In 2003, the world's major record labels, fighting a losing battle against online file-sharing, agreed to license their music to Apple. CEO Steve Jobs promised them a revolutionary music service, an online store that sold songs for 99 cents each. Until then, the major labels had licensed their music only to services that charged customers a monthly subscription fee; if you stopped paying the fee, you'd lose your tunes. The iTunes Store would be the first place where you could download music from nearly every major artist without worrying about an RIAA lawsuit.
In return for letting Apple build up its inventory, the labels needed assurances that iTunes wouldn't be a haven for piracy. Having been burned by Napster, music biz bigwigs were understandably concerned that putting MP3s up "for sale" would be tantamount to giving away their catalogs to music-thieving college students. Apple assuaged these fears by creating a "digital rights management" plan called FairPlay, which prevented customers from putting songs on more than five different computers or from burning any playlist more than seven times. In addition, iTunes songs would not work with non-Apple hardware and software, and Apple's devices wouldn't accept copy-protected songs purchased from most other online stores. At first, these last two restrictions sat well with the recording industry; keeping downloaded songs tied to the iPod would limit piracy, the labels believed. But then the iPod became a phenomenon. Suddenly everybody had one—and the only place to buy music for the iPod was through iTunes, which would go on to become the most popular music retailer in the country. The irony was delicious, even poetic, the industry hoisted with its own petard: By demanding DRM, the labels had tied their songs to a single hardware and software platform and had inadvertently given Steve Jobs total control over their business.
In particular, the labels lost one of the most important rights any business enjoys—the ability to pick the price of its goods. By 2005, many in the industry wanted to adjust the price of songs on iTunes based on their popularity. Under their plan, hot new releases would sell for as much as $1.49, while back-catalog standards would sell for less than 99 cents. Jobs, arguing that raising prices would push people to download music illegally, rejected this proposal, forcing labels to a single storewide price. The record companies had little choice but to go along. Apple's store was the only game in town.
Last year, the industry tried another strategy to reduce Apple's power—record companies gave up one of their most prized demands, copy protection, in order to let Amazon set up a DRM-free online music store. Because it carries no restrictions, music from Amazon's store could work on Apple's devices—and, thus, Amazon looked like it might pose a threat to the iTunes Store's dominance. The labels, finally seizing the upper hand, declined to offer the same DRM-free deal to Apple until it agreed to institute flexible prices.
Last week, Apple gave in. The labels agreed to give up DRM on all songs sold on iTunes—within a few months, you'll be able to copy every song in the store to an unlimited number of computers, and you'll be able to play any song on any device, Apple or non-Apple. In return, Apple will let the industry sell songs at three different prices—69 cents, 99 cents, or $1.29, rather than today's universal 99-cent price.
For music lovers, this is fantastic news. Under the old regime, every purchase was a Faustian bargain—when you pressed "Buy" on iTunes, you were committing yourself ever-more tightly to using Apple's products long into the future. (True, you can remove iTunes' restrictions by burning songs to CDs and then re-ripping them to your computer—but that's a hassle, and it degrades your music quality.) But despite the changes at the iTunes store, it would be a mistake to see the Apple announcement as the beginning of the end of DRM. The computer and consumer electronics industry—not least of all, Apple—continues to build restrictive copy-protection into hardware and software. Buy a movie from iTunes and you're stuck playing it on stuff made by Apple—iTunes, iPods, iPhones, or Apple TV devices. Apple has even baked DRM into its computers: The video ports on new MacBooks check to see whether an external monitor obeys copy-protection standards. The upshot: If you want to connect your new MacBook to your old 50-inch TV in order to play an iTunes movie on the big screen, you're sunk—the software will balk that your TV is "not authorized."
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