LOS ANGELES--In a departure from the company line, Yahoo Music chief Dave Goldberg said yesterday that digital rights management (DRM)--the usage restrictions that record labels insist must be attached to legally downloaded music--is holding back the industry.

Speaking at the Music 2.0 conference in Los Angeles, Goldberg said too much free music is still available to consumers through peer-to-peer (P2P) services and elsewhere to constrain those who are willing to pay for music.

"There's no ambivalence anymore as to whether or not this digital thing is going to fly," he said. "There is a cost associated with DRM, and that is lost sales of content."

Goldberg said he was primarily talking about removing DRM constraints from fee-based music subscription services like Yahoo Music Unlimited.

"If all CDs had DRM on them, [the labels] could make a better argument, but they're already selling millions of CDs without DRM," he continued, making a case for selling unrestricted music in MP3 format. "Let's just sell them MP3s. That's what they want--let's give it to them."

Goldberg's call went against the argument that label execs have been making for several years, including Ted Cohen, EMI's top digital music guru. In an earlier panel at the Music 2.0 conference, Cohen noted several times that DRM is necessary to moving legal downloads forward.

"The DRM makes the business model possible," he said. "Without DRM, you can't have the business models and give people choices."

The restrictions placed on legally downloaded music, such as limits on CD burning and transfers to portable music players--have plagued the consumer experience largely because rival companies have competing forms of DRM that don't play well with one another.

For instance, songs downloaded on Napster, Yahoo, and Rhapsody are Windows Media files with PlaysForSure DRM, making them incompatible with the far-and-away leading portable music player, the iPod.

At least in part because of that, the "churn" rate for music subscription services--that is, the percentage of users who cancel their subscriptions--is quite high, as high as 30 percent in some cases. To date, Yahoo has kept quiet about its subscription numbers.

Goldberg cited additional NPD Group data that showed that 39 percent of survey respondents who hadn't tried legal download services said they stayed away because of too many restrictions on what they could do with the music once they downloaded it.

Sitting on a piracy panel earlier in the day with Cohen, Electronic Frontier Foundation attorney Fred von Lohman said he hoped the lack interoperability among the services because of DRM signaled a transition phase for the digital music business.

"We need to get to a point where I pay a monthly fee and can download whatever I want from wherever I want," he said. "It's not impossible to compete with free--bottled water and private education have shown that. But right now, for me to share a Yahoo playlist with a Rhapsody user, a bunch of executives have to get together for months or years and bicker."

Cohen repeated his assertion that DRM protects the business models and allows the consumer to have more choices.

When asked if he would consider experimenting by putting unrestricted MP3 files on Yahoo Music Unlimited if he could get the labels' permission, Goldberg said, "It certainly would be better than where we are today."

In the earlier panel, Cohen said also was open to the idea of experimental releases of selected songs in MP3 format to see how they would affect overall sales.

"We haven't gotten there yet--it's a big leap," he said.

"If you really wanted interoperability you could solve that problem tomorrow by opening it up to MP3," von Lohman said. "You would have the last laugh on Steve Jobs if you said we're going to allow MP3 downloads."

Goldberg also took the opportunity to tout his company's music service against those of the Apple Goliath. He countered widely reported data that Apple's iTunes has swallowed up as much as 80 percent of the digital music market.

Citing data from the NPD Group, Goldberg said that only 57 percent of the people that downloaded music from a paid service did so through iTunes, with Yahoo second at 27 percent, Napster third at 25 percent, and Rhapsody fourth at 22 percent. Goldberg noted that the totals added up to more than 100 percent since respondents were able to check more than one service in NPD's survey.

Goldberg also quashed any notion that his company would pursue a strategy similar to what Amazon is reportedly planning, which involves a branded Amazon music player aligned with an Amazon music-subscription service that ties into its massive online retail operation.

"I don't think it's something we're considering," he said. "We don't do hardware, and there's no real need for us to have our own branded device."

The key to moving the business forward, he said, is to focus on educating the consumer; creating a better experience through playlists and recommendation engines; making the billing process seamless; and allowing for wider distribution through compatible devices and platforms.

"We have a better sense of where we're heading than we did several years ago," Goldberg said. "It's gonna be a bit messy as we get there."