A short history of download retail

Before MP3

Personal computers have played audio files almost from the start—the Apple Macintosh famously spoke when it introduced Steve Jobs in 1984. I won’t attempt to mention all the individuals, formats, players, sites, companies, retailers or law suits that took part in the web music revolution. What follows is a digest of the key moves in online music retail from MP3 onwards. I checked my memory of these events using mostly The Register news site and Music Ally but also numerous other sources, including Wikipedia.

The story of music downloads would be incomplete with mentioning pioneers like IUMA (Internet Underground Music Archive) among others before MP3. Even before the world wide web IUMA shared unsigned band music over Usenet using various digital audio formats. IUMA started in 1993 as an alternative social network and music distributor but our story really takes off with MP3.

The dawn of MP3

After many years in development standard audio files compressed to about 10% of their original size became available in 1995. MP3 is just one of many standards designed to make digital products and media possible. The birthday of the name MP3 is 14 July 1995 (Fraunhofer Institute) and MP3 file player software became available in the autumn of 1995. Compression was particularly critical for widespread distribution because consumer Internet connection speeds (dial-up telephone) were very slow, but also because recordable media capacity was limited.

A proprietary copy-protected format called Liquid Audio was introduced at around the same time. The company intended to sell digital music and control the playback medium which was not possible with MP3.

Playing early music files

To begin with there were no comprehensive sources of music files or commercial file players although networks like IUMA already existed. Files were shared in a haphazard fashion and played on personal computers using shareware players like WinPlay3 (1995) and Nullsoft WinAmp (1997). Most of the players we will hear of again had their roots in this period. At that time we also saw the first web music lawsuits as media companies and content providers sued each other and Internet start-ups over software licenses and copyright infringement.

Diamond Rio, the first portable MP3 player, was sued by the RIAA before it even shipped. It was cleared for sale in October 1998.

Windows Media MSAudio was released in 1999. Windows and Apple general multi-media applications had been around for some years already. Big online community sites like AOL (now history themselves) also had various media player features.

MP3 web sites arrive

Major label recording contracts didn’t allow downloads to be copied or sold (whether by a label, artist or third party) and the big labels resisted changing contracts or offering tracks on the Internet. EMI made Billy Idol and The Beastie Boys remove MP3 downloads from their web sites in 1998 and Sony stopped Creation Records setting up their own music web site in 1999. The reason for this was that the Major labels intended to license and sell protected music downloads through their own online stores.

From 1996 onwards the number of MP3 music players and web sites expanded rapidly but no viable market was established for several years. Liquid Audio went public in July 1999 closely followed by MP3.com initially successful as an MP3 upload/download site. Both doubled their stock market value during their first day’s trading. That summer Napster launched as a P2P client with a central track index on their own server (music files were offered and copied by users) and rapidly became popular.

Round One to the Majors

MP3.com was sued by most big labels (among others) for copyright infringement and settled with some. Napster was was sued by the RIAA in December 1999. During this period many big download sites and players attempted to license technology and content so that MP3 commerce could get underway but the big labels refused.

IUMA who had pioneered independent artist downloads were taken over by eMusic in 1999. eMusic expanded as an online retailer taking in other independent labels and sites. They offered to license Napster tracks by monitoring file traffic but this time Napster refused. (Shawn Fanning later resurrected this idea in his Snocap products.)

Napster was finally shutdown as a result of the RIAA action in July 2001 and although it later resurfaced in various guises it was never a significant player again. MP3.com was bought by Vivendi Universal for $372m in May 2001 and it closed after further legal action in 2003.

The Major label strategy

To protect their music files the Majors invested over $14 million in SDMI (and other technologies with various technology partners) but when it was publicly released for testing in September 2000 SDMI was cracked within 3 weeks. SDMI (a kind of DRM) was a key component in their plans for controlling content sales but they went ahead shutting out or sidelining other retailers by withholding Internet licences.

From 2000 to 2002 Major labels concentrated on various pilot sites for direct music sales. Sony launched a beta retail site in 2000 and planned a new site with Universal, first called Duet then Pressplay. At the end of 2001 the three would-be major platforms Pressplay (Sony and UMG), MusicNet (BMG, EMI, WMG, AOL) and Listen launched beta sites in the USA. But BMG had already broken ranks in September 2001 and licensed some of its repertoire to OD2 in Europe. This led to another change of direction and by July 2002 Listen had secured licenses with all the Majors making it the first online retailer to do so (something even the Majors’ own sites hadn’t done!). It wasn’t until November 2002 that Pressplay and MusicNet had licensed tracks from each others Major record companies. In the mean time a flood of new online retailers had entered the market, and all of them (apart from Listen) were getting by with indie releases and patchy Major label licenses.

