time, we think that the key is to give consumers a compelling experience — the best possible digital music experience. To trust them. To educate them, because many are not quite sure what's legal and what's not legal. And, I think that way we will grow sales rather than diminish them.

Q: Eric, I think you set a target, Is it for one fifth of your revenues to be digital in four years' time and does this mean you're going to expand that target now?

A: Clearly we hope this will grow our sales. We are are confident it will. We are on track, in any event, for a quarter of our sales to be in digital form by 2010. It's clearly, since we haven't sold a single track in this new arrangement yet, it's hard to predict with a useful degree of accuracy but certainly we think it will make digital music more accessible and thereby promote sales, which is the main point in doing it.

Q: Steve, have you begun have talks with any of the other majors about doing this, and if not are you confident that they'll follow EMI's steps and drop DRM?

A: Well, I can't speak for others but what I can say is that EMI is pioneering something that I think is going to become very popular. I think they deserve a lot of credit for that. No. 2, again, I have to say that what we're announcing here today is providing the consumer nothing more than they get off every other CD they buy. Because no CDs ship with DRM. Sony tried that but it didn't work out so well. I didn't work. So this is not something radically new in the sense that 90 percent of the music that ships by the music industry today ships without a DRM.

Q: That sounds like a bit of a plea to the majors, maybe some majors that are standing in the way of doing a deal like this ... which you suggest only half of your tracks will be in this form by the end of the year... Are some majors being more difficult with this issue than others and, if so, can you tell us who?

A: You know, I'd rather not go into that. But there are always leaders and there are always follows and different people choose where they want to be. I think customers are going to love this though. This is an opportunity for everybody to win. The customers win cause they get what they want. They get higher audio quality and they get the safety net of knowing they can take this track — without having to burn it to a CD and read it back in — they can have it be interoperable. So customers get what they want and the music companies make a little bit more for offering more value. And so everybody wins here.

Q: I take it then that you are going to advocate taking the DRM off of the videos you sell on iTunes. Any particular [inaudible] you could do that with the Disney company?

A: You know, video, uh... I knew I'd get that question today. Video is pretty different than music right now because the video industry does not distribute 90 percent of their content DRM free; never has, and so I think they are in a pretty different situation and so I wouldn't hold the two in parallel at all.

Q: It's a pretty radical step, Eric. How did you reach the decision to do it? Was it Steve Jobs' letter that convinced you? Was it the internal surveys you've done? What was the moment in which you said, "Damn it, we're gonna go DRM-free?" And will the extra sales be enough to compensate for the declining physical sales?

A: We've always known Steve's view on the subject, long before his open letter. It was driven by the fact that we have the consumer at the center of our strategy. We're interested in providing consumers with the best possible experience. It's clear from our research and from all the feedback we've been getting as digital music has been growing, that many consumers find it frustrating that they don't have interoperability. It's also clear that some care about sound quality. So by combining these two in the new premium downloads, we think it's a very positive step. Yes, we expect sales to grow as a result of this. We remain optimistic that in due course digital growth will outstrip physical decline. It hasn't happened yet but clearly we think this is a big step in helping to promote digital sales. Don't ask me to predict exactly when it will happen because I can't. It's important to say that digital is still very much in its infancy. Despite the sensational job that iTunes has done over the last four years, this is an industry in its infancy. The opportunity is massive.

Q: Steve, I was just wondering now that part of the link between iTunes and iPods are broken, do you expect a fall in iPod sales?

A: You know, again, I don't see any link that has really been broken because people have always been able to take music that they've gotten from elsewhere, such as ripping their CD collection, and put it on iTunes or any other music player. People have always been able to buy music on iTunes, burn it to a CD, burn it and rip it, and put it on any player they wanted to. So this magical link that some people have postulated has not really been there. And so I think our success, again, has been based and will be based on whether people think we have the best and easiest to use music store, and whether we have the best and easiest to use music players. And we've never felt any different than that. We're going to keep trying as hard as we can to work with Eric and his team and the other labels and independents to make the best music store. And they're constantly giving us suggestions on how to make it better, as are customers. And we're going to work to make the best music players we can and hopefully customers will agree that we do.

Q: And Eric, I was just wondering which other electronic digital retailers you are talking to apart from iTunes?

