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EMI might have rung in the new year with a profits warning but, in the month before Levy's departure, the label had also trumpeted a host of initiatives - including a video-on-demand agreement with BT Vision, a partnership with Last.fm and the release of unprotected MP3 tracks from Lily Allen and Norah Jones.

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Money left on the table

"We believe consumers will pay more, or purchase more music, without DRM," says Dave Goldberg, general manager of Yahoo! Music. "Given the choice, consumers will always choose music without DRM. To get them to buy with DRM, you need to offer them a discount of 20%. That is a lot of money being left on the table by the music business."

Some business models - notably that of eMusic, which has licensed music from independent labels - are already proving this to be the case. eMusic, the second biggest download store in both the US and the UK, runs a subscription service: for a monthly fee, users can download and keep a quota of DRM-free tracks. The company has approached the majors on several occasions, says its chief executive, David Pakman, with the view to licensing non-mainstream back catalogue. But selling unprotected downloads - which he insists eMusic must do - remains a stumbling block. "We sell an individual track for a lot less than iTunes [as little as 12p, with a two-year subscription]," says Pakman. "But while the average iTunes customer in the US buys around 10 tracks per year, or the equivalent of £5, an eMusic customer spends an average of £8 per month. But the MP3 issue is insurmountable - which is a shame, because we can only see an economic upside."

There are no signs that the majors will change their minds. There is, as yet, no concrete evidence that any of the majors are set to change course. The release of MP3s by two artists in very limited circumstances - Jones's track is only available to US users of Yahoo!, while Allen's Littlest Things was offered through her personal webstore - is small beer for a label with a catalogue of millions. Some rivals claim it was little more than a PR stunt. However, Midem delegates reckoned EMI's manoeuvrings pointed to a more significant U-turn on DRM, and that other majors are preparing to dip more than just their toes into unprotected waters.

Rob Glaser, chief executive of RealNetworks, says the change will happen "between next year and five years from now, [although] it is more likely to be in one to two years". He told the International Herald Tribune that "DRM-free purchases is an idea in ascendance and whose time has come".

Asking major labels about DRM is a bit like asking a politician if they'd like to legalise Class A drugs - an unpalatable decision even if, arguably, it could make economic sense. For the International Federation of the Phonographic Industry, DRM remains crucial for protecting copyright and deterring online piracy.

Any unfavourable side-effects, says Geoff Taylor, the IFPI's UK general counsel and executive vice-president, such as the way downloads from the iTunes Music Store will only play on Apple's iPods, are issues for technology companies, not the music business. "New business models - such as subscription services or rental - also rely on DRM," he adds. Except, of course, eMusic's doesn't.

Opposition to the IFPI's view - essentially from the whole of the independent music sector, plus those download stores not owned by Apple and the odd major label dissenter - is equally entrenched.

DRM, they say, has enabled Apple to build a proprietary ecosystem while competitors such as HMV and Napster are forced to sell tracks encoded with Microsoft's DRM that won't play on an iPod, and that therefore no one wants to buy. As for tackling piracy, DRM simply does not. Any technology can be circumvented; and major labels are already selling unprotected digital files - on CDs.

Stopping the tide

Most importantly, says Martin Mills, founder of Beggars Group, the indie record label, the ubiquity of MP3 makes it the format music fans actually want. "This is a huge and pretty irreconcilable divide between [the independents and the majors]," explains Mills. "The way that people want to consume music involves sharing and copying privately among close friends without commercial return, and it's very King Canute-ish to try to stop the tide that's already coming in.

"There are certain things we have in common with the majors and one particularly relevant one is that none of us can survive in an environment where people are taking our music without paying for it. It's just we've got pretty diametrically opposed views about how to get paid from the online consumption of music. What they want to do is to lock the new world into a box that's as similar as possible to the old world - where consumption of music is a unit that's paid for and individually attributable."

However, according to a newly-published survey of European music executives by Jupiter Research, while there is dissatisfaction at boardroom level with the status quo, it is doubtful that any of the majors will abandon DRM wholesale. Far more likely, says Jupiter's Mark Mulligan, this year will see MP3s used sparingly as a promotional tool for new artists and back catalogue, while shortfalls in CD revenue will be countered by sales of mobile music and experiments with new ad-funded services such as QTrax.

Says Mulligan: "I think if they did bring MP3 formats in, the benefits would clearly outweigh the costs and the risks. Part of the reason for that, and this is certainly part of record labels being a little bit more open to it now, is that it manages to get a bloody big Apple cart out the way. As soon as you go to MP3 then that removes the dominant advantage that Apple has. Basic sentiment within the industry is that Apple has become too strong."

In which case, it will be all eyes on Europe where, after last month's ruling by the Norwegian consumer ombudsman that iTunes' lack of interoperability is illegal, a wider campaign encompassing Germany, Finland and France is gathering pace to force Apple to lift its DRM restrictions or to license its DRM to other companies - which it has so far refused to do.

For now, however, the digital music market will remain a paradoxical universe: a promised land of unlimited choice, where protection protects very little, consumers are confused and the much-lamented CD album remains the best choice for sound quality, value and price.

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