By the end of 2002 there were still virtually no Major label download retailers online. The only fully licensed contenders Listen, Pressplay and MusicNet had just launched in the USA, Sony also had their own beta site and OD2 licensed some BMG repertoire. Otherwise web music belonged to independents and filesharers. Pure P2P networks Kazaa and Gnutella (immune from the legal action that succeeded with Napster) were launched in 2000 and rapidly filled the download vacuum. Meanwhile in the background over many months, Steve Jobs had persuaded each of the Major labels to license some of their biggest artists for future iPod downloads (the iPod launched in late 2001 was initially loaded by ripping CDs). The Major labels would never recover.

The Majors start to lose

On 28 April 2003 Apple launched the iTunes Music Store with licenses from all the Majors, and changed the world of commercial downloads overnight. They featured sales instead of subscriptions, a massive advertising campaign and enthusiastic support from artists like Sheryl Crow and U2. Within weeks Sony and UMG sold flagging Pressplay to Roxio (who rebranded it for Napster 2) effectively writing-off their $60 million investment, and Listen was taken over by Real and rebranded RealOne Rhapsody. EMI, WMG and BMG partners, Real and AOL eventually sold MusicNet to Baker Capital.

The Majors, who had a head start of 3 years and spent hundreds of millions were eliminated in online retail. BMG’s Click2Music has been abandoned and the last Major label store Sony Connect closed in August 2007. The three big players of December 2002 have all been sold and many other high profile sites such as OD2’s SonicSelector have failed. OD2 itself was sold to Loudeye in 2004 and Loudeye (having sold off everything except OD2) was sold to Nokia in August 2006. Even the venerable IUMA finally closed its doors early in 2006.

How did Apple succeed where the Majors failed? First of all their technical solution was 100% in-house using the newer MP4 standard with a DRM option built-in. Downloads and iPods were secured by Apple technology. They didn’t publish FairPlay and invite the world to break it, so there was no public embarrassment. Secondly, when they launched the iTunes Music Store with major artists on board, they invested in a massive advertising campaign on day one. iPods were cool, downloads were cool, Apple was cool and the artists were very cool. It is a lesson the Major labels have yet to even understand.

Apple iTunes revenues 2005 to 2009

The UK pop charts have always been about sales (rather than sales-and-airplay as in America) so it soon became necessary to reflect download sales in the national chart. In April 2005 download singles sales were added but chart releases still had to have a physical release. Album download sales were added to the album charts in April 2006. The requirement for a physical single release was dropped in July 2006 and a separate subscription channel “airplay” chart was launched in September 2008.

After DRM

2007 saw numerous product launches: Microsoft Zune MarketPlace, Google gBox with UMG, Nokia Music Store (rebranded OD2/Loudeye), Omnifone MusicStation (mobile phones only), plus the much-trailed SpiralFrog audio and NBC Direct for TV video with advertising built-in. WMG started Lala a browser-based store downloading direct to iPods (bypassing iTunes). 2007 also saw a substantial move away from DRM among the Major labels led by EMI.

In 2008 Amazon MP3 launched a DRM-free store and licensed Sony BMG to complete their Major label line-up. Other big noise sites included Imeem social music community, Nokia Comes With Music on cell phones, iLike social music community (developed by Garageband.com in 2006) and MySpace Music. Sony talked about launching a new MP3 subscription site. Turning away from subscriptions Napster and Rhapsody joined Amazon offering DRM-free MP3 tracks.

In April 2008, just in time for its 5th birthday, iTunes Music Store became the number one music retailer in the USA, with a music catalogue of 10 million tracks, over 4 billion sales and 65 million customer accounts worldwide. Meanwhile, Universal led the Major labels’ drive to undermine Apple’s dominance by selling DRM-free content—having handed the market to Apple in the first place by insisting on DRM in 2002. Physical sales have dropped between 10% and 20% every year and multi-million selling singles are only downloads. Overall, the recorded music market continues to lose ground against other retail entertainment such as games and video.

In 2009 the big newcomer was Spotify featuring genre-based music streaming, individual tracks on demand (10 million), playlists, retail, charts and artist information. iTunes became the biggest music retailer on Earth.

Having made a substantial investment in Spotify the Major labels seem to be having second thoughts and licenses to operate in America planned for 2009 had still not been granted in 2010. Meanwhile, having made all the early running by ignoring streaming and subscriptions, Apple’s iPad is heavily into subscriptions for e-Publishing and rentals for movies and TV shows. Music seems bound to follow in some form.

All over bar the marketing gibberish

The Major labels still talk about various Internet and mobile device initiatives without any realistic prospect of success.

If you’re looking into online distribution checkout the independent aggregators. These days you don’t need to deal with individual retail sites. Aggregators offer your tracks to around 50 different retailers worldwide including telecomms carriers. Ring tone sales are one of the biggest categories by value but telecomms carriers and content package providers still control distribution of most mobile phone content.

There is a useful list of online retailers in the list of outlets supplied by CD Baby.

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