Apple's iTunes Music Store, which opened 10 years ago this Sunday, exists for one major reason: Napster.
By late 2002, the file-sharing service that had peaked with 80 million users was no longer in business. The Recording Industry Association of America had sued the company successfully for copyright infringement, and the courts forced Napster to shut down. But the power of Napster would live on for years afterward, as more sophisticated, harder-to-kill copycats, from Kazaa to LimeWire to BitTorrent, began to take its place.
The world's biggest record labels, fearing the power these services gave to consumers, did everything they could to virtually "lock" CDs and online music files, using watermarks and other digital rights management, so they wouldn't spread like free MP3s.
Steve Jobs, Apple's founder and chief executive, saw Napster, MP3s and the Internet a different way. By late 2002, he believed music fans clearly wanted to download songs they liked in an affordable and easy way rather than driving to Tower or Best Buy or some indie record store to buy them on $15-to-$18 CDs. But during this period, the record industry had no affordable, easy and legal option allowing this to happen.
Jobs saw opportunity.
He began to contact executives at the major record labels, some of whom were arriving at the same conclusion: music downloading could be piracy, sure, but it was also impossible to ignore, a crucial new way of doing business. He began with Warner Music, home of Neil Young, R.E.M. and Linkin Park, and wound up on the phone with Paul Vidich, a vice president. By this point, Apple had already hatched the iTunes Music Store and synced it perfectly with a piece of hardware that begged for content: the iPod.
Jobs arrived at Warner and showed Vidich and a small group of Warner employees a beta version of iTunes. "It was going to be their storefront, the first thing that consumers saw," says Vidich, today an advisor and board member for several tech companies, including ReverbNation. "I remember thinking, 'This is so simple. It works. It's great.'
"The attraction of Napster was not just that it was free, but more importantly, it gave people a way to connect with pretty much any piece of music," he continues. "What Steve was doing with iTunes was to replicate that type of experience – a vast catalog, available on a singles basis, with a convenient interface. It had to be easier than Napster."
With a series of dramatic presentations showcasing the iTunes interface, Jobs won over Warner executives, then moved on to the other big labels, including Universal and Sony. He allowed some digital rights management, a key point for the labels, although it wasn't as strict as they would have preferred. They allowed him to price every song for 99 cents.
The iTunes Music Store opened April 28th, 2003, and it was an instant revolution. CDs had been available for more than 20 years, but consumers had been demonstrating since Napster's 1999 debut that they were ready for a format change. The iPod suddenly had incredible power, and its white earbuds looked perfect in the "Silhouettes" ads Apple spent millions putting on TV and billboards. This was the moment digital music was no longer for thieves and miscreants – it was for cool people. (The RIAA would begin suing its customers later that year for copyright infringement, but that's another story.)
In its first week, iTunes sold one million downloads and soon became not only the top online music retailer but, displacing Walmart and Best Buy, the top music retailer. In a way, the service hastened the revolution that record executives feared the most – it shifted the business from expensive, high-revenue CDs to cheap, low-revenue singles. But there was no choice. There would always be online music thieves, but most consumers simply needed an easy, legal way to download songs. This was how fans would buy music in the future, whether the record industry liked it or not.
For some time after iTunes opened, label execs complained about the deal Jobs made – it didn't allow prices to go higher or lower than 99 cents (eventually corrected), and it didn't give the labels a cut of the lucrative iPod, and later the iPhone (not corrected – are you kidding?). In the 10 years since iTunes made its debut, the global record industry has shrunk drastically, from $38 billion in revenue more than a decade ago to $16.5 billion last year. Meanwhile, Apple grew into one of the world's biggest companies.
Today, some suggest that iTunes' buy-and-own model, once so refreshing and necessary, is itself an anachronism. Spotify, Pandora, Rdio, Rhapsody and the overwhelming dominance of YouTube make it easy for fans to stream any song, anytime, for free. Sources in the record business confirm rumors that Apple is working on an Internet radio service to meet demand in this market. And track sales (mostly via iTunes) appear to have flattened, dropping two percent so far this year, according to Billboard. But a recent NPD Group survey suggests iTunes is as strong as ever: 44 million Americans downloaded one or more paid songs or albums last year, 38 percent of music fans say they believe in owning songs and albums, and 41 percent of Pandora and other free streaming users say ownership is important to them. Nobody's closing iTunes.
In May 2003, when Steve Jobs called Warner's Vidich a week after iTunes opened, giving him the news about the million in first-week sales, Vidich thought about what Warner and other labels had tried. They'd had conversations with Sony, Panasonic, Philips and Microsoft, but were not able to make a deal. (Part of this, of course, was due to record-label dogma that all tracks must contain restrictive virtual locks – something Jobs deftly overcame.)
"They were technology companies that knew how to build disc players and hardware, but they weren't companies that had demonstrated Apple's sophistication with regard to software," Vidich recalls. "It really took a company that was able to bridge those two things and come up with an attractive consumer product."
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