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Monday, June 29, 2015

How a file format brought an industry to its knees

MP3. It's the format that revolutionized the way music's been consumed since the late '90s. When Karlheinz Brandenburg, a German acoustics engineer, discovered that an audio file could be compressed down to one-twelfth of its original size without distortion, he created the file-shrinking technology. Stephen Witt's debut book, How Music Got Free, traces all digital music piracy back to the invention of that format, which inadvertently made it possible for people to download and share music illegally. The book details the science and struggle behind the widely used audio technology. And his investigation uncovers the politics and the manipulative men who kept MP3 files from seeing the light of computer screens for years.
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How Music Got Free

When the MP3 format became accessible, after a long corporate battle, it eventually led to the rise of music piracy and simultaneous demise of CDs. But Witt reveals more than just the technology that systematically tore the music industry to pieces. He narrows the story down to two men at opposite ends of the same spectrum: Doug Morris, one of the most powerful record label CEOs in the industry, who made rap music top the charts and eventually led the fight against piracy; and Dell Glover, a factory worker at a Universal Music CD-manufacturing unit in North Carolina, who leaked about 2,000 albums, made Eminem change his album release date and became one of the biggest pirates in the largest underground scene, Rabid Neurosis (RNS).
When pirated music found its way online in the '90s and early 2000s, almost all of it came through RNS, which relied on Glover's access to the CDs weeks before release. Tech-savvy teens spent hours scouring the internet and loved having access to music before it hit the record stores, even if that meant jeopardizing the careers of the very artists they worshiped. At the time, it became virtually impossible to not download the MP3 files or know someone who did.
Witt's book is filled with nostalgic moments for a generation that grew up on piracy. But it's also informative for people who skipped that phase completely. He draws parallels between the inventions, the decisions and the theft that led to the downfall of the booming music industry -- an industry that never quite regained its glory. I caught up with the author to get the lowdown on his expansive work on digital piracy and his views on music streaming.
When and why did you get interested in music piracy?
I showed up at [the University of Chicago] in 1997 with a 2GB hard drive and by the end of the year, I filled it with pirated MP3s. This was really the first time in history that you could do it. Even a couple of years earlier the technology wasn't there. Over the next decade, I was a serial media pirate. I just hoarded tons of stuff. I was on all the underground pirate networks. It was such a thoughtless action to go and take something from the internet; I never really thought about who might have put it up there in the first place. As I got older, around 2010-2011, I wondered where all this stuff came from. When I started investigating it, I found all this fascinating stuff that turned into this book.
"iPod original" turns 9
The original iPod from 2001

Your book underscores the technology that led to music piracy and the corporate drama behind it. It was fascinating and frustrating to know that half a dozen German engineers sat on a gold mine but couldn't share it with the world for years because their invention was systematically and viciously suppressed. Why was the music industry snubbing MP3 even though it was clearly a superior format to the MP2, which was widely accepted?
The music industry was [made up of] technophobes. When this information [about the MP3] first became available, they rejected it multiple times. The pirates [started] providing leaked compressed music through the internet and filling a vacuum that the music industry would not. The music corporations could've done that. They ended up being forced to do it much later anyway. But for a long time, they had to be dragged screaming into the modern era. Now I think anyone who owns a music company is thinking 20 years ahead about distribution. They've learned their lesson. But at the time they were totally clueless.
There's a moment when Ricky Adar, an entrepreneur, asks Brandenburg, "Do you realize what you've done? You've killed the music industry." Did the invention of the MP3 really destroy the industry or did it, in fact, push it to change and adopt a new way?
It was a bit of both. Adar was trying to push a service similar to what we call Spotify today. This was in 1995. He faced enormous resistance from the industry and at the time it wasn't even clear such a thing was technologically possible. When he saw the MP3, it was the first time he saw a device that actually shrunk music, but made it listenable. Previous devices did it, but they sounded pretty crappy. Why did he say it killed the industry? I think once the stuff got out, it wouldn't be copy protectable, people would start trading it online, which is exactly what happened. The profits would disappear because you could get it for free. It pushed the industry into the future, but even today they're only operating at about half the size that they were at the peak of compact discs in 2000. Still, it's not clear if they're ever gonna recover. They actually shrunk last year, even with Spotify.
The music industry eventually fought back against piracy. They went after Napster for copyright infringement. The RIAA also sued Diamond Multimedia, the company that created the first-ever commercially successful MP3 player. What was going on with these lawsuits?
"Apple almost acted like a money launderer for the spoils of Napster."
The judges ruled Napster was illegal, so the industry won that one. The legality of Napster wasn't obvious at first. Now it's clear that it was in violation of the law, but at the time there was no basis for ruling that. Simultaneously, there was a lawsuit against [Diamond] -- the earliest version of the MP3 player. But the judges ended up ruling that the MP3 player was just a hard drive and they could not limit its sales. So the music industry lost that suit. When it happened there were all these music files everywhere and then [the lawsuit] made all these portable players available. Essentially, the music industry won the wrong lawsuit.
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Daniel Ek, founder of Spotify

