This course provides an engaging and methodical insight into the past and present cultural and commercial music industry developments, directions, and trends. It will equip the students with the knowledge and skills necessary to appreciate, understand and more productively participate in today’s music industry field.
Roots: CD, MP3, and Online Marketplace (Part 4 of 4)
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Del curso dictado por West Virginia University
Today’s Music Industry
63 calificaciones
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De la lección
CD, MP3, and Online Marketplace
Conoce a los instructores
Darko VelichkovskiMusic Industry Program Director
Music Industry
But someone did take the SDMI and the DMX experiences and lessons to their advantage,
and made another push for the legitimate online market. By early 2002, Apple has already released
iTunes software for the management of the digital music files, and their first iPod,
for the portable listening of those files. Now they were ready to do some real business.
And to do this they needed major labels to license their music to Apple, so Apple can
be selling it on its planned iTunes online store, which was the last piece of the puzzle
needed to ignite the machine. Without that, the whole thing would become just another
little software, and another portable digital music player.
So Steve Jobs started calling the labels’ executives. A few details got ironed out.
The songs would be encoded as AAC files, protected through the system Apple called FairPlay,
which does not allow for having a file bought on the iTunes store, copied on more than 3
computers. And, of course, it couldn’t be played on any digital player except iPod.
And the files could be copied onto as many iPods as you want.
OK, so how did the labels react, as Steve Jobs called to explain the deal? First, he
called Warner Music. The top management loved it. Sold. Then Universal. Not in love with
the idea, but Warner was in, so they went in too. Sold. BMG. Sold. EMI. Kicking and
screaming, but in. Sold. Sony. Well, they were a holdout. And you can understand how
hard it must have been to make such a decision for Sony. It was an electronics company too.
Made all kinds of consumer music devices. Conquered the market with its revolutionary
portable cassette player, the Walkman. Was leading the portable CD players market with
its Discman. And now it was supposed to hand over the whole new area of the market to Apple
and its iPod. So, of course, they were a holdout. But, one day, a few months before the iTunes
store was to go live online, Steve Jobs called Sony Music execs back, and basically told
them that Apple will unveil the store and commence the music sales through it, with
or without Sony. Well, they simply couldn’t afford to be the only major label not in on
this thing. So they relented, and went in with the others. And so, in April, 2003, the
iTunes store went live. Well, that almost looks too easy, doesn’t
it? How is it that all those labels that for years couldn’t agree on anything about the
online commerce system, now, in such a rapid succession, went in with Apple and its iTunes
store? Several factors were at play here. First, Apple represented only 5% of the computer
market. The labels figured, can you really screw up that much on the playing field of
just 5%? Surely not. So let’s play and see where this goes. Second, Steve Jobs made it
known to all the labels that Apple’s marketing budget was 80-100 million dollars a year.
Wouldn’t they want to ride that train? Third, surely Microsoft would react, and come up
with its own platform quickly and try to compete with Apple in this new area, and the labels
would profit from the competition, right? And lastly, and probably, most importantly,
there was Steve Jobs himself. With all the genius, capability, success, power, and charisma
that he was. When the labels’ execs were dealing with each other, at all those SDMI
and DMX meetings and negotiations, they were dealing with peers and competitors and partners
and colleagues. But when they were dealing with Steve Jobs, they were dealing with the
legend. As much as some of them don’t like to admit it to this very day, they were star
struck. And they all gave him much more, than they would’ve done with anyone else, before
or since. No, the deal was not exactly great for the
labels. Apple fared much better in the whole thing. It was selling, at the time, 399-dollar
iPods. The labels were selling 99-cent songs. Not exactly a nuclear science to see who would
have harder time accumulating profits. Just six months after the iTunes store opened,
Apple released a Windows version of iTunes, and expanded its market exponentially. More
people using iTunes, more iPods sold. Apple was flush in profits.
Several years later, mostly due to the insistence of the labels, Apple dropped the FairPlay
system protection, so the iTunes files would became compatible with other digital music
players, and the store’s sales consequently continued to climb. And so did the iPod sales
as well, since by now, the iPod became not just a popular digital music player, but a
symbol of cool, and now. Its white headphones dangling from the ears of millions around
the globe, were not just a product anymore. It was a lifestyle. Filled with songs and
music. The songs were the fuel for the iPod car.
And so that symbiosis, at the first glance, seems equitable and profitable for both, the
labels and Apple. But while you can’t download a free iPod, you could, and still can, download
a free song and listen to it on that iPod. And so iPods got filled with thousands and
thousands of songs, only a small portion of which are legitimately bought. And when new
models came out, millions lined up in stores and online to get one. On the other hand,
when new songs came out, millions exchanged them and spread them around for free, and
still do. So it’s not hard to see how the bottom line of Apple went up, while the bottom
line of the labels continued to go down, even after the iTunes deal.
But, as I said before, the things were at least finally starting to change and move
forward when Apple entered the picture. No, the profits didn’t go up, but that’s because
the industry still didn’t figure it all out. It’s a tough, high mountain to climb.
But at least it stopped dreaming of the old business models, and of the status quo, and
was finally immersed in the reality of the new marketplace, and was facing forward. The
iTunes store shows that it can be done. That there is a legitimate music market online,
and that that’s where the future is taking us. There are many twists and turns on that
road already today, but if we figured out how to create value in the music industry,
out of the recorded music phenomenon over a hundred years ago, and out of the seeming
menace of radio and television, and out of sneaky little cassette tapes, and out of the
CD technology, we will harness this one too. It’s just a matter of time, vision, creativity,
and hard work.
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