Steve Jobs has put the music industry labels on notice about Digital Rights Management (DRM) in an open letter on the Apple Web site. As we all know by now, DRM is a pain and a barrier to freely using the music you own on different players.

It may just be the right time for Steve to speak out — from a position of strength. Pricing issues are about to resurface as Apple negotiates licensing extensions with the labels, and Jobs is prickly about pricing. DRM might also be a major issue involving the Beatles music (on Apple Records).

So Steve is peeved. He wants to shed some light on the situation. If Jobs feels the squeeze from European consumer groups, he is now redirecting it back to the source of the problem. He not only calls out the big four record labels by name (Universal, Sony BMG, Warner and EMI) but ironically points to their part-European ownership. Then he tells the consumer groups fighting for iTunes openness: “Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free.” It’s a call to arms. As Dana Blankenhorn points out, in “Jobs’ DRM gambit and the americanization of open source” (Open Source blog on ZDNet), “Political support for the technology demands of content providers has been based on the idea that we are protecting American interests. In one paragraph Jobs has ripped that argument to shreds.”

It’s a great letter and deserves a good read. While I’m sure that Bill Gates could have written something similar (with help, of course, from a ghost writer), and that Bill most likely believes in dropping DRM (and even said so at CES in January), Bill would never have garnered the press attention that Jobs has with this letter. And I’m not belittling Jobs, because he wrote it well, and his vision of a DRM-less music world is excellent.

Ironically Apple is the chief beneficiary of the existence of DRM technology in the music world with its near-monopoly share of the digital music player market and the music downloading market. The music labels wanted protection, and Apple provided the best-selling music player with a benevolent form of DRM that some people could accept. Apple’s position, however, gives Jobs’s vision some altruistic credibility — the man is willing to give up market share to help the market grow for everyone. Let’s not forget that Steve is personally involved in the copyright holding business — Jobs has a very large stake in Disney. What works for music might one day work for movies and TV shows, but those industries are even more petrified of downloaded content and are heavily into DRM. So Steve is helping out the cause, if you believe in less DRM and drag in the nascent online music industry.

And it turns out that Apple won’t lose much by going DRM-less — except, of course, its responsibilty to protect the labels’ music with DRM. Remove that responsibility, and Apple can license even more music without having to spend time and effort (and endure bad publicity) plugging leaks in the copy protection code and forcing everyone to upgrade their iPods. Competitors will produce cheaper DRM-free players, but Apple won’t mind because the company has a larger consumer electronics market to conquer. Profit margins are slim on commodity equipment, and Apple doesn’t fight in price wars. The consumer electronics industry is in constant transformation and Apple wants to be a leader, not a commodity manufacturer.

Steve Jobs is about providing value. And yes, if you provide value, you make money — hand over fist if your also efficient about operations, marketing-savvy, and articulate. The iTunes store has always been about providing real value — not just to consumers but also to the copyright holders. As he summed up the history of the store’s success in the context of the iPod’s success, “So far we have met our commitments to the music companies to protect their music, and we have given users the most liberal usage rights available in the industry for legally downloaded music.”

P.S. More interesting facts from Jobs:

“Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold.”

Well, I bought quite a lot more than 22 songs, but this research is revealing. The vast majority of my iTunes library consists of music ripped from CDs and videos from DVDs. My fraction of purchased material may be closer to 6% (rather than the 3% cited by Jobs).