There's a lot that's been said lately about how Microsoft's forthcoming Xbox 360 video game console will be compatible with the iPod -- sort of. Users will be able to hook their iPods up to the 360's USB port and listen to anything on the hard drive, as long it's not music they've bought from iTunes, since, of course, Apple wouldn't license its Fairplay DRM to Microsoft. This is a manifestation of how Apple's used DRM to become so powerful in the music space. While it projects an image that it's just using DRM to placate the record labels, Apple benefits immensely from the lock-in to its products that its refusal to license the DRM provides. It affords Apple the control to determine what hardware people can use to listen to their music, and make sure it's only devices that it approves and from which it profits (and conversely, make sure the only place people with iPods can buy music is from iTunes). Apple's responded angrily to other attempts by companies to force their way into the iPod because it threatens their control, and one analyst predicts Apple will upgrade iPod software after the Xbox 360 release to break the compatibility. This isn't an argument for free music or in support of piracy; it simply illustrates how the record labels' insistence on DRM has put Apple at the top of the food chain. If the labels would insist their music be distributed without DRM, it would blow away all of this lock-in, resulting in a much more competitive environment both for digital audio players and for music downloads -- and it might even let them raise prices, something Apple -- and its power -- won't let them do.
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