How Steve Jobs Saved the Music Industry

By ED NASH, WSJ

Before iTunes, the stealing of MP3 files was rampant and seemingly unstoppable

As I write this, I am aware that I will undoubtedly take a lot of criticism from fellow music-industry professionals. But it's important to tell the truth and examine the facts dispassionately. And the truth is that Steve Jobs saved the music industry.

In the late 1990s, computer and Internet technology had reached a point that made the transfer of reasonably sized, high-quality MP3 files extremely easy and inexpensive for millions of people. Once that point was reached, the music industry was set on a collision course with modern technology.

In 1999, on the heels of the initial success of peer-to-peer file sharing sites like Napster, lawsuits were filed. But lawsuits would not solve the overwhelming issue: Music had become broadly available online, and access was easy—not to mention free. Sure, it was technically illegal, but the new technology was breaking unprecedented legal ground, and a population that was largely uneducated on intellectual-property law ultimately took advantage of this access. You could say that the downloaders were ignorant opportunists.

The legal brawls would multiply—record labels, publishers, the Recording Industry Association of America, everyone got in on the fight, suing the file-sharing services, suing the college kids in dorm rooms who were utilizing them, even suing the Internet service providers. At various points, injunctions were granted, settlements were offered and accepted, but the sharing continued. The stealing of music was rampant and seemingly unstoppable.

As technological advances continued, the innovations that made this "sharing" possible grew in sophistication. The genie would not go back into the bottle. The lawsuits were costly and cumbersome, and they weren't solving the problem. The music industry wasn't coming up with a viable solution either.

That shouldn't be surprising. After all, the music industry was not equipped for—or even conscious of—the idea of selling directly to the public. The industry was built on the model of creators under contract to labels who push distribution to retailers who ultimately sold product to consumers. The downloading was bypassing the retailers (and in some cases the labels) and going straight into the hands of the consumers, cutting out the traditional distribution chain that existed with physical product like CDs and cassettes.

The problem was clear, but a solution would require nothing short of a paradigm shift in the industry. There would need to be changes in licensing from the major labels, technological implementation, a strong marketing plan and—perhaps most importantly—all delivered at a price that would entice illegal downloaders to pay for music that was already free for the taking.

Steve Jobs presented the answer. Jobs and Apple introduced the iPod and iTunes software in 2001 to marginal success. But the real shift came in 2003 with the launch of the iTunes Store. Jobs not only had a vision, he had a plan—a plan that the music industry was initially reluctant to take part in.

Jobs was intent on a singles-based sales structure with optional pricing for full albums. He determined that 99 cents per single song would be the standard price point—a suggestion that rankled many industry traditionalists. Nonetheless, Jobs eventually negotiated licensing agreements with all of the major labels. Of course in hindsight we see that there were few other options, but to his credit Jobs could already see what was ahead.

In a 2003 interview with Rolling Stone magazine, Jobs spoke openly about the problems that faced the major labels: "When the Internet came along, and Napster came along, they didn't know what to make of it. A lot of these folks didn't use computers—weren't on e-mail; didn't really know what Napster was for a few years. They were pretty doggone slow to react. Matter of fact, they still haven't really reacted, in many ways." Jobs recognized the path that technology was taking and the effect it would continue to have on the music industry and, more importantly, on music itself.

He also understood intellectual property, and this may have been the most important piece of the strategy that saved the music industry. In that same Rolling Stone interview, Jobs said, "If copyright dies, if patents die, if the protection of intellectual property is eroded, then people will stop investing. That hurts everyone. People need to have the incentive that if they invest and succeed, they can make a fair profit. Otherwise, they'll stop investing. But on another level entirely, it's just wrong to steal. Or, let's put it another way: it is corrosive to one's character to steal. We want to provide a legal alternative."

With iTunes, Jobs not only provided a legal alternative but a more convenient alternative. He understood that people would pay 99 cents a song if it were easier than stealing, and of equal importance he understood that the vehicle—the iTunes application itself—would need to be free. And so iTunes didn't just carry Jobs's vision to fulfillment, it created a commercial superhighway that connected the artist to the consumer and rescued the industry.

A true innovator gives the market what it wants before the market knows what it wants. Steve Jobs was a true innovator. The music industry is still refining its models for business and is taking a hell of a long time to let the old models go. But music is being consumed more than ever, songs are delivered faster, and there is more variety at our fingertips than ever before. It is a special time—uncertain, exciting, scary and quite exhilarating in its potential.

I am so thankful that Steve Jobs was a music fan, because he believed that its value was intrinsic when delivered effectively. He showed the music industry how to capture the value that was quickly being eroded by old-world ideals. He developed the technology and then built the marketplace that would allow music creators to communicate value and reap the benefit of their work. It's not the world I imagined when I first entered this business, but in many ways it's better.

Thank you, Steve Jobs, for saving our industry. We owe you one.

Mr. Nash is president of Altius Management in Nashville, Tenn.