You may not know eMusic, but it has quietly climbed up to the No. 2 spot in the music download market. How? They allow subscribers to download a number of MP3 files, without copy protection, every month. How? Well, their catalog is limited to mostly odds and ends that major labels don’t own. There’s no Jay-Z or U2, but they do have Sufjan Stevens and the White Stripes. I thought I would try out the service, get a few albums I liked, and quit. I haven’t yet though because my list keeps growing as I discover new music on the service.

So what does this have to do with iTunes? Clearly eMusic isn’t stealing customers away from iTunes because of its selection. I’m not sure eMusic is stealing customers away at all. But DRM does make a huge difference in getting customers to buy into a music service. Napster and Raphsody seem stunted by the fact that there are tremendous limitations on what you can download, transfer to an MP3 player, burn, etc. iTunes has a simple pitch: you can play your music on your computer, burn it, share with up to 5 friends, and play it on the most popular MP3 player in the world. That is why iTunes is the most successful music download service – it has one of the most lenient DRM policies.

Still any DRM is bad DRM. It doesn’t seem fair that iTunes tracks can only play on my iPod and iTunes – what if I want to transfer them to my Media Center PC or my XBox 360? Or my Linux machine? DRM even drains battery life on your iPod! This is why I started buying CDs (which are largely DRM-less since the Sony rootkit scandal) and using eMusic.

Now since I have all this unprotected music, the labels would speculate that I am probably illegally distributing it to all my friends – customers only stay customers if you have a leash tied around them. I don’t share my music on file-sharing services, however, because my bandwith is precious. And when I do share music its with the same 5 “friends” on my iTunes account – all members of my immediate family (I know, I know, Mom should be buying her own copy of The Black Album). So RIAA, if you want to continue to grow your industry why don’t you trust your customers and offer more content for DRM-less download?

Here’s just one example of how Sony may be shooting itself in the foot with copy protection. DVDFile recently wrote about some of the copy protection implemented in the Blu-ray format. They can restrict what players a disc plays on and revoke your privileges to view a disc you bought. It’s unlikely they’ll actually use all these features on movies. But its not hard to imagine them saying you can only play your PlayStation 3 games on one system.

I don’t know what Sony is planning, but they better be careful. They have a lot riding on the launch of the much-anticipated PS3 system and they will have to compete with a very strong showing from Microsoft. I have to say that all this copy protection talk has made me very wary and has me leaning towards the Xbox 360 rather than the PS3.