Back in 2003, as the music industry was reeling from widespread, Napster-fueled piracy, Apple CEO Steve Jobs made the record labels an offer they couldn’t resist: Give me a license to sell individual tracks but let me sell them cheap enough to be a viable alternative to free, and I’ll wrap them in DRM for you in a way that consumers will accept, so they can’t be copied.
The labels leapt at the deal and the $1.00 download became the new atomic unit of the business.
Though thrilled at first to have an answer to piracy the record companies eventually came to rue the arrangement once they figured out that Apple was using those inexpensive downloads to supercharge the market for its high-margin iPods and later iPhone hardware, and was reaping far more of the value being created by their music than they were. By then, however, they had become captive to Apple’s ecosystem: Thanks to Apple’s proprietary DRM, the only way to sell music to iPod users — at the time the largest segment of the portable music-player install base — was through iTunes, under terms effectively dictated by Apple. Read More »