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In the late 1990s, the music industry was booming, dominated by the likes of Britney Spears, the Backstreet Boys, and NSYNC, acts that could sell a million CDs in a week. But around the year 2000, that all started to go away. Bye, bye, bye.
The culprit was Napster and file sharing, but really it was the internet, new technology that the music industry didn't see coming and didn't understand. With Napster, instead of schlepping down to Sam Goody to pay $18 for your favorite boy band CD, you could stay home, log on, and download it for zero dollars. This caused chaos overnight.
Sales plummeted, and then they kept falling. Over the next decade, CD sales would shrink in half. Finger-pointing and lawsuits took off, and one of the biggest bands in the world was pissed. Musicians like Lars Ulrich of the rock band Metallica are suing too. He says that what's at stake is nothing less than the future of his business.
I was not asked if I wanted to be part of Napster. I was not asked if Napster could throw our music into their system. That choice was taken away from me. So if we are going to sell our music on the internet in whatever way we so choose, we cannot do that if the guy next door is giving it away for free.
This was how weird things had become. A heavy metal band was now the flag bearer for big corporate music labels. Metallica and Lars Ulrich were outraged by what Napster was doing, and no artists were stepping up to the plate. Hilary Rosen was the head of the RIAA. That was the industry group that represented big music labels. She was in the middle of the madness. Metallica was one of the few bands that were willing to sort of step out.
And they filed their own lawsuit. And we were working together pretty closely. Music listeners loved free music, obviously. Music companies hated it, obviously. Musicians were conflicted. In the early days of Napster...
You got an enormous amount of press where artists would ask for their opinion about Napster and they'd be like, "I think it's cool if my fans want to take my music this way. Cool, I'm into it." And meanwhile, I would get the phone call from the artist or the manager behind the scenes saying, "Get that shit down." And I'm like, "Okay, it would help if you would just stop talking to the press then and saying how cool it was."
Music industry lawsuits worked, by the way, kind of. Napster was eventually put out of business and so were its successors. But that took years. In the meantime, a lot of people stopped buying music because they could get it for free. And while all that was happening, the men who ran the music labels thought they could turn things around with music. There was still a bit of a mindset in the business that there was nothing that a good hit couldn't fix. You know, that was the line over and over and over again. Yeah, we just need some more hits.
So there was less of a recognition that this was systemic and structural in those early years because the record companies really were never very invested in technology. Technology and a lack of foresight got the music business into this mess. Technology and desperation would get them out because watching all this play out from the sidelines was Steve Jobs.
A technology leader and music lover who saw this as an opportunity. A chance to present music executives with an offer they couldn't refuse, but one that for years later, they wished they had. I'm Peter Kofka, and this is Land of the Giants. Today, how Apple saved the music industry and took it over in the process, at least temporarily, and how it's tried to do the same thing in other industries like TV and film, but hasn't come close to the success it had in music.
It's a story that tells us a lot about Apple's power and its limitations. As Apple tries to turn itself into a business that's not just about selling iPhones, but services like entertainment as well. Can it succeed? And what happens if it doesn't? Good morning and welcome to Apple's 1984 Annual Shareholders Meeting. I'd like to open the meeting with part of an old poem, about a 20-year-old poem by Dylan. That's Bob Dylan. Steve Jobs, Apple, and music were intertwined from the start.
Jobs loved classic rock, he was big into the Beatles and Bob Dylan, and dated folk singer Joan Baez for a minute. But music was never part of Apple's business for the first 25 years of its life. It sold computers, full stop. By the late 1990s, though, music was starting to become digital, and computers started to become digital jukeboxes. So in early 2001, Jobs pushed Apple into the market with iTunes, free software that made it easy to store, organize, and play digital music files.
You weren't buying anything at this point. iTunes just made it dead simple to take a CD and rip music onto your Mac. And from there, you could do anything with your music. Play it as many times as you'd like. You could make copies on a CD for your friends. You could upload it to Napster, Kazaa, wherever, where anyone could copy it. Jobs and Apple knew full well what they were doing. They were making it super easy to consume music, to own music, without ever paying for it. Jobs didn't endorse stealing music, of course, but he kind of sort of winked at it.
