August, 2005

Apple Computer’s thread to survival is no longer a computer, but the iPod and its companion loading mechanism, the iTunes service. The ‘Music Industry,’ loosely defined as the four major record companies seems bent on severing whatever threads to survival it has left, loosing itself to a final free-fall.

Each component in this modern Shakespearean drama has in common its failure to learn from past experience. Greed, or an inability to see where the music business is headed is the Industry cause and hubris is a specialty of Steve Jobs and Apple.

Music executives are so muddled by wealth, they don’t see the wall in front of their speeding egos. The old political adage of it’s the economy, stupid is turned on its ear within the music biz and screams to anyone who listens that it’s the Internet, stupid.

The bean-counters and expense-accounters have so thoroughly picked the pockets of their artists over the last four decades that they’ve become accustomed to theft and deception, as long as it’s their own. The technology that allows file-sharing (the swapping of whopping big content in seconds) has shot down the business model that allowed them to sell 9-cent CDs for $14.95. Like Claude Rains in Casablanca, they’re “Shocked, absolutely shocked.” Misguided and flailing, they sued every kid they could find and heaped upon themselves the wrath and disgust of their consumer base. Sales slid, then threatened to lose their footing entirely.

Then a funny thing happened on the way to the demise of the Music Industry as it was currently structured. Apple Computer invented the iPod, a marvel the size of a pack of cigarettes that could store and play on demand thousands of songs. Not albums, individual songs, just as listeners wanted them. Tiny jukebox, free downloads . . . end of Music Industry, huh?

Not quite.

Apple served up iTunes to load its little miracle and sold the individual songs for 99 cents. People bought them by the tens of millions.

It doesn’t take a financial wizard to see that 99 cents times the twelve or fourteen songs on CDs come out to nearly the $14.95 that thwarted all those overpaid record moguls. Jobs had found a way to run the horse the industry couldn’t flog into a trot. ITunes pays the music deadbeats 70 cents out of every 99. Everyone breathed a sigh of relief and smiled, right?

Wrong.

Apple, in a move disarmingly like their refusal to share their operating software way back in their early history . . . a mistake that gave us Microsoft . . . is again refusing to make iTunes software compatible with other manufacturers. Owners can’t load a Napster song on their iPods. Thus Apple itself is standing in the way of the downloaded music tsunami, expecting to hold back the waters. Steve Jobs makes another industry breakthrough and follows it with the same old industry blunder.

You gotta wonder.

Meanwhile, back in the rarefied atmosphere of their Malibu beach houses, the industry that was flat-on-its-ass three years ago is getting greedy. What a surprise. The same guys who misunderstood their market year after year is now poised, at the top of this wave of prosperity, to misunderstand it again. The CEO of Sony BMG complained that Apple has two income streams; music downloads and iPod sales.

Hello, Sony! Earth calling! An income stream is an income stream . . . don’t knock it, particularly when you’re harvesting 70% of it . . . build on it!

Hello, Steve Jobs. Music (and all other digital entertainments) are the fastest growing businesses on the planet. Earth calling you as well! Don’t get painted into another software corner by someone thirsty and technologically capable and overstuffed with available capital . . .

. . . someone like Google.

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