Apple has reached a deal with the three largest music labels - Sony BMG, Universal and Warner Music - to offer their music DRM-free on iTunes, according to reports.
As part of the deal, Apple will give the labels something that they have wanted for some time - flexibility on pricing.
According to News.com's sources, pricing for catalog music will fall to 79 cents per song but the labels will gain the ability to charge more than this for for some hit songs. Meanwhile, AllThingsDigital's Peter Kafka reports that he has been told there will be three pricing tiers - 79 cents, 99 cents and $1.29.
After some time, News.com indicates that hit songs would fall to the 79 cent price in the US.
An announcement of this deal could come as early as today at the Macworld Expo and Conference in San Francisco. This deal, assuming it goes through, appears to be a win-win arrangement for both Apple and the record labels.
While Apple has been offering DRM-free music from EMI for over a year, EMI has marginal market share in the United States. The expansion of a DRM-free offering to the three largest labels is therefore good news for iTunes. Competitors such as Amazon already offer DRM-free music and while consumers haven't exactly abandoned iTunes for Amazon in droves, all indications are that the future is going to be DRM-free.
On the pricing side, Apple's willingness to give labels flexibility on pricing for hit songs should help reduce some of distaste the record labels have held when it comes to their relationship with Apple. Pricing has always been a touchy subject and the fact that labels have hard feelings over their past inability to push Apple into giving them what they felt was more equitable pricing power is no secret.
Assuming that News.com's sources are correct and the details of this deal are accurate, the big question will be whether or not consumers take kindly to paying more than 99 cents for some hit songs.
Given that many songs will now be priced 20 cents lower, it seems to me that most consumers will generally come out ahead or 'break even' depending on their tastes.
Yet with iTunes facing more competition in the digital music space, especially from companies such as Amazon, it will be interesting to see if variable pricing pushes some iTunes customers to services like Amazon's. After all, many hit songs are currently available for 79 cents on Amazon.
It will also be interesting to see whether the record labels eventually push Amazon into a pricing arrangement similar in nature to the one reportedly struck with Apple. One has to believe that, given their financial situation, they will try. It's no secret that the record labels believe their music is worth more than it's often sold for.
Clearly, if this deal does come to pass, it will signal that the digital music space is evolving and maturing. Record labels are becoming more flexible but their ability to win back some control over pricing from Apple would indicate that they also know exactly what they want in return for this flexibility.
The good news for consumers is that all of this means greater choice. DRM-free music is becoming and mainstream reality and competition between digital music retailers is finally reaching a meaningful level.