News Article

The 99¢ Solution

How Mac users are rocking the music biz, for a song. With the success of its pay-per-download model, Apple's iTunes Music Store is revolutionizing digital music -- without angering the major labels

Bono, Chris Martin, ... | ELEVATION Coldplay, Fischerspooner, and U2 are among the artists benefiting from iTunes sales
Image credit: Coldplay: PAD/LFI; Fischerspooner: Robert Spencer/Retna; U2: Ethan Miller/Corbis Sygma
ELEVATION Coldplay, Fischerspooner, and U2 are among the artists benefiting from iTunes sales

''Stuck in a Moment You Can't Get Out Of'' is a top download in Apple's groundbreaking 99-cents-a-song iTunes Music Store. But the U2 track also summed up the post-Napster paralysis of the music biz, whose Internet strategy long seemed to consist of wishing the dadgum thing would just go away. This month, though, the industry finally came unstuck as eager Mac users shelled out cash for a jaw-dropping 2 million songs in the first 16 days of the Store's existence. ''It's a huge turning point,'' says Recording Industry Association of America president Hilary Rosen, the naysayer who nabbed Napster. ''The results are fantastic.''

But the real results have yet to be tallied: Right now, only Macs -- which make up 3 percent of all personal computers -- can access iTunes, and only 20 percent of those have the right operating system (OS X v10.1.5 or above).

So the long-predicted online music revolution is on, as labels, artists, and consumers adjust to buying and selling ones and zeros instead of shiny plastic discs. Here's how iTunes will change the music industry -- and more:

THE FUTURE IS NOW Apple's success shows that if you build a relatively glitch-free, cheap, legal download service, they will pay. And industry skeptics -- who balked at putting their treasured catalogs online and recently resorted to suing file-sharing college students -- are finding religion. ''Our phone is ringing off the hook,'' says Apple marketing director Peter Lowe.

With a workable model in place, the race to duplicate iTunes' success in the vastly bigger Windows market has begun. Apple plans to target that sector by the end of the year. But it won't be alone -- the record labels may allow other services the same liberal terms (e.g., letting users burn songs to multiple CDs and stick 'em on iPods).

By next year, the catalog-rich but user-unfriendly service Pressplay will morph into a new, legal Napster -- courtesy of tech firm Roxio, which now owns both Pressplay and the Napster name. Among others in the race for a Windows-based iTunes: Rhapsody, Amazon.com, Microsoft, the label-owned MusicNet (whose investors include EW parent AOL Time Warner), and Echo, a nascent service from a group of offline retailers.

THE SINGLE IS BACK Singles have dropped to 1.6 percent of total sales. But now, says Eric Garland of BigChampagne, an online-music tracking company, ''it's a singles market. The song on the radio is what we want to [buy].''

Fans can download radio hits for 99 cents instead of paying $7 for a CD single or $18 for an album. ''In the physical world...it's not economical to market and promote and distribute singles. Online, it's much easier,'' says Rosen. But the trend doesn't spell doom for albums, which make up more than half of iTunes downloads. ''You're going to have artists that want to release a song a month and others who want to take a year and create a concept album. Online delivery allows for both.''

NEW ARTISTS CAN BREAK ONLINE When Casey Spooner, of electronic-pop duo Fischerspooner, first logged on to the iTunes Music Store from his Brooklyn apartment, he was stunned to find his band's debut album among the Store's top sellers. Although the CD, ''#1,'' had sold only about 22,000 copies since its February release, it hit No. 5 on the iTunes chart.

Why the disproportionate sales? iTunes made Fischerspooner a featured artist, and users responded. Says Spooner, ''You have a way to reach and share music with people that isn't tied to the payola systems of radio.''

But will it create a favoritism system of its own? Fischerspooner were featured because the band's label, Capitol, provided exclusive content to iTunes and lobbied Apple with ''50 phone calls,'' says label exec Ted Mico. Another Capitol act, Coldplay, had 4 of iTunes' top 10 singles last week; not surprisingly, they too were featured artists. Capitol attributes its artists' success to ''perfect demographics.''

MORE THAN A SONG If Apple can successfully sell music online, could movie, TV, and videogame vendors also succeed? ''It's a great sign,'' says Jim Ramo, CEO of the fledgling studio-funded movie site Movielink, which lets you download ''Red Dragon'' for $4.50.

According to one estimate, digital music will earn $2 billion a year by 2007 -- and that's just the beginning. ''There is a tremendous opportunity to grow and nurture consumer products for the masses,'' says Garland. ''The time for tentativeness or hesitation has passed.''

Originally posted May 30, 2003 Published in issue #713 Jun 06, 2003 Order article reprints