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On April 28, 2003, Apple Computer, Inc. introduced a new version of iTunes, the company’s innovative digital music jukebox software. This fourth major revision of iTunes included a surprising new feature, the iTunes Music Store—a vast collection of digitally encoded song files from all the major U.S. record companies, available for download at a price of 99 cents each. Customers could choose to download complete albums, usually priced at $9.99. The iTunes Music Store sold over one million songs in the first week, despite it being exclusively available to Macintosh users—roughly 5% of the personal computer market. This marked a major shift in power and distribution of songs within the music industry, and brought issues of copyright and “fair use” to the foreground of major media outlets.
Background and Industry Overview MP3s By the middle of 1995, MP3s—highly compressed digital audio files—became commonly
available over the Internet and were small enough to be easily downloaded by users, even using the relatively slow modems of the day. The file format was the result of several audio encoding and psychoacoustics projects funded by the European Union, culminating in the Moving Picture Experts Group (MPEG) specification “MPEG-1 Audio Layer 3.” The roughly 10:1 compression rate allowed by MP3 encoding resulted in song files typically in the range of 3 to 4 megabytes, or about 1MB per minute of audio. Mass storage capacity grew rapidly while the cost per unit of storage dropped at an exponential rate. Late in 1998, the cost of storing a complete music album on a hard drive equaled the cost of buying the same album on CD. This key figure, along with growing networks on college and university campuses and consumer broadband services, proved to be the tipping point for MP3 popularity.
Napster By 1999, MP3 had become a household word on campus networks and personal computers.
However, music lovers who were seeking MP3s experienced difficulty in finding the files. Software such as Nullsoft’s WinAmp and Panic’s Audion allowed users to create—or “rip”—their own MP3s from audio CDs, and many MP3 players existed, but no one had developed a good way of finding the millions of MP3s that existed on the Internet. Then, in the fall of 1999, Shawn Fanning—a then-19-year-old freshman at Northeastern University—released Napster to the world as a free download. The software—a type of peerto-peer (P2P) network application—specialized in finding MP3s by storing a list of all users’ MP3s on a central server, and then allowing any connected user to search and download those files directly from other computers online. The software’s popularity grew quickly and made file trading so easy that by December of 1999 several major record companies in the U.S., claiming copyright infringement, filed lawsuits against Napster. The record companies sought to disable Napster’s service despite the fact that the company’s servers did not actually host any of the copyrighted material in question. By the second half of 2001, Napster had lost its court battles and was effectively shut down. The remaining assets—the name, some intellectual property, and hardware—were sold to Roxio Inc., a software company known for its CD burning applications. Subsequently, Roxio sold its consumer software division and renamed itself Napster Inc.
The RIAA Fights On Even before the Recording Industry Association of America’s (RIAA) lawyers
succeeded in shutting down the Napster P2P network, many similar applications began appearing on the Internet as free downloads. One popular Napster clone, Kazaa—owned by Sharman Networks—gained the most notoriety from its legal battles around the world. Despite some affirmation from U.S. federal courts that similar P2P software had substantial non-infringing uses, Sharman Networks saw nearly continuous litigation after purchasing the rights to Kazaa.
Reinventing the Wheel iMac After Steve Jobs’ highly publicized return to the computer company he co-founded in 1976. but with MusicMatch software instead of iTunes. In one infamous case. As of early 2005. Advanced Audio Coding (AAC). iTunes On January 9. who was living with her mother in a lowincome Housing Authority apartment.000 songs. One of the most important features of iTunes. Many PC users admired the simplicity of the iPod’s design. By July 2003. and Apple Lossless Encoder. Since a federal appeals court ruling in December 2003. whereas the iPod Mini holds 1. and even burning them to blank CDs. Subsequent events proved these naysayers wrong. The iPod Photo comes in 40GB or 60GB models holding up to 15. was the ability to transfer songs from the computer to one of many popular portable MP3 players. Apple has sold over 10 million iPods. overlooked by many at first. and the design had been refined to include a CD-RW drive—an optical drive capable of both reading and writing to inexpensive CD media. a portable digital music player based around a tiny new hard drive technology that enabled the device to store 5 gigabytes (5GB) of data— roughly 1. The iPod holds up to 10. allowing users to backup valuable data or to burn their own music CDs. many people also complained that the $399 price tag would guarantee the failure of the Mac-only device. the RIAA continues to send out threatening letters and to file lawsuits against “John Doe. which used a simple scroll wheel for all navigation. Moreover. Apple introduced a Windows-compatible iPod—essentially identical to the Mac versions. like playing. music can be imported in a variety of formats. they were incredibly small and light. all of Apple’s computers featured CD-RW drives. organizing. Steve Jobs announced the availability of iTunes. having four distinct offerings in the iPod product line by early 2005. sales of both Mac and Windows iPods reached 1.000 per song in damages they normally sought. Apple announced the iPod. then Apple’s newest software.000 songs—at a time. even though it had many advanced features not found on competing devices and was much more compact than any other device that offered 5GB capacity. Still.000 songs.000. Apple quickly developed additional iPod