Okay, Lil' Kim, how about Notorious K.I.M.? You sure you're ready for that? That's an Apple ad from 2001 where a dude wearing a hoodie commands a stage full of actual musicians. There's Lil' Kim and Iggy Pop and George Clinton and the guy from Smash Mouth to create a mix CD for him. At the end of the ad, the words rip, mix, burn pop on screen. It's your music burning on a Mac. A few months after he launched iTunes, Jobs introduced the iPod.
Now he had a complete music delivery system. Rip music from a CD or download it from the internet and then move it to your iPod. But downloading music from the internet meant you weren't paying for it. You were sharing it illegally. And the file sharing services had everything, but they also had weird stuff. So maybe you got the song you wanted or maybe it was a cover by some rando you'd never heard of. And the quality was really variable too. But it was free. And if you wanted to download music, there really wasn't a better option.
Jobs thought he could run a digital music store where you could get the tunes you actually wanted that sounded better without breaking the law. He pitched the idea to the five big music label bosses who were not into it.
For starters, the labels thought they could do it themselves with their own services. They had already launched two that were terrible. One only had music from two big music labels. The other only had music from the other three. That is, you could get some music you wanted from one service and some music from the other. This was just as dumb back then as it sounds now. The other problem, Jobs thought people didn't want to buy albums. 18 bucks for a dozen songs? No thanks. He thought he had a better handle on the consumer and what they wanted was singles.
Hilary Rosen remembers that the music industry hated this idea. Musicians had been taught that real artists make albums, and record labels wanted to sell $18 items, not $1 items. Jobs' response to that was straightforward.
You're losing a ton of money with online piracy, and nobody else cares about music as much as I do, and nobody else is going to do this as well as I am. And Jobs argued his store was only going to work on Apple's Macs, and Apple's Macs had a tiny fraction of the computer market, maybe 5%. So why not take a chance? And here we've got an excellent example of Steve Jobs' classic edition.
Someone who could see a solution to a problem that an entrenched industry wouldn't solve. A solution that was quite obviously right, at least for consumers, but unthinkable at the time. And, not coincidentally, a solution that created opportunity for Jobs and his company. Jobs worked the label heads relentlessly. He also made direct appeals to some of the really big artists, the ones big enough to have control over their own music. Steve Jobs is famously great at being on stage and putting on these presentations. What's he like in the room when he's trying to sell an artist?
I was in the room for a couple of presentations, like with Don Henley, who at the time was not just the key to the Eagles catalog, but also was the key because he was such a leader in these issues for other artists. And, you know, very few of these tech executives showed respect to artists.
And Steve's approach was exactly the opposite. And that's what got him not just in the room, but that's what got him embraced. How does Steve Jobs show Don Henley respect? He literally was a music fan. He would share why it was important to him that, you know, at the time Apple had come up with a better compression technology than AAC and he would demonstrate it and, you know, do side by sides of AAC.
how much better the Apple music quality from iTunes would be than what people were getting on MP3 bulletin boards or on Napster. And that went a long way. Good pitch, great timing. A few years earlier, there was zero chance the music industry would let Steve Jobs sell its songs for a buck. But now it was in free fall and a buck was better than nothing. We decided since no one else was doing this, that we were going to create a music store. Music downloads done right.
Jobs introduced the iTunes Music Store in 2003. And he was right. People did want to buy songs for a dollar. Apple sold a million of them in the iTunes Store first week, 10 million in the first four months. And later that year, Apple produced a version of iTunes for Windows, which meant that people could use iPods and buy music from the iTunes Store without owning a Mac. And then things really took off. A year after it opened, the iTunes Store had sold 70 million songs, including a million copies of this one.
All right, all right, all right, all right, okay, but... Apple didn't make a ton of money selling music. It only kept 30 cents from each sale, and Apple would say that much of that money went to the cost of running a store. But that didn't matter because it made a lot of money selling iPods. And also, Steve Jobs loved this stuff. Developing the iTunes store, creating an online business for music was a passion play for Steve.
