Pop Didn’t Eat Itself: Why Piracy Didn’t Destroy the Music Industry

By: 10.04.11  •  31 Comments

Napster Ascendant…Except Not

Here’s the first crack in the argument that piracy was or is the main threat to the music industry: in 2001, after Napster had been shut down and its clones and imitators were scampering across the land, the music industry posted a terrifyingly bad profit of…$13.7 billion. Run the numbers and it actually made more per album than in 1999. It’s especially impressive when you realize the country was in the middle of a nasty recession.

To understand why this is, exactly, it’s worth looking at Napster as a phenomenon. Napster got a lot of coverage by old media as a huge threat, but realistically speaking, it wasn’t. It was a fad among college kids and teenagers that pretty rapidly died off, especially when it was shut down in 2001. Why?

Broadband. In 2001, only 10% of people had broadband, and most of them were students living in college dorms. It’s an important fact because, without broadband, music downloads become, well, a massive pain in the ass. Go ahead, download a 5MB file over a 56k connection. Of course Napster didn’t make a dent in the larger media sphere. It couldn’t.

This isn’t to downplay Napster as an achievement, or a game changer, because the key thing Napster introduced was the idea that if you wanted one song, you didn’t have to buy the album. It also highlighted, to one company, that the music industry had no understanding of digital distribution and was, essentially, ripe for the picking, but we’re getting ahead of ourselves. These two things are key — the music industry was complaining that “these damn kids expect music for free!” Instead they should have been worried about those damn kids realizing they didn’t have to buy an entire album.

But could other P2P sites cause a dent? After all, put a chart of broadband penetration next to music industry profits, and you see music profits drop as broadband penetration rises.

Until you look closely, and notice the real drop kicked in 2003.

Gee, what happened in 2003?

Crushed by the iPod

The iTunes Store opened. Here we find the real problem for the music labels: Apple owns and completely controls the biggest record store on Earth, and it doesn’t care about selling albums. The introduction and rapid utter obscurity of “Cocktail,” iTunes’ would-be album seller, pretty much says all you need to know. It definitely doesn’t need the labels’ help selling music. In fact, Apple was happy to help aggressively put record store chains out of business and force the labels to become dependent on them. The real story of music isn’t piracy — it’s how one company realized it could break an entire industry to its will, and actually did it.

Record labels were kind of baffled by the success of the iPod, but had managed to swallow their own hype about the dangers of piracy enough that they were happy to commit to an iTunes Store. Finally, a legal option! All those pirates we’ve been insisting exist will have to pay a buck a song!

Instead what happened — which Apple, by the way, knew it would — is that as more houses got iPods and broadband, people like, say, the dads of teenagers who own iPods took a look at the iTunes Store, decided they liked this “not paying $15 for an album I’m only going to listen to three songs on” thing, and got their own iPod.

This was when album sales entered what one supposes could be called “free fall,” but for labels, the real problem has been the death of the chain record store. Independent record stores and major labels have had an antagonistic relationship at best over the last several decades, but look no further than the ongoing death of Trans World Entertainment, currently the last major chain music retailer standing, for proof that the labels are essentially dependent on two companies, Apple and Amazon, that are happy to force them to accept smaller and smaller cuts of the pie every year.

More damaging is the control the major labels lost over the marketing process. A look at Amazon’s top albums in sales is instructive, if anecdotal — as of this writing, the best-selling album in Amazon’s MP3 Store is Ben Folds Five’s “Whatever and Ever Amen,” which came out nearly fifteen years ago. Number five, “Sigh No More” by Mumford and Sons, has been on the Top 100 for nearly two years. Equally instructive: the price. Want to get on the Top 100 on Amazon? Keep it under $10. $5 and lower and you’re golden.

Singles, meanwhile, are far more radio-driven, but there’s a mismatch between singles and album sales — a hot radio single just can’t drive album sales. This is true even in CDs: Amazon’s big CD hit right now is that young and dynamic hipster, Tony Bennett.

And that’s the root of the problem: the music industry is broken. It clings to a broken model because that’s all it has, and it’s terrified of change. There are valid reasons — there’s no business that likes a declining profit forecast. But part of it is simply denial. After all, if they can convince themselves that eventually, financially ruining random citizens and passing copyright laws that damage basic freedoms and computer security will reverse their fortunes, they’ll keep doing it.

So how do we stop it?

Simple, really: stop buying their products. After all, frivolous lawsuits are expensive, and they can’t make you shell out $15 like they used to. Maybe, after even singles stop selling millions, they’ll get the message.

Although we doubt it.

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