When a company as big and successful as Apple changes its mind about something as significant as the music industry, it's worth taking note of what’s changing with consumers.
Apple, the world’s most valuable company, is betting that consumers want to spend more money through Apple Music, the $9.99/month music streaming service it launched on Tuesday.
It’s a far cry from the vision of the late Steve Jobs, the founder and legendary leader of Apple until his death in 2011. Originally a computer maker, Apple became a post-personal computer company with the launch of the iPod in 2001. This was a digital audio player with so much more storage capacity than its competitors.
That invited consumers — particularly young people with a strong emotional connection to their music — to load up shiny iPods with hundreds or thousands of digital songs.
This was the Napster era of rampant file-sharing. Napster had been the brainchild of a college student who wanted to share what he was listening to with his fellow students. As a company, Napster created an online catalog that allowed computer users to share, on a peer-to-peer basis, digital MP3 music files.
Napster was shut down for contributing to copyright infringement. As a service, it effectively enabled the sharing of digital music files, enabling a user to download a free copy of a song purchased by someone else.
Enter Steve Jobs, who was more of a counter-cultural rock-and-roll rebel than your stereotypical slide-rule-toting computer geek.
According to the biography written by Walter Isaascon, published days after Jobs' death from cancer, "He knew that the best way to stop piracy — in fact the only way — was to offer an alternative that was more attractive than the brain-dead services that music companies were concocting. 'We believe that 80 percent of the people stealing stuff don't want to be, there's just no legal alternative.'"
As with other great entrepreneurs, Jobs set out to create a win-win-win-win situation: One that would benefit the artists who composed and performed music, the record labels who cut CDs, the company (Apple) that sold the iPods, and consumers — who could finally listen to all of their music in one place.
Jobs appealed to people's ethical desire not to steal. Speaking against the cataclysmic changes that Napster brought to the CD business, he said, "The user wins, because he gets a better service and doesn't have to be a thief."
But to get this win for the consumer, Jobs had to break the music industry's business model. He had to wean them away from $18 CD sales and get them willing to sell single tracks on demand for 99 cents. The labels would keep 70 percent of the royalties, and Apple would take the rest.
Isaacson recounted that in the lead-up to the business model behind the launch of iTunes in 2003, "Jobs insisted that this would be more appealing than the monthly subscription model preferred by the music companies. He believed that people had an emotional connection to the songs they loved."
"People want to own the music they love," Jobs would say, and "not just rent them."
Fast-forward a decade, and Apple is now saying the reverse: People want to rent and not own the music they love.
Part of what's changed is the widespread availability of high-speed broadband connections, as well as the success of video streaming services like Netflix. Apple’s iTunes broke the physical-disc distribution model of the recording industry. That forced them to license their copyrights to others, including a generation of legal music services and brands like Pandora and Spotify.
These services use "big data" algorithms such as the Music Genome Project to systemically connect rhythmic and harmonic elements from all songs in the musical universe. As a result, what's emerged over the past few years is the long-sought "celestial jukebox": Any song you can possibly imagine wanting to listen to, whenever you want to listen to it, for $10 a month.
Recording labels still balk at what they regard as the low royalties available through streaming services. Compared to their 70 cents a song, the average stream on Spotify brings them between 0.6 cents and 0.8 cents, or nearly 100 times less.
But in the music business, a convoluted system of copyright law creates different rules for different technologies: Radio broadcasters pay royalties to composers, but nothing to recording artists. Online music services pay something to everyone in the musical food chain, if only fractions of a penny per listen.
That’s the lesson of the transformational events of the music business over the past decade and a half: By making it easier to find, appreciate and share music, music-lovers will consume more, even if old business models — from CDs to iPods — need to give way to accommodate growth.