Apple and The Indie Music Industry.
The late visionary Steve Jobs’ company Apple brought about a complete transformation in the legal digital distribution of music by changing the approach from subscription to purchase! As discussed in my blog Effect of Piracy on The Indie Music Industry, the launch of Apple iTunes in 2004 led to the rise of legal digital distribution, and has potentially offered a way for record labels to recover a portion of their displaced sales, adding a level of complexity to the market. While record executives were still unaware and naturally sceptical about new technologies, Jobs made countless trips to the major labels in 2002 and ruthlessly pursued the idea of ineffectiveness of the copy management systems put in place by the Audio Home Recording Act. He expressed sympathy towards the record labels that were well aware of the fact that their technique of legal action against individuals for illegal file sharing was not a sustainable approach to digital music, and were also hurting from sales perspective. He expressed how he was also a victim of piracy with some of Apple’s software also being illegally distributed. Most record labels viewed this only as experimentation with digital music because at that time, Apple’s music store was only available to Mac users and Apple held merely five percent of the U.S. personal computer market. However, Warner and Universal signed on with Apple and the other important players soon followed.
As a result, iTunes Store was launched in April 2003 featuring an extensive library of 200,000 tracks. Mac users purchased songs for 99¢ each and albums for $9.99 and did not have to pay a subscription fee. The number of tracks rapidly expanded and iTunes continued to thrive, selling over a million songs in its first week. Consumers were able to sample each song for 30 seconds, play from an Apple computer and iPod and burn it to CDs as many times as desired. In less than a year from its launch, iTunes had sold 20 million songs, after Apple Music Store and iTunes application was made available to PC users in October 2003.
As mentioned in my blog Transformation of the Indie Music Industry, the casual use of internet spread like fire and by the mid-90s personal computers were becoming a household thing because of the internet. At that time, introduction of a new format called the MP3, as a product of the European Union project related to MPEG-1 video, led to the possibility of compressing audio files and making them easily transferable through the internet and fit on personal computers. In 1995, the first MP3 player ‘Winplay3’ was introduced with the ability to decompress and playback digital MP3 files simultaneously and automatically. The WinAmp MP3 Player followed the WinPlay in 1997 and boasted improved functionality and an intuitive user interface. Followed by a series of suits against copyright infringement, DMCA deemed companies related to digital music as illegal because of which, in the 1990s, most companies trying to create a business model specifically around the distribution of digital music failed in their attempt to do so. However, services that did not find widespread usage, like subscription distributors, were able to survive in the same era, but the record companies made it difficult for them by not justifying their subscription fee and providing a limited selection of songs due to their anxiety about the security of internet. Some of its features allowed Apple to break into this sector which, until then, was impenetrable.
Apple already had an MP3 player, in iTunes, incorporated into its computer package that would be expanded to include the store. Digital sales of music for Apple were tied to another extremely profitable and widely successful product in their MP3 player, the iPod (and subsequently the iPhone) which became the most vital reason behind its success. iTunes store made it easy for consumers of all ages and levels of tech-comfort to use Apple’s experience, making it a user-friendly and consistently dependable product. Along with that, convenient interface and engineering quality of the iPod brought Apple an almost unheard of profit margin, as iPods were sold at a much higher cost than its competitors.
The complimentary relationship between digital music and the iPod made it possible for Apple to sell music at a significantly lower price as Apple strategically let the iTunes Store earn minimal to negative profits with 65¢ of every 99¢ sale going to the record labels and at least 25¢ to credit card fees, costs of digitizing music, hosting songs and writing and updating related software. This was clearly not possible to do for small, specialized companies whose only revenues came from digital distribution. Apple was perfectly placed to foster the entrance of evolution for the indie music industry with its integrated and easy-to-use interface across Mac computers, iPods and iPhones and digital music.
In my next blog I am going to discuss the effect of Apple and iTunes on the indie music industry, record labels and other digital services. Please share your experiences in the comments section and I will add them to my future blogs.
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