I think there were many years where they never expected this, quote, content business to be any significant part of their annual revenues. For the music labels, their view of the iTunes store was mixed. The labels were happy. People were paying for music online instead of just stealing it. But they worried, correctly, that their $18 cash cows were never going to come back. Just as important, they worried that Steve Jobs was now in charge of their online sales. And he was.
Even though other companies like Microsoft and Sony got deals to sell music online too, no one was buying from them. Because for technical and business reasons, songs you bought from non-Apple stores didn't work on Apple products. So what was the point of buying a song from Microsoft if you couldn't play it on your iPod? I think at its peak,
Download singles and albums accounted for like 40% of all music sales, and most of that was Apple. And so the music business is completely kind of enthralled to this one tech company. Lucas Shaw covers the media business for Bloomberg. Apple was basically the one way for people to legally transact for music on the internet. Steve Jobs had solved a huge problem for the music industry while creating a whole new one, a monopoly on digital music distribution controlled by Steve Jobs.
Jobs had set out in the 1970s to make computers accessible to everyone. Somehow, along the way, he'd become one of the most influential people in the music business. And as Apple's momentum and power increased, it was easy to imagine that he would do the same thing in other cultural industries. That's not what happened. Apple's success with digital music downloads, it turns out, was a one-hit wonder, though it's been trying to find another one for nearly two decades. Next up, Apple goes to Hollywood.
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On September 28th, the Global Citizen Festival will gather thousands of people who took action to end extreme poverty. Watch Post Malone, Doja Cat, Lisa, Jelly Roll, and Raul Alejandro as they take the stage with world leaders and activists to defeat poverty, defend the planet, and demand equity. Download the Global Citizen app to watch live. Learn more at globalcitizen.org.com.
In August 2011, Steve Jobs told the world he was too sick to keep working as Apple's CEO. But he wasn't done working. He called the Wall Street Journal's Walt Mossberg and told him what he was going to do. He thought they had figured out how to make a great TV and that that's what he was going to put his time into. It was an actual TV set, a display. An actual TV set, a display with everything, but with programming in it.
associated with it and a whole different user interface and everything. And he said, I want you to come out and see it. And I said, I'll definitely come out and see it. You know, do you want me to come out in a few weeks? Or where are you in this project? He said, no, no, no, no. About six months, I would say. Jobs died two months later. The TV set never saw the light of day. But Apple's interest in the TV business? That was another story.
After Apple had gotten into the music business and then reshaped that industry, people in and outside of Apple assumed TV would be next and much more meaningful. At its pre-Napster peak, the U.S. music business topped out at $23 billion in revenue. The TV business was several times that size. And on top of that, lots of TV watchers hated the cable TV companies. Sluggish, complacent middlemen who charged too much and treated their customers like they had no other options. Because they usually didn't.
Remaking TV could be a very big deal for TV watchers and for Apple. There was this narrative of, oh my God, what if Apple gets this right? It'll change everything. Janice Min was the longtime editor of The Hollywood Reporter, where she got a front row seat to the industry's battle with tech. And for years, it seemed like Jobs was going to win that one.
For starters, unlike music, where Jobs was a fan but an outsider, Hollywood was different. Jobs was already a player there. In between his two stints running Apple, he had invested in and eventually took control of a computer animation company called Pixar.
Pixar was a unicorn, the rare studio that only made big, huge hit movies. The kind of animated success stories Disney used to dominate but didn't anymore. Jobs solved that problem for them. In 2006, he sold Pixar to Disney for $7.4 billion. The deal made Jobs, who was already a billionaire, Disney's single largest shareholder and wealthier than he'd ever been.
Meanwhile, Apple had struck deals to bring movies and TV shows to its iPods using the same iTunes store it used to sell music. It had your email and credit card info you'd given it to buy songs. And now you could buy an episode of Lost the day after it aired on ABC for just two bucks. We have to go back. Then in 2007, Jobs introduced the iPhone and remade everything.
Put all that together, and it seemed obvious that Apple wouldn't be satisfied selling day-old TV episodes or renting out movies. It would want to remake the entire video business. Which is exactly what Jobs was trying to do. By 2009, Apple was pitching the big TV networks on a new plan. Apple would use iTunes to deliver live streaming TV for $30 a month. Just like the cable TV guys everyone hated, but cheaper and better. The same way Jobs had delivered digital music a few years earlier.
