Recently, with the advent of digital downloads of music, the record industry has been turned on its head. iTunes especially has had a profound effect on the way people purchase and consume music. Rather than buying and listening to an album in its entirety, people prefer to listen to singles. Many music analyzers say that this means the album is either dead or dying.
Prior to iTunes, albums existed as a collection of songs that people would listen to as a whole. The seventies had Pink Floyd’s “Dark Side of the Moon”, the eighties had Michael Jackson’s “Thriller”, and the nineties had Radiohead’s “OK Computer.” But recently, the mainstream market has had a shortage of artists who make albums without relying on “filler” tracks.
For years, the record companies have been churning out “one-hit wonders.” These artists would record a song that received much airplay on the radio, and that would do well on the charts. The artists would then release an album that contained the hit single and many mediocre tracks. In order for the public to obtain the single that they heard on the radio, they would have to buy the entire album. This trend in albums made the record companies rich. The record companies opted for this format because albums are more profitable than CD singles (Knopper 106).
In 1991, a team of engineers known as “The Fraunhofer Team” successfully compressed the song “Tom’s Diner” into the world’s first mp3. The Fraunhofer team was a group of German sound engineers who were experimenting with transmitting speech over phone lines. Once the technology was perfected, the team decided the mp3 was better fit for the internet rather than phone lines. The record companies were oblivious to this new technology. Executives at Warner, Sony Music, and Universal Music Group had no idea that the mp3 existed. They were also oblivious to the fact that people were able to post the mp3s on the internet as free downloads. The Fraunhofer team attempted to warn the industry in the early nineties, but got nowhere. Fraunhofer team member Bernhard Grill said, “There was not much interest at the time. Oh, there were some meetings, but not with the top hierarchy. They didn’t realize how fast the internet would grow. No one saw it coming that fast” (Knopper).
When the internet exploded in mid-nineties, the record companies did not adapt well. They did not utilize the new technology that was available. In an interview with Wired Magazine, the CEO of Universal Music Group, Doug Morris, had this to say on the subject: “There’s no one in the record company that’s a technologist. That’s a misconception writers make all the time: that the record industry missed [the internet boom]. They didn’t. They just didn’t know what to do.” (Knopper)
The record companies’ refusal to adapt to the changing market would be a costly mistake. People were getting frustrated with paying fifteen dollars for an entire album when all they wanted was the hit single. Enter Shawn Fanning: the nineteen-year-old computer hacker from Northeastern University. He, like most people, was fed up with the music industry. He wanted to have the good songs on an album without having to pay for the entire album. He was particularly fond of Metallica and obscure rap and wanted a way to share his music with his friends. Fanning created a unique system of file-sharing in which the computers would share the files from computer-to-computer, rather than downloading from a central server. The server would detect when a user is online and then would display the content of his or her computer. Another user could see a song that he or she wanted to download and would download it from the other user’s computer.
After creating Napster, Fanning distributed it to some hacker friends whom he had met in online chat rooms. Soon, almost fifteen thousand people had downloaded Napster. Napster kept growing at an enormous rate; so much so, that Fanning had to invest in the help of other people. Napster became a successful business. Fanning did not have a central business plan in mind, other than to “generate a huge user base by allowing fans to trade copyrighted music.” Some of the executives at Napster urged Fanning to turn Napster into a subscription service, where the user would pay every month. Fanning was unable to make any further business decisions, because the Recording Industry Association of America began to form a lawsuit against Napster.
The whole idea of file-sharing was new, so originally, the RIAA was not sure what to do. People high up in the ranks at the RIAA had been trying to contact Fanning for a meeting. Fanning ignored these invitations and instead focused on facilitating all of Napster’s users by continually adding servers. The RIAA filed a copyright-infringement lawsuit against Napster on December 6, 1999. Shawn Fanning felt he was safe because of a 1984 Supreme Court case Sony Corp. of America vs. Universal City Studios which ruled that Sony could manufacture VCRs for people to record copyrighted TV shows for their own use. Fanning figured the same logic applied to Napster. This argument would be rendered ineffective if the RIAA could prove in a court of law that Napster employees knew that its users were actively breaking copyright law. The RIAA found the piece of evidence they were looking for: an internal email admitting that Napster users pirate music. Napster lost the case and on May 14, 2002, Napster declared bankruptcy. Just before shutting down, Napster had over twenty million users (Knopper).
This was the state of the music industry when iTunes entered the picture. Steve Jobs, CEO of Apple Computer, had a vision in mind when he created iTunes. He wanted a store where people could purchase music for their iPods. The equation was simple: the more songs people buy, the more popular the iPod would become. He wanted to give the people what they wanted: single songs. He envisioned splitting up the album into tracks that people could buy individually. In order to get the iTunes music store off the ground, he had to convince the “big four” record labels that this was a good idea. The “big four” record labels are: Sony Music, Universal Music Group, EMI Group, and Warner Music Group. These four labels represent about 80% of the music market. They would not sign a contract unless there was a way to purchase the album as a whole. So, Steve Jobs designed the iTunes music store as a compromise between the record companies and himself. He allowed for the album to be purchased both as individual tracks and as a whole.