Napster had the potential to shrink the massive profits that the music industry was making from CD sales, but for a time it wasn't impacting the sales at all. People couldn't go anywhere with their downloaded files. But when the MP3 player won the lawsuit (RIAA vs. Diamond), it made digital piracy portable and even led to the launch of the iPod, right?
For sure. Apple came kind of late to this. iTunes debuted in 2001. The iPod came in [later that year]. It didn't make an impact right away, but eventually people wanted to take all these files and make them portable. The iPod made that possible. So for a time it became the best-selling gadget ever. Apple's retail store had the highest sales per square foot of any retail business in history and a lot of it was from these $200-300 iPods. Eventually they moved to iPhone, but you can trace these developments in the global market all the way to the earliest days of piracy. It's like I say in the book, Apple almost acted like a money launderer for the spoils of Napster.
At one point in the book you say: "Controversy was temporary. Royalties were forever." I couldn't help but wonder how you perceive the aggressive shift from downloading to streaming services like Spotify and Tidal?
The stuff in the book is really nostalgia now. That era is closing and we've moved on to a new form. Instead of owning files, we license them from a large corporation; we're at their mercy. The trade-off is that artists get paid and we get access to everything ever written instantly. It's a pretty nice deal, but it limits the freedom of the user. What's going on right now is that there's more than half a dozen companies attempting to crack the music-streaming space. All of them are losing money and artists are making very little from these sites. But if they can get hundreds of millions of users to subscribe, it can work. They just have to make people willing to pay $120 a year. Half of Spotify's subscribers are under the age of 27 and these are people who grew up with piracy, including me.
I wonder if there's an all-powerful Doug Morris-type of the streaming world?
Daniel Ek -- the CEO of Spotify. He's Swedish and he founded the company in 2008 during the height of Pirate Bay frenzy. His entire mission statement for the company was to get people to pay for music again. Surprisingly enough, I would say he's been successful in doing that. Spotify is not a sustainable business right now. It's losing about $200 million a year and it's paying its artists a pittance. It's possible in the future it could evolve into a commercially viable model. It's not there yet. But for consumers it's been great.
If they can get their goal of 40 million [paid] subscribers, which is the size of the music industry right now, they might save everyone.
This interview has been condensed and edited.
[Images: Viking Press (top image); 37prime/Flickr (First gen iPod); Taylor Hill/FilmMagic (Daniel Ek, Spotify)]