And Jobs' pitch sounded familiar. It was obvious that TV was going to get disrupted, just like the music business. In a world where the internet gave you unlimited options, people were going to stop paying hundreds of dollars a month for a bunch of channels they didn't want. So why not work with Apple and get ahead of the collapse? But Jobs couldn't land the TV networks and studios. His successor, Tim Cook, couldn't do it either. The problem? The TV business wasn't the music business.
Jobs was able to get the music labels on board when their business was already collapsed. But even though lots of people predicted TV was going to fall too, it hadn't. There was just too much money getting made in...
Cable deals off cable television. Janice Minigan. Let's remember cable television only until recently was an ATM machine for the entertainment studios. This was still the era of tape 100 shows to sell to syndication that you would then sell to USA Network who will run Law & Order in perpetuity.
and then sell lucrative advertising against that to become the number one cable channel. And so there were all sorts of business models like that that seemed probably a whole lot better. Apple spent years trying to sway the TV moguls. If you were in tech, it was clear TV was going to implode.
But if you were in TV, you saw an industry that was still thriving. And you also remembered what happened to the music business. And you didn't want to put Apple in charge of your business, too. Even if the moguls thought Apple might be right, that change was coming, the ground still felt pretty steady under their feet. No need to jump quite yet. So in 2015, Apple threw in the towel and all but publicly announced it was done trying to become a digital version of the cable guy.
If you wanted to watch TV on your iPhone or your iPad, go for it. Go get one of the TV Guys apps. Apple was happy to be in the app business. And right on cue, 2015 was the first time the TV Guys acknowledged that something might be wrong with their business after all.
That summer, Disney said it had seen some subscribers at ESPN, its powerful sports network, fade away, which promptly freaked out the industry. Good reason. While the TV guys had insisted for years that cord cutting wasn't a thing, they couldn't deny it anymore. Since 2016, the number of pay TV subscribers in the U.S. has dropped by 25%. It's not a music industry-style cratering, but it's definitely a rock rolling down the hill. Apple's pitch was correct, but too early.
By the way, there is a tech company that turned itself into a giant media company that upended the TV and movie business. And you've already got a subscription to it. Netflix somehow figured out how to transform itself from a DVD by mail business into the streaming TV pioneer everyone's chasing these days. And Netflix did it at the exact same time that Jobs and Cook were failing at their efforts. I'd tell you more about it, but I already did. There is a seven episode podcast series about Netflix, and you can find that one in the same place you found this one.
TV wasn't Apple's only media misfire. Under Jobs, it briefly got into digital ads and then bailed. Apple also spent time trying to compete with Amazon in the digital book business. And all it got out of that was a federal antitrust suit that the government won. And when the iPad launched in 2010, Jobs courted big magazine and newspaper publishers who got excited about the idea of making interactive editions. I'm Rupert Murdoch, and I'm pleased to welcome you to the launch of The Daily.
"A national news publication for the iPad that we have created from scratch. We're honored Apple has put its support behind this venture. New times demand new journalism." But the iPad was no iPhone. It didn't reshape the world. People who really liked magazines, it turned out, didn't want digital versions of them. And Murdoch's iPad newspaper lasted about a year before it folded after burning through tens of millions of dollars.
On top of that, the digital music revolution Jobs had spurred eventually slowed down. Yes, people wanted to buy songs. By the end of 2006, the iTunes Music Store had sold 2 billion of them. But as Jobs pointed out, that worked out to just 22 songs for every iPod sold. The rest of people's music players were filled with stuff they'd found somewhere else. And there was an alternative to selling songs for a dollar apiece. You could rent an unlimited number of them for a monthly fee.
Back when Jobs introduced the iTunes store, he said this was a terrible idea. What happens if you stop paying? Hoof! Your music disappears. We think subscriptions are the wrong path. And one of the reasons we think this is because people have bought their music for as long as we can remember. For a while, consumers agreed with Steve Jobs. Subscription services didn't get any traction. Then, in 2008, Daniel Ek got it right.
