In terms of revenue, the record business is definitely
worse off. But in terms of serving fans, the record business has made
huge strides. Consumers today have far more access and enjoy better
interoperability between software and hardware. And shouldn't happy
consumers be the ultimate goal?
The current court case may peter out soon enough. On Monday the case took a strange turn
when the court learned the second of two plaintiffs did not purchase an
iPod during the period Apple illegally restricted iPod owners' ability
to play music acquired at other download stores. The judge may allow the
trial to continue, however, and is giving the plaintiffs' attorney a
day to find a new lead plaintiff.
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Apple is effectively taking the blame for the demands
placed on it by the record business during the digital music industry's
formative years. Early in the history of digital music sales, the major
record labels insisted retailers' downloads contain DRM to limit piracy.
In hindsight these fears may seem unreasonable or unwarranted, but at
the time piracy was far greater and present a problem.
The post-Napster days (the early- to mid-2000s) were a
sort of golden age of peer-to-peer services, with an abundance of
companies competing to satisfy consumers' desire for music. This easy
access to free music was troublesome. Some people foresaw a nefarious
marriage of storage space and ubiquitous, free music that would demolish
any hopes of monetizing digital music. (Back in 2004, a 1GB SanDisk SD
card cost $499. Today, a 128GB SD card, which holds over 1,165 hours of
256kpbs MP3 files, goes for less than $100.) Soon, all the world's music
could fit on a single device.
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The lawsuit is ultimately an indictment of DRM. Apple's
DRM, called FairPlay, meant iTunes purchases could be played only on
iTunes software -- both Mac and Windows -- and only on the iPod. And
until Amazon launched its MP3 store in 2008, the iPod could not play
digital music from most other retailers (there were exceptions such as
eMusic, which at the time only sold music from independent labels).
Whatever the outcome, the antitrust lawsuit against
Apple is a nice opportunity to revisit the last decade's digital music
business. It's hard not to appreciate the gains made since then.
First, the bad. Record business revenues were certainly
better eight years ago. Recorded music sales had a retail value of $11.5
billion in 2006, according to the RIAA, 64 percent higher than $7
billion last year. One may pine for the days of growing digital download
royalty checks and a bulkier physical business, but it's hard to argue
today's market is not a vast improvement from that of 2006, a time when
piracy was far more threatening, consumers were treated with distrust,
and streaming services failed to gain traction with consumers.
But two things would end up changing digital music for the better: the iPhone, and a new era of streaming services.
The launch of the iPhone in early 2007 brought freedom and
mobility to digital music. Apple -- and later Google's Android mobile
platform -- allowed a smartphone owner to install apps from a number of
competing digital music services. Streaming services took advantage.
Pandora released its iPhone app in 2008. Spotify launched its mobile
apps -- for iPhone and Android -- in 2009. An iPhone user still had to
put in effort to buy MP3s outside of iTunes, but the iPhone still
provided far more freedom than the iPod.
Because of apps, streaming services had access to
consumers through their mobile devices. (Rhapsody and Napster, both
precursors to Spotify, were shut out of the iPod. Rhapsody tried to gatecrash the iPod
with a product called Harmony in 2004. Apple quickly updated the iPod
software to prevent outside files.) People could stream a radio station,
view YouTube or make playlists on a subscription service either at or
away from home. And with the use of Bluetooth technology, mobile phones
can be paired effortlessly to car stereos and wireless speakers.
Apple eventually ditched DRM in January 2009.
Microsoft rebranded PlaysForSure in 2007, a year after it launched the
unsuccessful Zune music player and service. But DRM didn't die out. It's
alive and well -- and accepted without complaints by music consumers --
in the new music business.
DRM is fundamental to access-based services like Spotify.
Subscribers that download tracks to mobile devices do so with
restrictions. In the linga franca of subscription services, a download
is actually a tethered download, one that is contingent and not owned in
perpetuity. The basic precept of subscription services is access
through payment. Once a person stops paying, access to the track is
gone. (However, depending on the service, the track may still be
accessed in a more limited nature on a free, ad-supported tier.)
Unlike the problems associated with DRM for CDs and
downloads, consumers don't object to this type of DRM, because they are
paying for access, not ownership.
The record business is increasingly characterized by this
arrangement, which is clearly the future of entertainment. Where there
once was a radio tower, or a Tower Records, now stands Pandora and
Spotify. DVD and video downloads are being replaced by streaming
services like Netflix. Many consumers -- especially the younger ones --
don't have the same predilection for amassing collections of recordings.
Even though today's storage devices can hold huge libraries of
downloads -- the fear of the 2000s -- the availability of broadband has
led many consumers to legal streaming services, not curated lists of
files.
Happy customers don't necessarily mean happy businesses,
however. Shifting from a purchase-based business to an access-based one
requires adjustments. Controversies have ensued. Some artists and labels
are unhappy with the royalties received from streaming services.
Publishers are continuously fighting for a greater share of service's
revenue. Year after year, these services are put on the defensive by an
industry caught in an uncertain transition.
But if customers are happy, if they have better legal
options than illegal ones, and if they can be reached on a variety of
devices at any time, isn't that ultimately good for business? Anybody
with a computer or mobile phone is now a potential customer. Streaming
may have its downsides, but it offers plenty of upside.
Between Napster's launch in 1999 and iTunes' debut in
2003, the music business had what seemed to be an insurmountable
problem. A similar feeling exists today. The record business eventually
built a download business. It can do the same with streaming.
