• by Laurie Sullivan  @lauriesullivan, August 13, 2007

Universal Music Group's decision on Friday to test selling digital music tracks online without copy-protection technology is seen by some as a step toward providing ad-supported digital music for free.

Although not available for purchase through Apple's iTunes store, thousands of music tracks from UMG artists Gwen Stefani, Stevie Wonder, Johnny Cash and others will sell through online retail stores Amazon, Google, Wal-Mart Stores, Best Buy, RealNetworks' Rhapsody, Trans World Entertainment, PassAlong Networks and Puretracks. The tracks are playable on any device compatible with the MP3 format, including iPods.

Early next year, UMG will reevaluate the service and determine whether to continue selling music available in a file format not protected by standard anti-copying software, known as digital rights management (DRM), which puts restrictions on how songs are downloaded, played and shared. "We are running this trial for six months to test consumer demand and the effects of piracy," says UMG spokesman Peter Lofrumento.

The deal relaxes restrictions that now prohibit consumers from transferring music files between music players, specifically to Apple's iPod. "You just need a label or two to lead with this DRM-free model and others will follow," says Kevin Nakao, vice president of music services at RealNetworks.

Other major labels also have begun to sell DRM-free music. Earlier this year, EMI Group allowed Apple and Snowcap MyStores--peer-to-peer technology that has hooked up with MySpace to let people share music for free--to begin selling versions of its songs without copyright protection.

DRM-free music content will open doors for ad-supported free music models, too. Nakao believes it will lead more brands like Heineken and Neutrogena to purchase music downloads in bulk and give to consumers as incentives or promotions because DRM-free music files can play on any MP3 player.

Martin Lafferty, CEO at the peer-to-peer trade group Distributed Computing Industry Association, and James McQuivey, principal analyst at Forrester Research, believe releasing music files from copyright restrictions will eventually lead more music download sites to offer both pay and ad-supported free music.

"Most music labels will begin to support sites that gradually incorporate purchase-this-track, ad-supported and subscription options," McQuivey says. "For now, music labels are just trying to stimulate competition by giving other companies a way to compete against Apple, which will sell about 20% of all music sold, not just digital, in the United States this year."

Recently launched digital music download service We7 and soon-to-debut Qtrax and SpiralFrog rely on DRM-free ad-supported models to distribute music.

We7, introduced in late April by musician Peter Gabriel, tech entrepreneur Steve Purdham and finance guru John Taysom, operates on an ad-funded music business model but also gives consumers an option to download ad-free content for a fee. The site relies on a file format not protected by DRM. Consumers can listen to all tracks on any MP3 player.

Gareth Reakes, chief technology officer at Oxford, London-based We7, says in the free music model, ads download with tracks. "We believe those who illegally download music want to see artists get paid, and others want to try new music but don't want to pay 99 cents at iTunes," he says. "When consumers download and sample tracks at We7 for free, artists are paid through ad revenue."

We7 supports about 60,000 consumers who have downloaded 250,000 digital music files, supported mostly by promotional ads. The dynamically created ads differ each time songs are downloaded, depending on the time of day, region, search history and download behavior.