Book describes how pirates used MP3 to revolutionise music industry

MP3 technology enabled wholesale piracy of songs and, as Steven Poole explains, brought the music industry to its knees
The humble MP3 is one of the most momentous inventions of modern history. By shrinking musical data to a 12th of the size of an ordinary CD, it enabled songs and albums to be distributed over the limited bandwidth of internet connections in the 1990s and 2000s. It made possible the culture of downloading commercial music without paying that brought the global music industry to its knees.
Yet this vehicle of mass copyright infringement would never have been invented itself without the guarantee of strong copyright protection. It took a decade of research funded by the German government for the engineers behind it to figure out the "psychoacoustic" principles according to which most of the information in recorded music is in fact inaudible to the human listener and can be thrown away. And it was those same engineers who enabled the piracy revolution by releasing for free on the web the first ever MP3-encoding software, with which the user could "rip" MP3s from CDs onto a computer.
In most histories of these developments, the users who began swapping MP3s on the internet are presented as ordinary folk: college students on Napster and then pretty much everyone on BitTorrent. This gives the story a democratic feel, with the music-loving people rising up against the venal idiocies of the corporate music world. But, as Stephen Witt shows with a kind of gonzo glee in his closely reported and brilliantly written book How Music Got Free, it was not ordinary people who were doing most of the "ripping". There was in fact an organised criminal conspiracy to steal music.
Defenders of downloading stuff without paying, of course, don't like the verb "to steal". They point out that downloading an MP3 of a commercial album doesn't deprive anyone else of a copy, whereas if I steal your cigarettes then you no longer have any cigarettes. So downloaders prefer the term "sharing", which sounds positively virtuous. (Isn't it good to share?) Yet you can't really be said to "share" what was never yours in the first place. As it happens, the MP3s that everyone began "sharing" were originally made available by a network of people who literally stole discs of forthcoming albums from CD pressing plants.
Partisans of “sharing” sometimes liked to say that they were hitting back against fat-cat music executives. In fact, all they were doing was hurting musicians
This book tells the story, based on extensive interviews with one such pilferer, an entrepreneurial and eccentrically likable dude called Dell Glover, who worked at a record company manufacturing plant in North Carolina. Witt draws an amusingly sympathetic portrait. (At one early crisis point, he writes of Glover: "His girlfriend was unhappy, his tattoos were stupid and he was driving himself into debt.") With accomplices in the plant, Glover smuggled out copies of new albums, and uploaded them to a secretive group on the internet that was part of the "Scene": a network of people trading music, commercial software, video games and movies. Members of the Scene went by pseudonyms and used encrypted communications; they cultivated sources inside CD plants, radio stations and anywhere else that pre-release material could be found. It was an efficient and knowing conspiracy: Glover's own group leaked an amazing 20,000 albums over a decade. As Witt relates in fascinating detail, their tradecraft would have done justice to a network of terrorist operatives: top Scene cells eluded the FBI for years.
At the same time, the music industry was hardly covering itself in glory. As the US Federal Trade Commission found, the big record companies conspired over years to keep CD prices artificially high. When they were approached in 1997 by one of the MP3's inventors, who recommended they adopt a new copy-protected version of the file, he was "informed, diplomatically, that the music industry did not believe in electronic music distribution". And companies made weird business decisions that Witt outlines with a highly entertaining bafflement. (He describes Time Warner's decision to sell itself to AOL at the height of the dotcom bubble as "the stupidest transaction in the history of organised capitalism".) A music-industry lobbying group, the Recording Industry Association of America, eventually decided to start suing ordinary downloaders for obscene sums of money rather than going after the real thieves of the Scene. (They won a lot of these lawsuits, which they sadistically termed "educational", before juries began to rebel and acquit.)
Stephen Witt
Partisans of "sharing" sometimes liked to say that they were hitting back against fat-cat music executives. In fact, all they were doing was hurting musicians. The bosses continued to do very nicely. Another central character in this book is Doug Morris, who rose to become head of Universal. By 2007 CD sales had fallen by half since 2000, yet as Witt notes, Morris was still earning almost US$15 million a year by cutting artists from the roster and concentrating on sure-fire hits. Witt's portrait, however, is nuanced: Morris is presented not only as a seasoned hit-spotter but also as a man who took rational decisions in the face of epidemic piracy. ("He didn't need a PhD in economics to know that if something was widely available for free, people were less likely to pay for it.") After being courted by Steve Jobs for ages, Morris agreed to sign Universal's catalogue up to the iTunes Music Store, and he also had the excellent idea of forcing YouTube and other websites to pay the labels a slice of the advertising they sold against music videos.
After Morris and Glover, the third main character of the book is Karlheinz Brandenburg, the mathematical genius who led the development of the MP3 itself at the Fraunhofer Institute in Erlangen, part of a government-funded research network that the author describes as "Germany's answer to Bell Labs". Witt's description of technical audio matters is exemplary in its clarity, and this story is full of surprises as well. It turns out, for example, that after inventing the MP3 itself, the Fraunhofer group also invented the first-ever portable MP3 player. But they didn't think it was worth patenting. Indeed, when they showed it at an engineering fair in 1995, an executive from the Dutch electronics giant Philips told them: "There will never be a commercial MP3 player."
Witt confesses in his introduction that he too was an inveterate downloader of stuff, and he correctly diagnoses the motivation as something other than a profound love for all music. "Most of this music," he writes of his vast MP3 collection, "I never listened to." The allure was instead that of belonging to a "subculture", an "elite and rarefied group" with access to everything.
At the end of the book, he points out that now such digital hoarding no longer really makes any sense, since everything is theoretically accessible in the cloud. "Finally I caved," he writes, and "bought a Spotify subscription". Of course, Spotify and other streaming services notoriously pay musicians as little as they can get away with. And so the real losers in this story are the quite important group of people who feature only at one remove: the artists who made all that deliciously collectible music in the first place.