devices. Fearing a public backlash. including MP3. By first cutting the number of products offered and then stressing the importance of innovation. the RIAA has been unable to force Internet service providers (ISPs) into divulging the names of specific users thought to be violating copyright laws. After July 2003. the RIAA brought suit against 12-year-old Brianna LaHara. but could only hold one or two albums of MP3s at a time.000 copies of the digital music jukebox software within the first week. which launched the all-new iMac personal computer to great fanfare and accolades in mid-1998. By October 2001. and its tight integration with iTunes software. iTunes was touted as the “World’s Best and Easiest to Use Jukebox Software. By the beginning of 2001. The iPod Shuffle comes in 512MB or 1GB models and plays up to 240 songs in random order. In less than a year.000 songs or 25.” Macintosh users downloaded almost 300. sales increased sharply.000. free for any Macintosh user to download. iTunes also showed how wonderfully simple and elegant a well written program could be on the Macintosh platform.A major factor that swayed consumers away from networks of copyrighted music files was the RIAA’s increasingly public campaign of dissuasion by way of lawsuits and threatening letters.000 photos. However. substantially less than the $150. MP3 players were quite popular digital music players. All of the devices can be used with Mac OS X or Windows 2000/XP computer operating systems. he set about reviving the languishing Macintosh computer line.” specified by Internet addresses. iPod Eight months after the first release of iTunes. . The copies were widely regarded as the first user-friendly solution to issues related to creating MP3s. 2001.000 units. coming in 20GB and 40GB models. as Apple sold 1 million iPods roughly every four and half to five months. the iMac computer line had become very successful. Jobs managed to turn around the Macintosh unit. the RIAA lawyers quickly settled out of court for only $2.
Originally. By the spring of 2002. It was originally only available to Macintosh users. but only enough to inconvenience the true “pirates” of copyrighted music.iTunes Music Store The iTunes Music Store was launched on April 28. of the first version of iTunes to support Windows-based PCs. or DivX videos). With more than one million songs available for downloading. [and] more than 100. Apple proposed a system that would limit the uses of the downloaded material. The system allowed a customer to copy each music file an unlimited number of times in order to backup the file or move it from one home computer to another. music content owners. this problem has been solved by permitting the user to make a specified number of copies of the original file but disallowing additional copying of the files. and Warner Bros . Apple also announced that it would fully support the iTunes Music Store and all versions of iPods. and play songs on up to five Macintosh computers or Windows PCs. has sold more than 230 million songs. In addition. It initially featured over 200. and the fact that Apple was not the first company to try a legal download service for music. and technology companies.” In terms of music. Users can burn individual songs on an unlimited number of CDs. the iTunes Music Store allows users to quickly find. Finally. Via the Internet. DRM was an important concern for music lovers. “companies wish to develop a product which would allow record labels to sell copy-protected audio tracks over the Internet. and download music. and so on. 2003.” According to the Apple Web site. . Despite these issues. Sony/BMG. because of the limited user-base. as the iTunes software had not been released for Windows computers. Apple managed to sell over one million songs within the first week. Apple’s implementation of DRM technology—the code that permits (or limits) uses of copyrighted material in the digital world—represents a compromise of fair personal use and property rights for the users and copyright holders. “DRM doesn’t mean just basic copy-protection of digital content (like e-books. . and iTunes Music Store did not occur without grappling with the thorny issue of Digital Rights Management (DRM). after which point the user could continue to burn those songs as parts of a mix. on a desktop or laptop computer. Universal. Since late 2003.000 new tracks from independent artists and record labels.99 respectively.” This desire on the part of music companies runs counter to national laws that traditionally have required record labels to grant “fair use” rights for their products. ranging from delivery to end user’s ways to use the content. MP3s. so that only the buyer could be allowed to listen to the tracks. iTunes Music Store has “hundreds of thousands of songs from major music companies. potentially substantial sales growth occurred with Apple’s release. purchase. 2003. The opportunity for additional. the system allowed users to burn as many as 10 copies of a full downloaded album. Fair use means that a customer must be allowed to make personal copies of the purchased music for use in a car. the system allowed users on a network to stream their entire music library to any number of friends or strangers. in a portable digital audio player. on October 16. Digital Rights Management Apple’s successes with the iTunes software. Typically. but not as an original album. as of early 2005. including EMI. the iTunes Music Store is open 24/7 for music downloads and. much like listening to the radio. for 99 cents and $9. Some people doubted Apple’s ability to make any headway in the market.000 songs from all of the major record labels and allowed users to download either individual songs or complete albums. The only limitation was that no more than three computers could be “enabled” to play the song at a time. iPod music player line. in order to get all the major record labels to agree to Apple selling music online. but it basically means full protection for digital content. listen to songs on an unlimited number of iPods. the iTunes Music Store has enjoyed significant expansion. Streaming enabled network users to listen but not copy. .
