Confirmed: iTunes Going DRM-Free. Unclear: Does Anyone Care?

In 2007, Apple CEO Steve Jobs predicted that half the music offered at his iTunes store would be sold without digital rights management–the lock-and-key system that the music labels wrap their songs–by the end of that year. But until this week, only one big label–EMI Music Group–was selling iTunes music in a DRM-free format.

Better late than never: Apple (AAPL) has deals in place with three of the big music labels–Warner Music Group (WMG), Sony (SNE) and Universal Music Group–to sell DRM-free songs. In exchange, Jobs will give the labels some ability to introduce “flexible pricing”–a key demand for the industry. CNET’s Greg Sandoval reported the news yesterday, citing sources; I’ve confirmed with my own industry sources this morning. Expect an announcement this week; the logical timing would be during today’s MacWorld keynote. [UPDATE: Here’s the press release]

You’ll be hearing a lot of hubbub in the Techmemeworld about the move: DRM has been one of the tech world’s biggest bugaboos. If you believe the people who write blogs and leave blog comments (please do!), the fact that the labels have sold their music with DRM has been a drag on iTunes sales.

But I don’t think that’s the case: Apple moves some two billion songs a year via iTunes, and unless you’re in a small minority of people who want to do something with your iTunes song other than listen to it on your computer, iPhone, or iPod, you’ll find it hard to butt heads with a DRM restriction.

In the real world, few people have even heard of DRM. That’s one reason why the fact that Amazon’s (AMZN) Jeff Bezos has sold DRM-free music for all of 2008 doesn’t seem to have helped the company even dent Apple’s commanding market share. And think about it this way: Who’s more eager to sell digital music–Steve Jobs or the struggling music labels? If DRM-free tunes were a cure-all, you would have seen the big guys moving to drop it a long time ago.

The bigger news here is the move to add flexible pricing to the iTunes store. The labels have long pushed for the ability to mark up certain songs above the 99-cent mark, and Jobs hasn’t given in (he initally sold EMI’s DRM-free songs for a premium, but ended that after a few months). Neither CNET nor I have details about the pricing, but expect three tiers: One for in-demand songs, one for “long tail” back catalog and one for midrange stuff.

If Apple and the labels play this right, the tiered pricing could move the needle. But it won’t be at the high end: While there’s some opportunity to squeeze a few more cents out of the buyers who absolutely have to have the new Beyoncé song, the real opportunity will be selling lots and lots of music at a steep discount.

That’s if the labels go ahead and offer music at a significant discount, which I think they will be reluctant to do, for various reasons (more on that later). But let’s hold off and see what the pricing actually looks like first.

UPDATE: Expect the following tiers: $0.79, $0.99 and $1.29 per track, I’m told. [Update: Make that $0.69, $0.99 and $1.29] Disappointing but understandable: I’d like the labels to sell most of their music for 50 cents or less; they think their best music is worth much more than $1.29.

UPDATE 2: Also coming to iTunes: Over-the-air downloads for iPhone 3G users.