How streaming music is changing the industry

Streaming isn't just a convenient way to get music for those with a high-speed Internet connection, it's poised to change the music industry as we know it — again.
Denys Prykhodov / Shutterstock.com
By Deseret News National Edition

Summary
Streaming isn't just a convenient way to get music for those with a high-speed Internet connection, it's poised to change the music industry as we know it — again.

Every time he picks up a music magazine, Scott LeGere realizes how paramount music streaming is in his life

“I almost hate reading those magazines now because when I read a blurb about a record, I want to push the picture and hear it,” said LeGere, a professor of music at McNally Smith College. “It’s just a reminder that based on streaming’s convenience and immediacy, there’s really no putting the genie back in the bottle.”
As a music business professor and producer, LeGere says this month’s announcement that Apple plans to roll out its own streaming service marries the music industry’s future to streaming.
“It wasn’t that long ago that jumping in your car and going to a store was the most convenient way to find music. Now, it’s a Google search bar,” LeGere said. “That a company like Apple, that has the largest music store in the world, would cannibalize its own music sales tells you where the future is.”
Since Pandora was founded in 2000 and Spotify came to the U.S. in 2011, music streaming has quickly outpaced downloading as the primary way people listen to music.
In 2014, digital track and album download sales accounted for 113.2 million out of 227 million total sales, which included physical music like CDs and vinyl.
To give streaming a comparable sales model (even though songs and albums aren't sold via streaming), the industry created stream equivalent albums — or the number of streams it takes to match the $7.50 wholesale revenue of a CD or a downloaded album. It currently takes 1,500 streams to equal the wholesale value of a downloaded or physical album, and in 2014, stream equivalent albums accounted for 46.9 million in album "sales."
The stream equivalent album figure nearly doubled year over year, a significant detail when overall album sales — including CDs and vinyl — slid by 8 million in one year, from 235 million to 227 million.
When artists have to hope their songs get streamed more than 1,000 times to make the same money they once did on a 10-track album, it's easier to see why high-profile musicians like Taylor Swift and Jay-Z have pushed back against the streaming model. In their efforts, both Swift and Jay-Z aren't fighting against streaming per se, but against a model that pays artists and others in the music industry fractions of pennies per stream.
In March, Jay-Z launched Tidal, an independent streaming service owned by musicians in what the service hoped would "forever change the course of music history." So far, that course has been difficult for Tidal; since its launch, Tidal has lost two CEOs and as a strictly paid, $10-a-month service, it competes with free versions of streaming services and free websites like YouTube.
Swift, on the other hand, has had more success in dealing with the issue of streaming. An outspoken opponent of file sharing and streaming as undervaluing music in general, Swift has held her music from streaming services like Spotify. This summer, she threatened to withhold her mega-hit record "1989" from Apple's proposed streaming service. Apple, to its credit,agreed to pay artists on the new service per stream in response.
While steaming’s future in the music industry seems secure, industry players are wondering what the future will look like, and whether or not the innovation it brings can change the label-driven music industry for the better.
“(Streaming) is not about demand or the Internet being good or bad, it’s more about the value we put into it and how to foster what we get out of it to make sure some of it gets back to the creators," Future of Music Coalition CEO Casey Rae said.


TopcaT@PeachTreeMusicGroup.Com

In turmoil again, music industry once more looks to Apple to save it

 

Taylor Swift will allow her album “1989” to be part of Apple’s service, the first streaming service to include her music. (L.E. Baskow/Reuters).


More than a decade ago, the music industry was in crisis. Songs were being passed around the Internet illegally free of charge. CD sales were in decline. So major labels and musicians embraced Apple, which convinced consumers to open their wallets again by buying digital songs through iTunes.
Now again in turmoil, the music industry is looking once more to Apple, which launches its new $10-a-month streaming service Tuesday. The challenge this time: Find a solution for the industry as it struggles with Web sites that are legally streaming songs for free online.

