CHAPTER18 The Digital Age or nearly a century the modern music industry was forged by two then-new F technologies—the phonograph record and broadcasting. In the late 20th century, a third “The future is here. force—digital technology—emerged to shake the industry’s foundations. Digital technology It’s just not widely radically altered not only the business of music but also its creation, manufacture, and distribu- distributed yet.” tion. Furthermore, it changed the very culture of how music is created, with inexpensive tech- —William Gibson nologies to record, present, distribute, promote, and play music, fashioning a unique artistic and commercial digital democracy, which drew mu- sic artist and music consumer closer even as it blurred the boundary between them. Digital’s power was most graphically illustrated in the arena of distribution. The unauthorized digital distribution of music via peer-to-peer (P2P) networks like Napster and Grokster was often cited as the primary force behind the music industry sales slump that began in 2001. Ironically, although these P2P networks also presented a method for legitimate digital distribution via the Internet, record labels, which had reaped a fortune from the sales of CDs for two decades, perceived digital distribution as a threat rather than an opportunity. When Philips and Sony collaborated on the development of the compact disc (CD) in the early 1980s, no one could have predicted the extent to which digital technology, in combination with the Internet (which was still gestating at the time), would revolutionize the music industry. Left: Steve Jobs unveils Apple’s iPod Mini, 2004. Photo © Frederic Larsen/San Francisco Chronicle/Corbis. 313 314 MUSIC BUSINEss HANDBOOK AND CAREER GUIDE The Double-Edged Sword From the onset, digital recording and distribution created a quagmire of conflicting benefits and disadvantages for the recording industry. On one hand, those making the actual recordings—performers, producers, and engineers—found in the digital medium freedom from the technical constraints of analog tape, including tape noise and limited dynamic range. Furthermore, as digital audio technology progressed, musicians and producers were given powerful new tools, such as digital signal processing systems (DSP)—digital reverbs, delays, samplers, looping, and editing capability—that vastly enhanced their ability to create and assemble sounds. Record labels equally benefited. The CD was initially an expensive proposi- tion to manufacture and replication was concentrated in factories owned mainly by major record labels. But the cost of a manufactured, packaged CD dropped quickly, from an estimated $2 per disc in 1988 to less than $1 by 2000. Thanks to sustained demand for CDs, however, these record labels managed to maintain their retail prices to a large extent throughout this period, thus steadily increasing the profit margin on each disc. At the same time, the labels’ marketing strategy of releasing popular album titles from their vast catalogs was encouraging consumers to replace entire vinyl and cassette tape collections with the CD version, further stimulating sales of CDs and CD players (some companies, such as Sony and Philips, which owned both record labels and consumer electronics divisions, derived double ben- efit). Furthermore, when the CD was introduced but was still untested as a successful consumer format, major record labels were able to demand royalty rate reductions from recording artists, ostensibly to help mitigate the legitimate cost of fostering the new technology but simultaneously increasing label profits. However, digital’s dark side quickly became apparent. While cassette tapes could be copied fewer than a dozen times before generational fidelity loss rendered them unusable, digital music, on a CD or in the form of an electronic file, could be copied—“cloned”—infinitely. Internet Synergy The growth of the Internet in the 1990s created a volatile proposition, providing a virtually unregulatable and broadly accessible channel to distribute digitized music files between computers. Music piracy mushroomed, buttressed further by the pro- liferation around the world of CD plants, some of which dabbled in unlicensed content, engendering financial losses assertedly in the hundreds of millions of dol- lars for record labels, music publishers, and the artists, producers, musicians, and songwriters who depended on music sales for their livelihood. But even as labels fought piracy on CDs, less obvious to them, initially, was the growing underground phenomenon of file-sharing on the Internet. That combination of technologies—digital audio technology and the Internet—became devastating. MP3.com—the commercial Web site built on the MPEG software-based pro- tocol that enabled recordings to be compressed into files easily transferable over the Internet—became a lightning rod in 1999 when the general news media began to widely report on what had by then become a massive global subculture. It was quickly followed by Napster, which used a P2P protocol that significantly hindered tracing who sent files and to whom they were sent. As a result, millions of users traded or sold millions of music files—per day. Chapter 18 The Digital Age 315 A lengthy series of legal battles and buyouts left the major recording corpora- tions in control of both MP3 and Napster but with little in the way of innate corpo- rate organizational or cultural capability of turning them to their own advantage. Labels Lay Seeds of Self-Destruction As the digital Pandora’s box began to open, the music industry fought back using legislation, litigation, and market propaganda. Several key pieces of digital technol- ogy legislation were passed in the United States. The Audio Home Recording Act (AHRA) of 1992 stipulated by whom and for what purposes digital copies could be legitimately made. The Digital Millennium Copyright Act (1998) was more compre- hensive, particularly in establishing a mechanism for securing copyrighted music online. But it wasn’t enough. As file sharing overtook the pirating of CDs as the record industry’s main problem, the Record Industry Association of America (RIAA) turned to mass litigation. It sued colleges, universities (their central servers had become a popular file-sharing nexus among students, the largest cohort of early illicit down- loaders), and many individuals. The civil litigations were tactically successful, but strategically dubious, causing far greater public relations damage. The RIAA coun- tered with publicity campaigns to raise awareness about the implications of illegal music distribution, but CD sales continued the relentless decline that had begun at the dawn of the 21st century. Ultimately, many in the traditional music industry came to acknowledge the futil- ity of the consumer litigation. The former chairman of the International Federation of Phonographic Industries (IFPI, the consortium of label trade associations including the RIAA) and ex-director of EMI Records, Per Eirik Johansen, stated in a 2009 inter- view that he came to believe that the music industry’s fight against piracy has been useless. Johansen even questioned whether illicit file-sharing is actually the same as theft and concluded that with copyright violation so widespread, the only recourse is to find better solutions. In that same year the RIAA announced an end to its 5-year mass litigation campaign, in which more than 30,000 individuals had been sued for file sharing, saying it would instead seek to work with Internet Service Providers (ISPs) to suspend file sharing copyright scofflaws. The RIAA’s efforts may have gone as far as they could: digital rights manage- ment (DRM), file encryption, and the threat of litigation were deterrents to casual P2P file sharers, but they did little to affect an apparent hard core of P2P users who were likely continue to download illicitly. This legislative/litigious game of techno- logical cat-and-mouse made one thing clear: The mechanisms of law and regulation simply could not keep up with the rapid innovation that digital technology brought to music. An on-demand mindset was fostered among music consumers, who now wanted music whenever and wherever they decided, and ultimately changed the economic structure of the music industry. Smaller, Cheaper, Faster, Better (?) At the heart of the digital music revolution is how digital technology changed the process of making music, from the relative confines of analog tape to the potentially infinite realm of digital’s nonlinear universe. 316 MUSIC BUSINEss HANDBOOK AND CAREER GUIDE In the late 1980s, computer-based multitrack recording and editing platforms began to proliferate, from companies including Cakewalk, Propellerhead, and Digidesign (whose Pro Tools system eventually came to dominate the field). Within a decade, hard-disk-based audio recording became ubiquitous. Analog tape, on which modern music recording had been founded, had become an expensive niche. This had serious implications for the music industry. For one thing, it lessened the need for conventional recording studios. Records that once had to be made in multi-million-dollar facilities with costly acoustical designs and complicated equip- ment could now be made in spare bedrooms, using an expanding universe of inex- pensive software-based recording and processing systems. Lower production costs should have been a boon to the music industry. In reality, the affordability of digital recording equipment began to reduce the need for large corporations