The price per download will be 88 cents—11 cents less than from iTunes Music Store. Robertson intends to approach the major music labels as well. how will the battle over Digital Rights Management likely unfold in the future? . Apple has certainly created a name for itself in the digital age of music. John Borland.” Also in February 2005. In your view. What is “Digital Rights Management. What are the ethical implications of Apple’s marketing of the iPod product line and sale of music through the iTunes Music Store? 3. at the same time. and sharing a music library.” and what ethical issues does it raise for Apple Computer and other providers of online music? 4. restrict their freedom? 2. who helped create “the early digital music wars with his MP3. even though they have adamantly opposed selling any songs online that are not wrapped in DRM technology. to the now ubiquitous white headphones of the iPod digital music player.In February 2005. that balance may only be temporary as the competitive pressures of the marketplace continue to unfold. from the first user-friendly solution to building. Questions for Discussion 1. a columnist writing about technology and the music business. for example. commented. online music purchasers have to make sure they are buying from a store that’s compatible with their MP3 player. How do (a) the technological configuration of the iPod product line and (b) usage applications of the iTunes Music Store serve consumers and. Robertson indicated he would open the service with hundreds of thousands of songs from independent and unsigned artists. Music from Microsoft’s MSN Music Store cannot be played directly on the iPod.com site. “Today.” announced his intention to establish an online music store that provides music without any copyright protection. Michael Robertson. Even though Apple may have struck a delicate balance of consumer rights versus copyrights. managing.
F. 2004) Wikipedia.110755.com/pr/library/2003/may/05musicstore. (January 20. Apple iPod. http://www. M.html.php?id=4280_0_8_0_C. (January 16.news. iTunes music store sells over one million songs in first week. 2001) Apple-history.yahoo. http://www.com/pr/library/2001/jan/16itunes.html. 2004) Wikipedia. (May 15. http://creativecommons. 2004) Wikipedia. Malone. . afterdawn.cfm. http://www.apple-history. (May 15. 2005. http://www. http://story. http://www.co. Horowitz. accessed February 10. 2005. 2003) Apple Press Release Archive. accessed February 10. http://en. 2005.uk/news/68389/consumer-electronics-giants-agree-on-digital-rights-management.cfm. http://www. Haughey.org/getcontent/features/wiggins. http://www. http://en. Apple introduces iTunes. Reuters News. (February 3.html.com/pr/library/2001/jan/09itunes. 2005) Apple’s iTunes music service may be supreme—but for how long? Inside Bay Area.html. Lloyd. Apple Press Release Archive. (April. Afterdawn.asp. (February 2. accessed February 10.com/2102-1027_35561133. http://www.com/itunes. (October. PCWorld Magazine. Brevetti. E.com/itunes/store. 2001).000 in first week.Sources This case was developed from material contained in the following sources: Ante. 2005. J. 2004) Instant expert: A brief history of iPod. Apple Web Site. iTunes downloads top 275. G. D. 2005. (February 7. S. accessed February 10. S.. Apple Press Release Archive. accessed February 10. http://www. 2005.com/news/archive/6026. 2005.news. http://www.wikipedia. (July 22. Key Corporate Milestones: Sharman Networks. anti-iPod campaign. 2005) Afterdawn. The #1 music download store. DRM. http://www. Napster.apple. (July 29. (July 29. Apple iTunes. Apple Web Site.wikipedia.html. Sanford.pcworld.afterdawn.sharmannetworks.apple. 2003) Piracy worries end iTunes streaming.typepad. 2005) Consumer electronics giants agree on digital rights management.com/news/article/0.apple. (February 2.com. 2005. 2001).com.00. (April 29. J. Schultz. 2003). http://www. Borland. less than the old iTunes? LawGeek. CNET News. P. PC Pro. http://www. S. 2005) MP3. (January 9.org/wiki/Napster. businessweek. Roberts.com/news?tmpl=story2&u=/nm/20050203/ wr_nm/media_napster_dc. accessed February 10.apple.aid. IPodlounge. (May 2003).apple. Zeidler.wikipedia.com/businessnews/ onthemove/ci_2557889. accessed February 10. J.com/lawgeek/2004/04/meet_the_new_it. accessed February 10. Apple Web Site.com/articles_more.org/wiki/Mp3. http://www.html. http://www. Timeline of RIAA lawsuits. http://en.ipodlounge. Business Week Online. accessed February 10. US court ruling in favor of P2P application providers. (June 26. MP3. http://www.pcpro. 2005) Napster unveils portable service. 2000) The e-biz 25. MP3Tunes: A DRM-less music store.htm. apple.com/2000/00_20/b3681001.com. 2004) Meet the new iTunes.com founder returns to music biz.insidebayarea.com/ipod.com/glossary/terms/drm. (April 28. http://lawgeek.org/wiki/ RIAA. 2005. The Creative Commons.com/content/view/ full/130.com. Wiley Wiggins: Interview by Matthew Haughey.com.
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