The Swedish 20-something launched Spotify, which sold a monthly all-you-can-eat music subscription as well as a free version of the service with some ads. Spotify was an instant hit in Europe, but it took a few more years to get to the U.S., in part because the music labels took a while to get back the deals he needed. Eck believed Jobs was pushing the labels to go slow. Still, Eck got his deals and eventually tens of millions of customers, many of them on iPhones. A decade after music listeners stopped buying music, they were paying for it again.
But instead of buying one CD for 18 bucks, they were paying $10 a month for all the music ever made. Digital music took off again. But this time, Apple wasn't driving the bus. Around 2014-15 is when Spotify really starts to supplant Apple as the dominant force in music, the most popular way for people to transact, the biggest source of revenue for all the music companies. So how did Apple lose its lead in an industry it had reshaped? Bloomberg's Lucas Shaw thinks there are a couple reasons.
Because Apple was still the dominant player, if you're the dominant incumbent, you usually are reticent to undercut or disrupt your own business. And I think it took a while for that company to realize that it was losing some of its power and it had to adapt. I think for the rejuvenation of Apple under Steve Jobs, there's no question that entertainment, and music in particular,
were central to that. Again, go back to that period, like 2008, 2009, 2010. They're focused on the iPhone, which changed the course of modern history. And at a certain point, Steve Jobs is focused on his own health. And I think that worrying about Spotify taking their pole position in the music business probably wasn't concern number one, two, or three for that company. And in the Tim Cook era, Apple's cultural radar, its ability to be a tastemaker, seems less sharp.
Remember when Cook thought it would be a cool idea to automatically load a YouTube album into your iPhone? You can see how he would have got there. Apple used U2 in its commercials, even made a YouTube-branded iPod. But in 2014, iPhone users acted like Cook had given them a disease. Oops. I'm sorry about that. I had this beautiful idea, and it got carried away with ourselves. Fano even apologized for giving everyone his music for free.
But that was the same year when Cook made a very un-Jobsian decision. He decided that music subscriptions were okay after all. He paid $3 billion to buy Beats, the headphone company started by music producers Jimmy Iovine and Dr. Dre, which also had its own tiny subscription music service. Apple revamped Beats Music, called it Apple Music, and installed it on every iPhone it sold. Since then, it's done okay.
At first, Apple Music really positioned itself as a threat to Spotify, right? And in the early first couple of years, Apple Music grows like crazy. They do some press about it, eclipsing Spotify. But the growth of Apple Music seems to have petered out a little bit, or at least they stopped talking about it, whereas the growth of Spotify continued. And so Spotify is very clearly the dominant player. Let's be clear, Apple Music isn't a failure. It reportedly has some 80 million subscribers.
which means it's generating billions a year for Apple. But Apple generated more than $270 billion last year. For a company that revolutionized music with the iPod and $1 songs, these days that industry feels like an afterthought. And Apple doesn't even seem interested in competing with Spotify in the podcast industry. It's an industry Apple more or less created on its own. Maybe that's because Apple is still spending time, energy, and money trying to figure out TV.
Apple missed its chance to sell a cable TV-like subscription service, and now there are several versions of that from likes of YouTube and Hulu. But now it has a new model. It wants to be more like HBO. That's kind of sort of what Apple TV Plus is supposed to be. It's a streaming subscription service made up of new shows and movies. Apple launched it in 2019 after making deals with everyone, or at least famous people you or your parents have heard of. Steven Spielberg, J.J. Abrams, Jennifer Aniston.
Oprah. They're in a billion pockets, y'all. A billion pockets. The whole world's got them in their hands. This time around, Apple's pitch to Hollywood and the TV folks was very different than the cable TV deal it wanted before. It didn't want to disrupt the industry. It just wanted to buy a lot of the industry's stuff.
There's this whole history of what people disparagingly call dumb money when it comes to Hollywood. Hollywood veteran Janice Min again. There have been many people who have come with it. And I think there was a moment when Apple came to town where they thought, oh, like, this is our moment. Let's bring the trunk loaded up after a pitch meeting at Apple. But literally anyone with money can buy stuff from Hollywood.
