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BOOK REVIEW: The mp3 revolution

How Music Got Free: What happens when an entire generation commits the same crime? by Stephen Witt

WHEN CDs first came out, the promise was “Perfect Sound Forever”. However, viewed differently, CDs were a “maximalist repository of irrelevant information, most of which was ignored by the human ear”.

Research into hearing showed inherent flaws that make it possible to record high-fidelity music with very small amounts of data. This is because the human auditory system discards most of the data anyway.

The other consequence of the reduced size needed for high-fidelity music was that the whole process of pressing millions of compact discs and selling them through stores could be avoided. It was possible to save everything you might wish to hear in a single electronic database that could be accessed as needed.

After decades of research into acoustic physics and human anatomy, it was now possible to combine these insights with basic principles of information theory and complex higher mathematics. In the mid-1980s, the young and brilliant Karlheinz Brandenburg was leading a team doing just this at German research organisation the Fraunhofer Society.

Essentially, Brandenburg had produced a compression algorithm that would reduce the data requirement to one-twelfth the size of a CD, with no loss in the quality a person could hear.

In 1987, Fraunhofer committed to creating commercial products based on Brandenburg’s algorithm which could be used to both stream and store music.

History has shown that universal standards are not always based on the best technology, but on the aggressiveness of the technology owners. This was true for the AC/DC “Current Wars” of the late nineteenth century, and the VHS-Betamax battle of the 1980s.

In five straight head-to-head competitions for the standards for digital FM radio, interactive CD-ROMs, Video Compact Disc (the predecessor to the DVD), Digital Audio Tape, and the soundtrack to over-the-air HDTV broadcasting, mp3 lost to its competitors. The regulatory committees in each of these categories favoured mp2, despite the fact that mp3 offered substantial improvements in audio quality.

At the opposite side of the music industry were those who recorded and produced the CDs. By 1994 their revenues had tripled to above $2bn.

At the same time, the Fraunhofer team were attending industry trade shows across Europe and America to promote the mp3 standard. Philips was backing the mp2, and at the trade shows the mp2 booths were three times the size of those of mp3.

Then an independently refereed head-to-head listening test between the mp2 and mp3 judged mp3 to be significantly better, again. This attracted two clients: Telos, the first enterprise-scale customer, and the National Hockey League for whom the mp3 had been specifically calibrated to the sound of the fast action of the game.

In 1993 Intel had introduced its powerful new Pentium chips, the first processors capable of playing back an mp3 without stalling. The new generation of hard drives was coming out with what was then enormous storage capacity of nearly a gigabyte that could store almost 200 songs.

Other new technologies enabled consumers to create their own mp3 files, then play them from their home PCs. “January 20, 1995 (was) the official start date of the mp3 revolution in North America.”

AT&T and Thomson acted as the corporate sponsors of the mp3, and by late 1995 they had invested more than a million dollars in the project. With the file compression capability of the mp3, it was soon possible to download music directly over the internet and dispense with the compact disc entirely.

Mp3 had been the leading technology of its kind in the world, and was producing substantial earnings. The format war was over, mp3 had won. However, the mp3 was caught between a music industry that wouldn’t license the technology without a critical mass of mp3 players, and the electronics industry that wouldn’t manufacture the players without a critical mass of mp3 users.

The problem of piracy

Piracy has always been a problem for the music industry ever since people were able to duplicate audio cassettes and CDs. The ability to put music on websites and underground file servers across the world led to an explosion of the number of mp3 files in existence. College students filled their hard drives to capacity with pirated mp3s.

The stellar earnings of the biggest recording companies in the world in the last part of the 20th century were disrupted by Shawn Fanning, an 18-year-old Northeastern University dropout. He developed a new piece of software to up- and download pirated music using mp3 that he called Napster.

Almost immediately, the freely available Napster became one of the most popular applications in software. By early 2000 there were almost 20 million users, and by mid-year over 14 000 songs were being downloaded every minute.

Hilary Rosen, CEO of the Recording Industry Association of America, understood the danger and the potential of digital technology. She privately pushed for Napster and the major labels to cut a deal, but the industry chose to “sue mp3 out of existence”. The industry won against Napster, but not against mp3, which continued to grow. The industry had won the wrong lawsuit.

Napster had made file sharing easy. Previously you could find apps on the internet, but they were difficult to use, limiting the number of participants. Using Napster, anyone could type the word “mp3” into Yahoo!, and have a hard drive full of pirated albums in minutes.

In late 2001, the success of the iPod caught everyone by surprise, including Apple. The firm had underestimated the volume of pirated mp3s available. Apple actively encouraged paid, legitimate downloading, but landed up making money from the illegal activities of Napster.

In 2002 the music industry’s losses were the largest in American history. Eventually, with a little help from the recording industry, the iTunes Store was established to sell songs for 99 cents. As the iPod became ubiquitous, the mp3 was no longer seen as inferior to the compact disc, and iTunes produced a seamless Web sales experience. Steve Jobs promised the recording industry 70 cents of each dollar for every mp3 song downloaded.

By the end of 2010 the recording industry contracted to less than half its 2000 size. In 2012, North American sales of digital music surpassed sales of the compact disc. After 17 years of psychoacoustic chaos, only a third of the US music industry’s income still came from physical album sales, and slightly more globally.

In 2013, revenues from subscription and advertiser-supported streaming passed $1bn for the first time. However, artists with millions of plays only earned royalties in the hundreds of dollars.  

“How music got free” – is a multifaceted tale with many winners (the consumers) and many losers (the recording companies and the artists). The book has been thoroughly researched, and is an enjoyable read.

Readability:     Light -+--- Serious
Insights:        High ---+- Low
Practical:        High ----+ Low

* Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works. Views expressed are his own.


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