The record companies were scared about the threat of digital music pirates, so they required the music on iTunes to have Digital Rights Management (or DRM). DRM locks up a song file and restricts the user’s ability to share the song. Apple’s Fair Play DRM system would require the person who purchased the music to enter a password for each of the computers that the song was on. A person was allowed to play a song on up to five computers. Most people blame Apple for DRM because DRM restricts iTunes songs to only play on iPods. However, Steve Jobs hates DRM. He never wanted it in the first place, but he would not have iTunes without music, so he had to comply with the record companies’ demands. (Wikipedia)
On April 28, 2003, the iTunes Music Store was open for business. Over the years, iTunes became the number one digital music retailer, and then number one music retailer, beating out Best Buy and Wal-Mart. The major record companies did not like to see Apple at the top, so in an effort to knock them down a peg, Universal Music Group released its catalogue, DRM-free, to iTunes’ competitor, Amazon MP3. On February 7, 2007, Steve Jobs posted an open letter discussing all of DRM’s shortcomings. In one part of the letter, Jobs wrote:
The third alternative is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.
The record companies and Apple have since had a mutual dislike for each other. The “big four” think that Apple has too much power and is corrupt. Steve Jobs has blasted the record companies, saying that they have gotten “greedy” (Tony Smith). As much as Apple and the “big four” do not like each other, they both recognize a mutual need they have for each other. Apple cannot sell music without the record labels, and the record labels cannot sell music without the biggest distributor of music.
In 2007, Radiohead tried something that made people realize the record companies were obsolete. They posted their seventh album, In Rainbows, available for download on their site. Radiohead allowed users to name their own price for the album. Radiohead had fulfilled their contract with EMI for six albums. They decided to release their seventh independently (Wikipedia).
Thom Yorke, the lead singer for Radiohead said, “We have no record contract as such ... What we would like is the old EMI back again, the nice genteel arms manufacturers who treated music [as] a nice side project who weren't too bothered about the shareholders. Ah well, not much chance of that.” The band had toyed around with releasing their new album only on the internet, but they opted out because they felt like it alienated fans who did not have access to the internet. In an interview with Time Magazine, Yorke said, “I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘[expletive deleted] you’ to this decaying business model.” Approximately two out of five downloaders paid for the album. The average price that people paid for the album was six dollars. The results of the experiment were somewhat disappointing because around 60% of people didn’t pay for the album. However, maybe the experiment proved the people want their music for free. Maybe people are through with the current model of paying for music and want something different.
Many people say that the album is dead. People only buy the singles that they hear on the radio and refuse to fork over the money for the full album, complete with eleven filler tracks. New statistics, provided by James Lewin, state that “For every 1% increase in downloading rate, there is a 6% decrease in album sales and a 9% increase in single track sales per bundle of an artist’s music.” Even so, there has been a resurgence of the album, in a less-than-legal form. In recent years, torrents have caught on with internet users. A torrent is an online file that people can download. The actual file is stored on a user’s computer and can only be downloaded when that user is online. Torrents are typically used for larger files, such as an album. While torrenting is considered stealing, one must think about who they are stealing from. On a typical studio album, priced at $15.99, the artist only receives $1.60 (Reluctant Pirate). So, when someone torrents an album, they mainly take money from the corrupt, power-hungry record companies.
In the internet age, are record companies necessary anymore? Radiohead proved that a major profit can be made without a major record label. The internet has become the new medium in which people gather information, media, and entertainment. Anyone can post his or her songs online and get noticed. Artists are beginning to distribute their music themselves, eliminating the need for a corporate monolith to breathe down their necks. The new decade has just started. Will this be the decade that the record companies ditch the dying model and opt for a new one? Or will the artists decide that they no longer need the record companies to be successful? Whatever happens, there are sure to be no alarms and no surprises.
Works Cited
Lewin, James. “Album Filler The Real Reason For Declining Music Sales.” Sonic State.
3 December 2009. Sonic State Limited. 7 December 2009 .
Reluctant Pirate. “Payment Breakdown Comparison CD vs. iTunes.”
Future of the Music Industry. 14 January 2005. 7 January 2010 .
Knopper, Steve. Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in
the Digital Age. New York: Free Press, 2009.
Jobs, Steve. “Thoughts on Music.” Apple. 7 February 2007. 7 January 2010
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Smith, Tony. “Apple CEO blasts 'greedy' music labels.” The Register. 20 September 2005. 7 January 2010 .
