Of course, music theft is nothing new. There have been bootlegs for years.
Of course. What's new is this amazingly efficient distribution system for stolen property, called the Internet – and no one's gonna shut down the Internet.
And it only takes one stolen copy to be on the Internet. The way we expressed it to them was: You only have to pick one lock to open every door.
At first, they kicked us out. But we kept going back again and again. The first record company to really understand this stuff was Warner. Next was Universal. Then we started making headway. And the reason we did, I think, is because we made predictions. And we were right. We told them the music subscription services they were pushing were going to fail. MusicNet was gonna fail. Pressplay was gonna fail. Here's why: People don't want to buy their music as a subscription. They bought 45s, then they bought LPs, they bought cassettes, they bought 8-tracks, then they bought CDs. They're going to want to buy downloads.
They didn't see it that way. There were people running around – business-development people – who kept pointing to AOL as the great model for this and saying, "No, we want that – we want a subscription business."
Slowly but surely, as these things didn't pan out, we started to gain some credibility with these folks.
Despite the success of iTunes, it seems that it's a little early to call all of your competitors failures. RealNetworks' Rhapsody, for example, has won over some critics.
One question to ask these subscription services is how many subscribers they have. Altogether, it's around 50,000. And that's not just for Rhapsody, it's for the old Pressplay and the old Musicmatch. The subscription model of buying music is bankrupt. I think you could make available the Second Coming in a subscription model, and it might not be successful.
When you went to see music executives, was there much comment about Apple's "Rip. Mix. Burn." campaign? A lot of them regarded it as an invitation to steal music.
The person who assailed us over it was Michael Eisner. But he didn't have any teenage kids living at home, and he didn't have any teenage kids working at Disney whom he talked to, so he thought "rip" meant "rip off." And when somebody actually clued him in to what it meant, he did apologize.
Lately, the recording industry has been threatening to throw anyone caught illegally downloading music in jail. Is that a smart approach?
Well, I empathize with them. I mean, Apple has a lot of intellectual property, and we really get upset when people steal our software, too. So I think that they're within their rights to try to keep people from stealing their product.
Our position from the beginning has been that eighty percent of the people stealing music online don't really want to be thieves. But that is such a compelling way to get music. It's instant gratification. You don't have to go to the record store; the music's already digitized, so you don't have to rip the CD. It's so compelling that people are willing to become thieves to do it. But to tell them that they should stop being thieves – without a legal alternative that offers those same benefits – rings hollow. We said, "We don't see how you convince people to stop being thieves unless you can offer them a carrot – not just a stick." And the carrot is: We're gonna offer you a better experience... and it's only gonna cost you a dollar a song.
The other thing we told the record companies was that if you go to Kazaa to download a song, the experience is not very good. You type in a song name, you don't get back a song – you get a hundred, on a hundred different computers. You try to download one, and, you know, the person has a slow connection, and it craps out. And after two or three have crapped out, you finally download a song, and four seconds are cut off, because it was encoded by a ten-year-old. By the time you get your song, it's taken fifteen minutes. So that means you can download four an hour. Now some people are willing to do that. But a lot of people aren't.
You've sold about 20 million songs on iTunes so far – it sounds like a big number, until you realize that billions of music files are swapped every year.
We're never going to top the illegal downloading services, but our message is: Let's compete and win.
David Bowie predicted that, because of the Internet and piracy, copyright is going to be dead in ten years. Do you agree?
No. If copyright dies, if patents die, if the protection of intellectual property is eroded, then people will stop investing. That hurts everyone. People need to have the incentive so that if they invest and succeed, they can make a fair profit. But on another level entirely, it's just wrong to steal. Or let's put it this way: It is corrosive to one's character to steal. We want to provide a legal alternative.
Of course, a lot of college students who are grabbing music off Kazaa today don't see themselves as doing anything any different from what you did when you were a teenager, copying bootleg Bob Dylan tapes.
The truth is, it's really hard to talk to people about not stealing music when there's no legal alternative. The advent of a legal alternative is only six months old. Maybe there's been a generation of kids lost – and maybe not, who knows? Maybe they think stealing music is like driving seventy mph on the freeway – it's over the speed limit, but what's the big deal? But I don't think that's the way it's going to stay, not with future generations, at least. But who knows? This is all new territory.
Apple has had a head start in the digital-music business, but obviously lots of other companies are getting into it now, too. Last week, for example, Dell came out with its rival to the iPod, the Dell DJ.
We will ship way more digital-music players than Dell this quarter. Way more. In the long run, we're going to be very competitive. Our online store is better than Dell's. And we have retail channels. Most people don't want to buy one of these things through the mail. Dell's distribution model works against them when they get into consumer electronics. Like, they're going to be selling plasma TVs online. Would you ever buy a plasma TV without seeing it? No way.
And then there's Microsoft. What happens to Apple when Bill Gates starts building an iTunes clone into the Windows desktop?
I'd answer that by saying I think Amazon does pretty well against Microsoft. So does eBay. So does Google. And AOL has actually done pretty well, too – contrary to a lot of the things people say. There are a lot of examples of companies offering services, Internet-based services, that have done quite well.
And Apple is in a pretty interesting position. Because, as you may know, almost every song and CD is made on a Mac – it's recorded on a Mac, it's mixed on a Mac, the artwork's done on a Mac. Almost every artist I've met has an iPod, and most of the music execs now have iPods. And one of the reasons Apple was able to do what we have done was because we are perceived by the music industry as the most creative technology company. And now we've created this music store, which I think is non-trivial to copy. I mean, to say that Microsoft can just decide to copy it, and copy it in six months – that's a big statement. It may not be so easy.
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