Assistant Attorney General Thomas O. Barnett gave a rather odd history of the iTunes Store at a speech at George Mason University yesterday:
Apple’s iTunes music service has (for the moment) solved a problem that some observers, less than five years ago, predicted might never be solved: how to create a consumer-friendly, yet legal and profitable, system for downloading music and other entertainment from the Internet. It is instructive to review the history of the problem. The technical capability to offer digital music over the Internet has existed at least since the early 1990s; nevertheless, digital music first moved online in a significant way only in 1999 with the launch of the Napster centralized file-sharing service. There were major flaws with the early attempts to offer downloadable music: Napster and Grokster were based principally on piracy, while recording industry efforts such as MusicNet and pressplay never achieved wide use and, in addition, were attacked as risking a recording industry monopoly over not just the songs, but technological development as well. While it battled the music pirates, the music industry suffered huge losses, including a 25 percent drop in sales from 2001 to 2002, which could be measured in the billions of dollars. Reviewing that bleak picture, the head of the Recording Industry Association of America said in 2002, “I wish I could tell you that there is a silver bullet that could resolve this very serious problem. There is not.”
There was no silver bullet–there was, however, a little white box called the Apple iPod. The iPod was not an immediate success. When Apple announced the iTunes music service in January 2001, it was a software service without a device to match, and it worked only with Apple’s computers. It took Apple almost a year to ship the first iPods, in late fall 2001, and again, iPods worked only with Apple’s products. Sales were small. Apple did not offer the first PC-compatible iPod until July 2002, and even then the devices worked only with Apple’s preferred FireWire port, not the USB 2.0 ports that are far more common on PCs and the PC-compatible iPods connected only to the MusicMatch music service, not Apple’s iTunes. Compatibility problems plagued the PC-iPod and hurt its sales. So by early 2003–four years after the launch of Napster–there still was no clear legal, consumer-friendly solution. Many were trying, including Microsoft, which announced in March 2003 that it was entering the market with its Media2Go portable video and audio players, but no one had achieved real success. The real revolution began in April and May 2003 when Apple unveiled the “third generation” iPods, which were directly compatible to USB 2.0 ports and provided software to offer the same capability to older models. Apple also made all the iPods work with iTunes. These changes were a reaction to the discipline of the market–customer complaints and unsatisfactory sales–and once they were implemented, the reward was swift: suddenly, iTunes passed the mark of one million songs downloaded. In June 2003, Apple sold its one-millionth iPod, and in September 2003, iTunes downloads passed the 10 million song mark. In January 2004, Apple introduced the iPod mini and several variants followed; online music had truly arrived.
This is the recent history of the music industry as seen through a funhouse mirror. The big event of April 2003 wasn’t adding USB to iPods, it was the unveiling of the iTunes Music Store. Previously, iTunes was just a program for managing music ripped from your CDs. So it’s not surprising that iTunes “suddenly” passed the million-song mark the year the service was released.
But the bigger problem with his history is that there’s no mention of MP3.com. iTunes wasn’t the first company to solve the “intractible problem” of offering users a convenient way to pay for music on the Internet. Apple’s just the first offering that wasn’t sued out of existence by the labels. MP3.com had a service, launched a full 3 years before the iTunes Store, that allowed users to upload their CD collections to the MP3.com service for personal use (this wasn’t a file-sharing service–users could only listen to their own CDs). Even better, if the user bought a CD online, MP3.com would immediately allow the user to stream the music on that CD to his computer. For the first time, you could purchase a CD and begin listening to it within seconds. Users flocked to the service. Unfortunately, the recording industry put them out of business with a lawsuit that I think they should have lost. The recording industry didn’t just want to get paid for their music–MP3.com did its best to only let people listen to music they’d legally purchased–they wanted complete control over online distribution.
Hence, the “problem” wasn’t that it was difficult to an build online music store users would like. The problem was that the labels had to be dragged, kicking and screaming, into allowing somebody to offer such a store. The reason the early stores sucked was that the labels imposed unreasonable restrictions on them. “Intractible” seems like a strange word for a problem that the music industry brought on themselves.
Barnett goes on to completely miss the point of the interoperability critique. The problem isn’t that users are forced to buy songs from the iTunes store. The problem is that users are legally prohibited from taking their music with them if they decide to leave Apple’s walled garden. But instead of addressing this critique head-on, he sets up and knocks down a series of straw-man arguments, never mentioning that Apple’s monopoly on iTunes compatibility is driven by the DMCA rather than market forces.
As I said, this is the story of the online music industry as viewed through a funhouse mirror. I’ll leave the question of who built the funhouse as an exercise for the reader.
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