The Current State of the Music Industry

The major entertainment companies are all releasing music on MP3s without DRM. Some people are calling this a victory for consumer demand. While I think that this is how music should be sold, the motivations of the music industry deserve some examination.

First some history for those who forgot it. The current MP3-oriented market has a lot of roots.

CDs are digital and computer-readable so the roots go back to the 1970s when the format was introduced. Of course, at that time there were no home computers that could read CDs. Even playing music was a major accomplishment for these early systems.

CD drives started become standard on PCs in the early 1990s on "multi-media" PCs. These could play a CD but they were too short on disk space to copy more than a track or two to the PC. That's where MP3s came in. They compress the .wav files. At first people were ripping CDs so that they could burn their own mixes with their favorite tracks. Apple even targeted this with their Rip/Burn/Play promotion.

Four other things happened around this time. One was the rise of the stand-alone MP3 player. They were fairly bulky and they were short of space. Still, they took up less room than a CD player and they were shock-resistant. The second was speed increases in the Internet. Even without broadband it was possible to transfer an MP3 file in a fairly short time. The third thing was the rise of music trading sites beginning with Napster. The final factor was the elimination of the CD single. If you wanted your favorite track you had to go out and buy the entire CD at $20.

At this point the recording industry should have recognized a potential new market. If they had come up with something like iTunes they could have saved themselves a lot of grief, especially if older tracks were available at impulse-purchase prices - say $0.75.

The executives knew that all of this was going on but they were afraid of the new technology. They were even more afraid that anyone they brought in to manage it for them would take advantage. They tried some subscription services but these had such a limited catalog that they all failed. Other than that, they spent a lot effort trying to legally suppress file sharing.

That's what happened although it took them years to recognize it. Steve Jobs came to them with a proposal for iTunes. The kicker to his sales pitch was that it would only be for the Mac so, even if they didn't like it, it would be available to such a small percentage of the population that it didn't matter, anyway.

Jobs' promise didn't last long. Around a year after the initial iPod launch he expanded it to the PC.

Along the way Jobs made a couple of choices that shaped today's market. He included a proprietary DRM in iTunes. Jobs refuses to license this to any other company so the only way that you can use iTunes is to buy an iPod first (I suppose you could buy a tune, burn it to CD then rip that but that's too much work for most people). At the same time, Jobs declined to license any other formats. This gave Apple a big share of the music market and, like most things that Apple touches, it is on Steve Jobs' terms.

Enter Microsoft and other MP3 manufacturers. The iPod is no longer top of the heap. Several other players offer better features for a similar price. SanDisk's Sansa line has more flash memory and FM radio. Microsoft's Zune has WiFi. While Apple still has the lion's share of the market, these other players are selling in the millions.

So how to sell to these new players and Apple? The majority of the players are still iPods so using Microsoft's DRM eliminates too much of the market. That leaves MP3 as the only format that will play anywhere. The recording industry doesn't like it but they want to break Steve Jobs' hold over them.

So the sales of DRM-free music have more to do with Steve Jobs than any other market forces. That means that there may be future attempts at enforcing non-Apple DRM coming.