Especially right now, when the streaming wars have kicked off a huge surge in TV and movie production. Apple is buying, but so is HBO and Netflix and Amazon and Disney and Peacock and not Quibi. Quibi's done. But buying TV shows and movies and getting people to watch them, let alone pay for them, is something different. And so far, Apple has one show you've probably heard of and maybe you've seen. Hey, how y'all doing? I'm Ted Lasso, your new coach.
But the rest of it? You scratch the surface any deeper on Apple TV. They have the highest cancellation rate of any of the premium video services. They have the lowest market share. They would probably need a Ted Lasso every two weeks to really start to grow. If you ask Apple executives what they're getting for the gazillions of dollars they're spending on Oprah and Spielberg and everyone else, off the record, they'll say, well, it kind of gets fuzzy, really.
They say they don't want to be Netflix, which, like Apple, was a tech company that came to Hollywood and spent a gazillion dollars. But it's still unclear what they're trying to do. Janice Min and Lucas Shaw have their theories. My sense is Apple doesn't want to win the streaming wars. They want to be extremely highly regarded for their taste. And they want to pay off...
their services as a new revenue line. They seem to really like being in Hollywood. I think Tim Cook likes being around celebrities, as most tech executives do, and they like competing for awards. They like what it does for their brand.
But they've never committed to it in a way that makes me think they view it as a cornerstone of the future of their company. It's like a nice to have. And when you've got, you know, hundreds of billions of dollars in cash just sitting around, you can afford to spend some of it making TV shows. So maybe the stuff Apple spends billions on will make money for them one day. Or maybe there's another plan.
As I was finishing this episode, I met, off the record, with a bona fide media mogul who runs a very, very big video company. His theory, his hope maybe, is that eventually Apple is going to buy his company or one of the other really big video companies. But only when the traditional TV business has just about died off. And here I should note that people speculating about Apple buying something is a longstanding tradition. And almost everyone always gets it wrong.
For now, though, TV and music and other Apple media forays seem to have two main objectives. They may make people more disposed to keep buying iPhones, Apple's real business. And they help Apple tell Wall Street it's building a services business that can keep growing even if iPhone sales slow down. But it's hard to square that semi-ambition with the fact that Apple is the most valuable company in the world. Has it stopped reshaping the media world because it doesn't care about doing that anymore?
Or has it hit its head on the ceiling and it just doesn't have the power to shape culture or at least culture companies that it used to have? I feel like under Steve Jobs, Apple always, if it was going to be in a business, it wanted to be the best at that one business.
whether it was the iPod or the phone or the computer. And in recent years, it feels like sometimes they enter markets and maybe they obviously aren't entering it with the intention of being second or third or fourth, but especially in media, they often are. And that's just a different place for Apple. There is one big exception to this at Apple. Sector Apple owns completely without any competition. Apps.
If you want to get an app on your iPhone, you go through Apple's App Store. It's a monopoly. No ifs, ands, buts. And if you pay for that app or buy something inside that app, Apple gets a cut. The App Store, remember, started off as an afterthought, and now it generates billions of dollars in profit for Apple every year, which has been working out great for Apple until now.
These technology companies are going to do everything they can to protect the status quo and defeat any reforms that in any way bring competition into the digital marketplace because they're reaping profits that are unheard of, and they don't want that to change. Next week, how Apple's App Store became a huge asset and why it could end up causing huge problems. Audio of Lars Ulrich from 60 Minutes. Audio of Bono from a Facebook Q&A session.
Land of the Giants, the Apple revolution, is a production of Recode by Vox on the Vox Media Podcast Network. Zach Mack is the show's senior producer. Our producer is Matt Frasica. Jolie Myers is our editor. Serena Solon is our fact checker. Brandon McFarlane composed the show's theme and engineered this episode. Sam Altman is Recode's editor-in-chief. Art Chung is our showrunner. And Nishat Kerwa is our executive producer.
I'm Peter Kafka. We've got one episode left of this amazing season. And if you like things so far, leave us a rating and review on Apple Podcasts or wherever you listen. Tell a friend that works too. And subscribe to hear our next episode when it drops. Quick disclosure, Vox Media creates content for and does business with Apple. None of the people creatively involved with this season of Land of the Giants are involved with those projects.