12 Apr 2007

Steve Jobs Saves the Music Industry… Again

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Michael S. Malone explains in the Wall Street Journal.

Napster, founded in 1999, was a pioneer in what would be called peer-to-peer file sharing. What made the company so popular with users was that it specialized in the new MP3 music files, it had an appealing user interface, and best of all, the music was free.

It was the last that drove established music artists and record companies nearly insane. It began with the lawsuit by Metallica, followed soon after by Dr. Dre, then Madonna, and culminated in 2001 when A&M Records was granted a preliminary injunction stopping Napster from allowing downloads of any of its artists.

By then, Napster officially had more than 26 million users, but may in fact have had twice that many. Just as important, Napster — and those imitators that tried to copy its success by working the corners of the law — had set off a social revolution. By the time the music industry began to contain the damage, tens of millions of songs had already been downloaded, and a generation of college and high-school kids had come to expect the free exchange of free music.

What the music industry did next was a case study in bad strategy, bad marketing and bad public relations. Not only did the industry crush Napster and any other company that followed in its path, but it also criminalized its own customers. We all got to watch as federal agents arrested college kids, music lovers and even a poor little girl living in the ghetto.

Needless to say, this program of applied troglodytics only managed to drive music downloading further underground, turn America’s children into small-time crooks, and make popular musicians and their record companies — those famous celebrants of maverick and transgressive behavior — look like the worst kind of freedom-crushing rich plutocrats. …

For the next two years, until 2003, the music industry pursued the single dumbest strategy possible in the digital age: It tried to stop the progress of technology and deny users access to a new and more powerful industry standard. Instead, the major record labels dithered, unable to settle upon a single download standard, distribution system or pricing scheme. Instead, they devoted their energy to attempting to undermine each other. …

Then in rode Steve Jobs to the rescue.

When Apple Computer first introduced the iPod in 2001 it had given tacit approval to illegal downloading with its notorious “Rip, Mix, Burn” advertising campaign. But as the iPod quickly became one of the most successful consumer electronics products in history — 100 million units sold as of Sunday — it became obvious that the company couldn’t depend on content either from the underground or from a fractious, delusional music industry.

Thus, the Apple iTunes Music Store, which opened online four years ago this month. Only a technologist with the Hollywood cachet of Steve Jobs could have ever gotten the major players of the music industry together and, better yet, convinced them to agree to a single download and pricing standard. In doing so, Mr. Jobs very likely saved the music industry, which was on the brink of seeing its entire revenue model destroyed by the black market. Instead, at 99 cents per song, iTunes gave music lovers a means to escape illegality at a reasonable price.

Needless to say, it has worked brilliantly. With more than 2.5 billion songs sold by iTunes, Apple, with 80% of all music download revenues as well as nearly 75% of the devices sold to play those tunes, has deservedly been a huge beneficiary of this agreement. But the music industry, by being forced to actually accept a new industry standard and an attendant pricing structure, has arguably benefited even more.

But to get the music moguls around the table Steve Jobs had to make a Faustian bargain. The paranoid record execs, fearful of illegal copies, demanded that every iTune sold had to be freighted with Digital Rights Management (DRM) anti-piracy software. In practice, this meant that iTunes music could only be played on Apple iPods.

The need for absolute proprietary control over both hardware and software has always been Mr. Jobs’s Achilles heel. Twenty years ago that philosophy cost Apple Computer a similar dominance in personal computers against an army of competitors working under a common, “open” system. So one can imagine Apple’s CEO readily accepting the music industry’s demand for DRM, knowing that it would give Apple instant ownership of the online music business. …

By all appearances, the Big Four, which control 70% of the world’s music, were unmoved by Mr. Jobs’s appeal. And then, last week, a breakthrough: Apple announced that it had reached agreement with Britain’s EMI to sell the latter’s music archives (which includes the Beatles) without DRM. Thirty cents more, but twice the sound quality — the first mass-market improvement in music fidelity since the death of the LP. A fair exchange. Good for EMI.

Is this a turning point in the story of digital music? Will the other Big Three follow suit? One can only hope so. The music moguls trusted Steve Jobs once and he saved them. It’s time for them to trust him again.

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