When iTunes Ruled the Music Industry

Hello, folks! This evening I’ll be hosting another reader call at 7 pm EST, which you can sign up for here. I’d also like to say thank you to Mariana Carvalho and Taylor Curry for a year of copy editing this newsletter. Their work helps keep this project going, so again thank you! Now, let’s talk about the 99-cent songs, post-Napster jitters, and corporate in-fighting.

Thomas Middelhoff, the CEO of Bertelsmann, wanted in on Napster. He made his name within the company during the mid-90s with a $50 million investment in America Online, which ballooned to a value over a billion dollars once sold. Bertelsmann Music Group wanted no part of the fledgling digital music start-up in 2000, as the rest of the music industry continued a legal pursuit against the company. According to Joseph Menn’s All the Rave, the compromise was an eventual $60 million loan to the file-sharing company with the hopes the rest of the industry would buy in—no other labels fell in line. BMG’s own financial struggles reduced the sway of its executives who saw no good path forward working with Napster. By 2003, Middelhoff would be out as CEO, and Napster’s own moment in the spotlight was years in the rearview.

The post-CD bubble record industry saw continued conflicts within and amongst firms. I’m loath to harp on competition narratives in the contemporary record business, but this was an era of more frequent—and certainly more public—disputes on the industry’s future. That’s what inspired my renewed look at Apple’s launch of the iPod and iTunes Music Store. The company allowed the record industry to articulate its vision for how to reverse falling profits. Though it was not done in a coordinated manner, the record industry conjoined itself to technology companies hoping each subsequent bet might pay off. Not all of them did, but within the popular consciousness, Apple produced the first case study of this new framework.

The Joy of Corporate Conflict

Major labels needed a response to Napster, or that’s what they told themselves. That’s when MusicNet and Pressplay arrived. The corporate divide in the platforms went: PressPlay (Universal Music Group, Sony, and EMI Records) vs. MusicNet (Warner Music Group, Bertelsmann Music Group, and EMI Records). The former featured the largest music label (UMG) and one of the world’s largest media entertainment businesses (Sony), which may point to why PressPlay launched, while MusicNet never did. Though Napster was used by millions of people and caused quite a stir in the record industry, it never outlined a path towards a legal digital music platform. Without tech bubble venture capital cash, there was little room for the two music platforms to stay afloat. Back to the drawing board.

Enter Apple. Abbreviated accounts of the record industry’s interactions with Steve Jobs and Apple portray an industry dragging its feet into the new century of technology. This technocentric view ignores that back in 1999 EMI sold David Bowie’s hours... digitally, years before the iTunes Music store. In fact, Steve Knopper’s Appetite For Self-Destruction and Eamonn Forde’s The Final Days of EMI: Selling the Pig often cites younger executives willing to embrace newer modes of technology. Steve Jobs reportedly made childish fusses at record executives, but despite that petulance, his company’s relatively small size—among other things—helped ease record industry concerns.

The failures of Pressplay, MusicNet, and even the cross-company initiative of “Digital Media X” proved exhausting for record label executives. Options were running out. In Knopper’s account, the turning point is credited to Paul Vidich and Kevin Gage, newer faces within Warner Music Group. Vidich and Gage pulled CEO Roger Ames into meeting Jobs, whose charm got Ames/Warner on board. The record label also saw its request of 99-cent songs honored, which suggests the agreement wasn’t reached without some more concrete business negotiations.

Ames, in an effort to keep the momentum rolling, went to Doug Morris, the then head of Universal Music Group, to pull him on board. Morris could’ve fought Apple more, but as Ames stated rather bluntly, “We have to put a legal service in the market. None of us have to come up with anything.” The opportunity for them to own this space was slipping away, so negotiating the terms was the next best thing available. This presented an issue for Sony, who after a decade-plus of CD success wasn’t quite ready to give up on this format battle.

The Japanese company dragged its feet throughout the process. The gap between Sony Corp. and Sony Music lightly mirrored Bertelsmann’s awkward courting of Napster. The former was selling millions of Walkmans and, which were buoyed by Napster and other illegal file-sharing sites; Sony Music, as part of the RIAA, was seeking to clamp down on those exact activities. Sony Music’s profitability, however, gave it more corporate power. In that backdrop of competing for internal interests, the company reluctantly joined up with Apple. When the iTunes Music Store launched in April 2003, it featured music from all five of the major labels, a sign of joint backing that no prior product could boast.

Apple, to further lure record labels, offered what became an all-too-familiar bargaining chip: advertising. The company was prepared to spend $15 to $30 million a quarter on promotion, which may ring a bell from reports of the recent Universal Music Group and Spotify licensing agreement in which the major label doubled down on platform-driven advertising, rather than fight for increased payouts. Even if the record labels were looking out for their own interests, the rallying behind Apple set the template for how major labels negotiated within the digital space over the next two decades.

I wanted to circle back on iTunes partly because a lot of my writing on digital music glosses over these years. This is a mistake on my part because the contemporary streaming consensus arrived via Apple, not Sony or another record label. Apple brought selling digital music to the mainstream. This wasn’t a calculated turn, as the endless bickering with YouTube, and now TikTok, might suggest. Yet, once every record label gets behind a project, whether via direct funding (Spotify, Triller, Vevo) or licensing agreements (YouTube, Myspace), a path towards success is paved. After a decade of declining sales, direct competition between labels has ceased. (Again, stories of artist bidding wars are often press campaigns by the artists or even the label themselves.) From 2000 to 2003, the record industry saw a nearly 20% drop in CD sales, so technology companies and their financial backers offered a life raft for the record industry. Consolidation and financialization guided this trajectory, but Apple’s iPod and iTunes Store provided a vehicle for digital music’s present political economy.

Corrections

Last week, I mentioned that the United Kingdom government was looking at the practices of the digital music economy. The Department of Digital, Culture Media & Sport made that specific request, which is supported by the Musicians’ Union, not the government. Though, hopefully, the suggestion is taken up!

Unheard Labor

Last week, the D.C. Circuit Court of Appeals’ opinion on the Copyright Review Board’s ruling over Spotify and other streaming platforms was made public and upheld that platforms should increase songwriter payments. However, the Court will give Spotify, Pandora, etc. the opportunity to potentially challenge payment increases in court. Will continue to follow this ever more tedious court battle. The American Federation of Musicians is suing 212 Productions for underpaying or failing to pay musicians that contributed work towards the NBC's 'The Voice'. Out in Manchester, thousands of music workers marched in the street to rally for more government support after being left out of government assistance programs. Always love when a music worker action takes to the streets.

A Note of Financialization

Tim Ingham over at Music Business Worldwide pointed out that Tencent’s recent deals with Universal Music Group, Cooking Vinyl, Kobalt Music Group, and even Thailand’s GMM Grammy, all hint at joint label or promotional efforts. Ingham speculates this could be an admission on the part of the groups that they need to have Tencent leverage its market power if they’d like to find greater success in China. Certainly makes sense that Tencent’s market dominance would be used to wedge itself between companies hoping to enter its market. This does make Tencent’s “end game” of controlling the Chinese record industry pretty secure, as more labels entering the country are conjoined with Tencent.

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