Technology & Music: Why Apple & Universal Music Go Together
April 14th, 2003

I watched The Replacements this weekend. That's the movie with Keanu Reeves as the college quarterback that never was able to make it, but who got another chance as a replacement football player for the NFL when the players' union strikes. For those who haven't seen the movie, it's a story about the rejects having more heart than the cynical pros, and being able to use that heart to win against all odds. Touching, huh?

To be honest, I liked the movie. I didn't see it in the theaters, and that's mainly because the movie was advertised as something more akin to a whacky comedy than the underdog-overcomes-obstacle movie it really was. That advertising approach just never reached out to me. Of course, such idiotic advertising is nothing new from the movie industry, which has a long history of stupidity and poor decisions.

S is for segue

In fact, the movie industry is really only second to the music industry for idiocy on a grand scale. The RIAA and its five major labels have managed to take one of the most profitable industries in the history of the world, and throw it all away. They have done so by refusing to evolve in the face of a changing world.

Instead of looking to new technology to change their own operations, they have collectively tried to stop technology in its tracks, so that they can keep doing business as they always have. Rather than lower prices as technology makes distribution, promotion, and recording less expensive, the major labels have instead raised prices. Rather than use changing technology as a way to offer more and different kinds of music to niche markets, the labels have released fewer titles, and homogenized their stables. Rather than finding ways to give their customers what they want, the labels have instead worked hard to force their customers to do business with them the way the labels want. Rather than deal with reality, the labels, and their umbrella trade group, the RIAA, have instead sought, but failed, to bend reality to suit their own wishes.

F is for failure

The results, of course, have been declining sales, declining interest in music, and worse, declining profits.

The recording industry has proved itself remarkably inept at managing itself, exploiting new opportunities, and meeting customer demand. The industry's only defense in the face of these challenges and opportunities has been to try, through either technology or legislation, to control their customers, and the uses to which those customers put their product. This has proved to be an unmitigated failure: sales and profits are down, while discontent among the music buying public is rising.

There are no two ways about it: The current crop of industry execs has failed.

D is for Destruction

Where is the industry headed? In the long term, the industry as we know it today is headed for destruction. That is, unless some labels learn to think differently. The technology genie is out of the bottle, never to be returned until the next major paradigm shifting technology comes along and changes everything again, and all the while, there is a widening gap between the sellers and the buyers. What labels call piracy, users call freedom and convenience. Where labels see a loss, smart people see opportunity. Where labels fear chaos and anarchy, the smart money will find ways to make money.

As part of that long-term destruction, I see the day when artists are able to free themselves from the shackles of remarkably greedy and uncaring music execs who care nothing for music itself. As the barrier to entry on producing and distributing music continues to be lowered, the role of money and its twin-demon, middlemen, will simply disappear.

That means that smart labels need to find new uses for themselves, and new ways to make their product desirable. Bonus CDs with extra tracks, demos, and videos, for instance, is one way in which some labels have already started to add value. Bigger and cooler CD inserts are another. These things make CDs more attractive and desirable to many people. That's great for the short term, but eventually, artists will be able to independently offer these things on their own, so even those efforts will only bear short-term fruit.

The two main strengths of the labels have always been their money and their ability to offer, and control, distribution, as both were required to make superstars out of music acts. In the age of the Internet, the name of the game is going to be services, not distribution, and the smart labels will find ways to leverage their money into services in order to make money from and for bands. Though they will try and strangle the life out of music in their efforts to continue to control distribution, those who rely on that to save their companies will go the way of the worthless Luddites whose temporary destruction of automated looms no more helped them than copy protection will help the labels.

T is for Tank

So what's the music industry to do? Personally, the labels need to evolve, or die. Certainly they need a change in leadership.

That brings us to Apple. In case you were out of pocket on Friday, rumors swept the Mac and music industries that Apple was in talks with Vivendi International to buy Universal Music for somewhere between US$5 and US$6 billion. The story was broken by the LA Times, and spread to every corner of the globe by a host of mainstream, finance, music, and technology newspapers, magazines, trade journals, Web sites, and blogs.

Most of Wall Street was instantly falling all over itself to put down this possible merger, with Apple-ignorant analysts like Michael Hillmeyer of Merrill Lynch leading the way. Though a few analysts, such as Phil Leigh of Raymond James Associates, liked the idea, investors voted with their pocketbooks and tanked AAPL to its lowest point in a long time, down more than 8%. In fact, the stock sank lower than the combined value of its cash holdings and other assets (property, furniture, patent portfolio, inventory on-hand, etc.).

Can you say knee-jerk reaction? Heck, I wish this business paid more, and I would've bought some of those cheapo shares. You literally can't lose at that price, even if the company was parted out.

A is for Apple

So what's the big deal? Apple is a technology company, and that seems to be what has most people scoffing at or dismissing the Universal buyout rumor. Music, so many people are saying, isn't part of Apple's core-competency, which is true. Many more are asking what a technology company knows about selling, promoting, and distributing music?

I have a counter-question: What the heck does Vivendi know about selling and distributing music? In the Internet age, I would say that the company, or even Universal Music itself, doesn't know a damned thing about it, and has been busily proving so along with its peers at the other companies.

Apple, on the other hand, knows quite a bit about technology and the way people use it. Apple is, hands down, the tech company that is farthest into the concept of the "Digital Hub." Apple, for instance, figured out what people wanted in a portable music listening device. If rumors about an Apple-branded music sharing network are true, Apple is also the tech company that may well be the first such to properly figure out how to offer music online in such a way as to make money from it.

The bottom line is that the current music industry companies don't know what the hell they are doing, and that is mainly because of technology. Who better, then, than a technology company to help chart a new course? If that's the case, what technology company is better suited than Apple?

Apple is the company that has proven again and again that it can think differently, that it can bring products to market that people will buy despite seemingly higher prices, despite competing against the Wintel juggernaut which has literally hundreds of times more resources, despite having been written off as dead uncounted times, despite being saddled with a processor that has lagged behind the competition's, and despite having every reason to have failed a hundred times, or more:

N is for Nimrods

What other technology company could get music sales and distribution right in the digital age?

  • Microsoft? Please. You'd never own a damned song, and would have to pay Big Redmond every time you listened to it.
  • Dell? That company couldn't innovate its way out of a wet paper bag, unless that wet paper bag would let it cheapen its computers by a few cents.
  • Intel? Intel doesn't really sell direct to the consumer, though it would make a better run at it than Microsoft or Dell.

C is for "See?"

Seriously, what other company on the face of the planet could better chart a new course for the music industry in the age of the Internet than could Apple? Certainly there are risks, but nothing risked equals nothing gained, and I for one am ready to buy my music differently. More important, I think Apple could pull it off. Technology and music have everything to do with each other in today's market. You just have to be able to look a little deeper to see the possibilities.