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Apple's iTunes Drops DRM, Adds Tiered Pricing, 3G Downloads

This morning's rumors were almost exactly bang on. As a surprise "one more one more thing" at the end of his Macworld Keynote, Phil Schiller dropped the news that iTunes was going to drop digital rights management for its music track library.

Schiller started by pointing out that iTunes is the number one music retailer, the world's largest media library, and has sold over six billion songs in six years to over 75 million iTunes account holders.

Then came news that, as rumored, Apple would drop its previous flat-rate 99-cent per-track pricing. Instead, starting in April, songs will be priced at three tiers: 69 cents, 99 cents and $1.29. Obviously conscious that this pricing structure will inevitably raise the ire of some—arguing it's just a move by the recording industry to fill its coffers a jot more—Schiller was careful to note that "more songs will be offered at 69 cents than at 99 cents."

This move is most likely a business gesture made to record companies as part of a renegotiation of the DRM used in iTunes. As of today eight million songs on iTunes will have their rights management locks removed, and by the end of the quarter all ten million songs on iTunes will be DRM free.

The final piece of news was that the iPhone's mobile iTunes store will no longer be crippled to downloading tracks over Wi-fi only . As of today, iTunes will also function directly over 3G networks, and will offer the same selection of music at the same quality as the desktop client. More importantly there will be no price premium for using 3G to buy tracks, and the purchased material will sync directly up into a user's main iTunes library. It essentially completes the circle of Apple's iPhone-iTunes ecosystem.

By taking iTunes DRM-free, Apple should also be able to quash many of its existing legal challenges and the tiered pricing also hands a measure of control over revenue streams to the record labels again. Since the content providers are now more obviously at risk of track piracy, it seems that the ability to charge more for hit songs is a reasonable step for Apple to take.

Clearly a lot of behind the scenes dealing has been done, and the results can only strengthen the position iTunes already commands at the top of the music downloading game. Interestingly, going DRM-free also means that iTunes tracks are potentially playable on MP3 players other than iPods, so it'll be interesting to see what impact this will have on Apple's iPod business.

The one rumor that didn't surface as true from this morning was an iPhone data tethering option. We can assume, perhaps, that AT&T cellphone network operators—and presumably others across the globe—were happy with over-the-network iTunes sales adding to their data traffic burden, but balked at the potential additional traffic iPhone tethering plans could cause.

[via Gdgt]