The music industry fought the future and created a black market; book publishers tried another tack

From The Wall Street Journal:

If you were attacked by pirates, who would you want by your side? A loyal horde of head bangers, gangstas and hard-core punks? Or a brainy clutch of bookish types? I’d generally advise you to go with the former group. But it turns out that in the swashbuckling arena of digital piracy, the publishing world is acquitting itself far better than the brash music industry.

Ten years ago this Sunday, the record labels thought they had turned the tide against piracy when the wildly popular Napster—a service that allowed anyone to find and download recordings online—declared bankruptcy. At the time, annual American music sales had dropped by about $2 billion, having peaked at $14.5 billion in 1999. The labels blamed Napster, claiming that the company encouraged copyright infringement. Sales have since declined by a further $5.5 billion—for a total plunge of over 50%.

The book business is now further into its own digital history than music was when Napster died. Both histories began when digital media became portable. For music, that was 1999, when the record labels ended a failing legal campaign to ban MP3 players. For books, it came with the 2007 launch of the Kindle.

Publishing has gotten off to a much better start. Both industries saw a roughly 20% drop in physical sales four years after their respective digital kickoffs. But e-book sales have largely made up the shortfall in publishing—unlike digital music sales, which stayed stubbornly close to zero for years.

This doesn’t prove that music lovers are crooks. Rather, it shows that actually selling things to early adopters is wise. Publishers did this—unlike the record labels, which essentially insisted that the first digital generation either steal online music or do without it entirely.

As an online music entrepreneur from the industry’s earliest days, I remember this disastrous policy well. In 1999, I founded, hopeful that the music industry would soon adopt the burgeoning Internet as a format, much as it had previously adopted CDs, cassettes, eight-track tapes and three different speeds of vinyl.

But the record labels greeted the first mass-market MP3 player—the Diamond Multimedia Rio—with a lawsuit. An industry news release justified this, saying it was “doubtful that there would be a market for MP3 recording devices but for the thousands and thousands of illicit songs on the Internet.”

Note the word “thousands.” Illicit music traffic was a wisp compared with the hundreds of millions of tracks that now traverse the wires each month. Napster’s debut was almost a year off, and file sharing was unknown outside of technical and college circles.

What really drove excitement about MP3 players was the $75 billion that Americans had invested in CDs by then. Those CDs had been expensive, partly because of collusion among music labels that added up to an extra $5 to prices, according to the Federal Trade Commission. MP3 players could make that vast consumer investment more valuable by making music collections far more portable, and almost infinitely more remixable.

Continue reading the rest of the story on The Wall Street Journal