With its paid service, Apple will go against the grain of these proliferating sites — which partly fund themselves by requiring consumers to hear a few ads once in a while. Google, which has 1 billion music listeners through YouTube, introduced its own free streaming service last week. Pandora, the early streaming specialist, has 85 million listeners, and Spotify has doubled the number of its nonpaying users to 75 million in the past year.
3 times Taylor Swift was a savvy businesswoman

Taylor Swift's big win over Apple Music isn't the first time the pop star has proven her savvy business skills in the music industry. (Nicki DeMarco/The Washington Post)


The trends are a source of deep unease in the music industry, which would see a drastic change to its business model if it had to largely rely on advertising for revenue, rather than song sales.
“We are at an important inflection point of the evolution of music,” said Larry Miller, a professor of music business at New York University’s Steinhardt School. “After more than 15 years in digital music transition . . . only Apple has the potential to push streaming — paid streaming — into mainstream adoption.”
Apple is coming relatively late to the scene, but the tech giant arrives as labels and musicians have been searching for an alternative to Spotify. The privately-held firm was actually once championed by the music industry as an alternative to Pandora, but is now feared as it sees exponential growth.
After months of negotiations with music labels and artists big and small, Apple committed a vast marketing budget for glitzy TV ads and direct marketing to the hundreds of millions of e-mail accounts it holds. It also promised slightly better royalties to artists than Spotify and other streaming partners, according to people familiar with the company’s plans.
And in a departure from its rivals, Apple promised to strictly enforce its policy that users must pay after a free, three-month trial.
“Apple is generally positive for artists in getting better pay because subscriptions pay about seven times as much as free services do to artists,” said David Lowery, a member of the bands Cracker and Camper van Beethoven and a lecturer in music economics at the University of Georgia.
“But we don’t want to create another monopoly where we end up like authors did with Amazon. What we want is more options,” Lowery said.
The stakes are just as high for Apple, which for the first time saw music downloads decline on iTunes for the first time last year. Two-thirds of U.S. consumers, meanwhile, are listening to streaming music each week, according to Nielsen Entertainment research.
When Spotify first launched in the United States in 2011, the three major music labels — Universal, Sony and Warner — threw their support behind the company and took equity in the privately-held firm. Spotify chief executive Daniel Elk pitched the labels, saying most users would come first as free listeners but then become hooked and eager to pay $10 a month for the service’s premium tier, which is ad-free and gives users more control over what they hear.
In a May earnings call, Warner Music chief executive Stephen Cooper reiterated the importance of getting users to start paying. “We continue to believe that the long-term sustainability of the ‘freemium’ model is predicated on high levels of conversion from ad-supported ‘free’ to paid subscription,” Cooper said. “Of course, in order to achieve those levels, the benefits of paid subscriptions must be clearly differentiated from the ad-supported offerings.”
But in the last four years, Spotify has struggled to grow its paid service. Almost all new users started out with the fee plan, but only about 20 percent to 30 percent of them became paying customers, according to industry executives.
Privately, music labels began to express frustration. Spotify wasn’t putting enough money into marketing its premium service and didn’t collect credit card numbers of new users to ease the transition to the premium tier, executives said. They complained that Spotify, preparing for a public offering, appeared more interested in bulking up its overall user numbers to impress investors than generating revenues that could be passed down to labels, writers and musicians.
“The irony of it is that there is nothing more that we wanted than to make Spotify a significant player, but what happened was that Spotify revealed its true colors — that it is no different than any Silicon Valley company that wants to build a whole business on audience and not subscribers,” said a music industry executive who spoke on the condition of anonymity because of ongoing relationships with streaming providers.
Apple and Spotify’s recent dealings with Taylor Swift was also telling, two music industry executives said.
Earlier this month, Taylor Swift complained that Apple wasn’t paying artists for their music during the new service’s three-month free trial period. Apple quickly agreed to reverse its policy.
But in November, Swift said she would keep her “1989” album off Spotify because she believed the company’s free tier of ad-supported streaming would never make enough money to support artists. She insisted her album “1989” should only be available to subscribers of Spotify’s premium tier. Spotify, however, wouldn’t budge; the company said it was sorry to see Swift leave.
“Our feeling was that Spotify is too entrenched in very simple principles. They said they would never put anything just on premium and were unwilling to take a nuanced approach,” said one industry executive who spoke privately to protect an ongoing relationship with Spotify.
Spotify disagrees that it hasn’t grown the number of paid users quickly enough.
“Nobody is more interested in driving subscriber growth than we are. Nobody has more data about what works and what doesn’t, and nobody has had anything close to our success in actually getting people to subscribe,” said Jonathan Prince, a spokesman for Spotify. “The numbers speak for themselves — 100 percent growth from 10 to 20 million in just a year, the highest conversion rate of any ‘freemium’ business, whether it’s music, video, news or games, and orders of magnitude more subscribers than any of our competitors.”
Cecilia Kang is a staff writer covering the business of media and entertainment.