If you’re happily listening to Spotify or Pandora for free, you might think that music streaming is pretty cool.
But Apple is trying to kill free music, and it isn’t the first time. The company has a playbook for this sort of thing, penned by founder Steve Jobs.
Apple is reaching out to artists about curating their own channels for its streaming service Beats Music, which is expected to be unveiled in June.
Beats will be a streaming service, like Spotify. But unlike its rival, Apple’s product is expected to be a subscription-only service.
With Beats Music, Apple is trying to insert itself between two groups — consumers and record labels. Consumers have shown, yet again, that there is a huge demand for free music. Record labels and artists want them to pay for it. And now Apple appears to believe that there is money to be made by getting involved.
It’s a move the company made before, when it launched iTunes and the iPod. Napster — which let people share and download each other’s digital music over the internet — had shown that there was a huge demand for free music, undermining the industry’s bottom line. CDs had killed vinyl but Napster was threatening to kill CDs. While several music industry copyright lawsuits killed off Napster, copycat sites like Kazaa and Limewire became even bigger and better, and kept free music file-sharing alive.
A quick look back at Apple’s history shows how Steve Jobs turned this pirate’s paradise into a massive money maker for the company. The story is interesting because it can be used as a potential playbook for the way Apple might force free music streaming companies out of business — even though they are totally legal.
May 1999: Shawn Fanning launches a peer-to-peer file sharing site focused on music, using his childhood nickname to come up with the brand ‘Napster’. Sean Parker thinks its a fantastic idea, as do the 20 million people using the site by March 2000.
April 2000: Metallica sues Napster for copyright infringement after their new song “I Disappear” was distributed on the site before it was officially released.
October 2000: A&M Records Inc. sues Napster for copyright infringement.
February 2001: An appeals court sides with the record labels, and Napster is ordered to monitor and block access to copyrighted files on its site. A permanent injunction is ordered in March.
March 2001: Free music sharing service Kazaa is launched by Niklas Zennström, Janus Friis, and Priit Kasesalu. Many other p2p apps were launched while Napster was still in business, and others such as LimeWire and BitTorrent would follow.
July 2001: Napster shuts down… but file sharing didn’t die with it.
In response to the rapidly growing demand on Kazaa and Limewire, music labels were issuing multiple lawsuits, and virtually ‘locking’ CDs and online video files using watermarks and other digital rights management (DRM) so they couldn’t be shared like free MP3s.
Instead of trying to quash the demand for digital music altogether, however, Steve Jobs saw an opportunity.
October 2001: Apple lifts the lid on the very first iPod, which had 5GB of storage, begging to be filled. At first, iTunes existed purely as a music management system, and was only available on Mac.
April 2002: Jobs decides that the rise of digital music is inevitable and that labels (and Apple) can make money from it. Apple set out to make digital songs cheap and easy to download — legally — and created a beta version of the iTunes store.
According to Rolling Stone, he reached out to Warner Music Group and was called in to demonstrate the product to Warner Music Group executive Paul Vidich and a small group of Warner Music staff. They were hooked.
“It was going to be their storefront, the first thing that consumers saw,” Vidich told Rolling Stone in 2013. “I remember thinking, ‘This is so simple. It works. It’s great.'”
Jobs then moved onto to the other big US labels, such as Universal and Sony. One of the biggest problems was convincing labels to licence their entire collection for digital use, with each song listed separately. This would undercut the profits labels made from forcing consumers to pay for songs they didn’t want when buying an artist’s new album.
April 28th, 2003: The iTunes Music Store opens, and sells 1 million downloads in its first week. By allowing labels to retain some digital rights management, Jobs managed to convince them to sell digital versions of songs on iTunes for just 99 cents each.
iTunes made songs cheap and easy enough to obtain that they were finally able to compete with free illegal downloads. Steve Jobs had proved that people would voluntarily pay for music, if the product they were getting was good enough.
Today: Since then, the music industry has undergone a seismic shift.
Services such as Pandora, Spotify and SoundCloud allow users to stream music for free, using advertising or a premium paid service to raise funds for royalty payouts. But too few users are signing up for paid tiers, preferring to stick to ad-supported streaming.
Meanwhile, sales and revenues from iTunes are falling, as streaming once again teaches consumers that music can be free. Sales of digital media fell 4% in the second quarter of 2015, and by 5% for the first six months of the 2015 fiscal year, Apple’s Q2 results show. Record labels — and Apple — are not happy.
The Cupertino company needs to update its music business to remain relevant — and once again, it is winning over the record labels by rejecting the dominant free model. Apple now has a huge amount of experience working with the industry, and there are even reports it is promising labels huge sums for taking their music off free streaming services entirely.
For the second time, Apple is about to insert itself between the record labels and the listeners, trying to offer a music product with a price low enough enough — and a music selection big enough — that consumers will choose the cheap version over the free one.
History shows: Apple has done this once. It can do it again.