A: Well we hope that all digital retailers would embrace this. It's hard to see why they wouldn't. And that's our objective.

Q: We had a bet in the office today about today's announcement. The wildest one was that Apple would announce a buyout of EMI. [laughter from crowd] Is that anything you've considered?

A: Steve: Actually, we heard rumors that EMI was buying out Apple too and neither one is true.

A: Eric: And it depends which Apple you are talking about, of course. [more laughter]

Q: What's the point of DRM on 79 pence tracks? If it doesn't work, why not remove it completely?

A: Steve: For those customers that are very price sensitive, we don't want to raise prices on anybody. We really believe in continuing with what we started and if people want to continue to pay 79 pence for their tracks, and they're perfectly happy with the way they are, we don't want to tell them they have to pay more. We want to offer them more value for a little more money and give them the choice. But we don't want to say that we're taking away something that you've known and loved and feel comfortable buying. We want to entice them into buying something ... a little more. And they get to make the choice, not us.

A: Eric: It's clear from our research that not everybody wants interoperability or needs it. Not everybody cares about sound quality. But I hope, as I demonstrated, that many do. And that is where the opportunity is and we feel it justifies a premium.

Q: Two things. One, do you think this will really signal a more flexible attitude to pricing generally on iTunes? And secondly, is there a danger that consumers apart from feeling grateful will feel slightly cheated that they've been given these two things and asked to pay 20 pence more to upgrade some of their material they should already have?

A: Steve: Well I 'll answer the second part first. I think think when you give people choices, most people feel good about that. So this is a choice and they can make it either way they want. We believe the music lovers are in control of this in the end. And so we're giving them a choice and they can choose whichever way they want to go. And sure, this is a little bit more flexibility. There's two choices instead of one. Life is a balance between total freedom and simplicity. And we try to strike the local maximums, where we can give people what they tell us and what we think they want. And I think we've demonstrated that we've done a pretty good job of that. Customers have really loved iTunes and the last thing we want to do is screw that up for them.

Q: Eric, how is it going to work with other download stores? For example, you have stores [inaudible] that offer tracks as low as 29 pence and stores like eMusic that offer a subscription service. Are you going to insist that they just have to go with the 79/99 pence ala-carte model to have your stuff?

A: Remember that we don't set the retail price. We set the wholesale prices. We're making available downloads in standard form and in premium form. Retailers can take them or not take them. Consumers can buy them or not buy them. So we're offering complete flexibility.

Q: So stores such as eMusic that offers everything DRM-free for the moment can offer just the DRM-free 256K quality stuff and not have to offer the DRM-enabled stuff.

A: Our products and our prices are available to everybody.

Q: I've got two questions for Eric. Given that Warner is opposed to the idea of removing DRM, does this make a Warner/EMI merger even more unlikely? [Laughter] And secondly, is this the silver bullet that will turn EMI around?

A: The answer to the first question is very brief, which is that we never saw merit in stimulating or fueling speculation on the subject. You must ask Warner how they feel on this initiative, but I certainly don't want to discuss it in the context of merger prospects. Silver bullet — I think it's a very important step. I think it's a major step, a commercial step. We will benefit from it. I don't think there are silver bullets in a business like ours. We have to do all the right things and we have to do them right and clearly. Digital growth is a very important part of our future strategy and we feel that this will help to generate growth.

Q: Eric, I just want to remember things your predecessor asked for tier pricing on iTunes two years ago. Steve, an 80GB iPod will hold 20,000 tunes at 128K, how many will it hold at 256K? I assume ....

A: Heh, it's proportional. [Laughter] But as you know, storage has been going up, prices have been coming down. It's a good time to do this.

Q: I'm wondering, the 20 percent increase in price — How you can account for that because obviously compression... you're using the same machines to compress [inaudible] I take it... so the sample doesn't take that much more time to increase. So how do you account for a 20 percent increase in price?

A: Steve: Well, first of all, we're not increasing the price by 20 percent because you can still buy exactly the same product at the same price as yesterday. So what we're doing is adding another product that is priced higher and offers more features. And the features that it offers is higher sound quality and it offers hassle-free interoperability. And if you think those are worth it, you can pay the extra 20 pence and, if you don't, you don't have to pay the extra 20 pence. So it's not a price increase. It's a second product that you get to choose to buy or not.