A few things I learned from “How Music Got Free”

My 2-sentence review: How Music Got Free recounts an era we all lived through — the transformation of listening to music on CDs, to Napster, to torrents, and now to streaming. It’s a well understood story, but like most epic stories from recent history, it’s fascinating to relive.

It’s a story about disruption, and how difficult it is for an entire industry to acknowledge a fundamental shift in how things are done, much less respond quickly and effectively. It’s a story about how companies can be biased by the the skills they prioritize, and can be oblivious to lurking challenges simply because they don’t keep close to engineers or customer service. Finally, this is a story about how changes in technology can drive better outcomes for consumers even while presenting temporary financial setbacks for companies.

The author Stephen Witt is a deft and rapturous storyteller. He details the story from the intertwining perspectives of those involved: the German team who invented the mp3 compression and encoding algorithm, led by Karlheinz Brandenburg; the record label perspective, as played by longtime music exec, Doug Morris, who was the Ahmet Ertegun of his day; the worker in a CD manufacturing plant in Virginia who smuggled pre-release music out of the factory and the subsequent networks of online piracy (from underground networks to Napster, et al); finally, the bumbling government regulators who spent billions trying to fight what was an un-winnable war.

Here are a few themes from the book that are applicable to other industries.

  • Format wars often don’t yield the best solution. The beginning of the book details the format war that mp3 battled with mp2. The mp3 was far superior in every measure — more compressed, higher quality, simpler design. However, the mp2 was backed by MUSICAM, a proxy for Philips, which wanted to own the digital file license, much like it owned the CD license. “Still, history showed that, from the AC/ DC “Current Wars” of the late nineteenth century to the VHS-Betamax battle of the 1980s, victory didn’t necessarily go to the best, but to the most vicious. From Edison to Sony, the spoils were won by those who not only promoted their own standard, but who cleverly undermined the competition. There was a reason they called it a format ‘war.’”
  • Experts can fundamentally misunderstand consumers. Music labels ignored the mp3 and scoffed at the idea of compressing audio, even if 99% of customers would never be able to tell the difference. This was simply because they listened to the experts, the audio engineers, zealots who scoffed at just the thought of compression. As Witt says, “Most listeners didn’t care about quality, and the obsession with perfect sound forever was an early indicator that the music industry didn’t understand its customers.”
  • Sometimes an entire industry can be completely oblivious to impending cataclysmic changes. Not only did many of the majors misunderstand consumers, in the late 1990s they didn’t clue into the fact that the internet was going to upend business as usual — even if there was ample evidence. I think the same thing is happening today with the TV industry. Upon its purchase of PolyGram Records in 1998, Universal Music Group prepared a risk assessment of the transaction. “But the biggest risk wasn’t mentioned at all. When the deal prospectus was made available to the public in November 1998, the buzz surrounding the Internet had become impossible to ignore. But somehow the executives of Seagram did not think the technology was worth analyzing at all. The prospectus for the PolyGram purchase did not mention the Internet, nor the nascent consumer broadband market…” nor the PC, file-sharing, or, most egregiously, the mp3.