Phonograph, CD, MP3—What’s Next?

The Beatles finally make it to iTunes.

‘I am particularly glad to no longer be asked when the Beatles are coming to iTunes,” said Ringo Starr last week as the Fab Four’s record company finally agreed to have their music sold through digital downloads by Apple. This agreement could mark the beginning of the end of the digital dislocation of the music industry— the first industry to be completely disrupted by information-age technology.

Apple CEO Steve Jobs said, “It has been a long and winding road to get here,” understating the case. Members of the band and other rights-holders had long objected to Apple’s practice of selling songs separately from albums, disagreed with its pricing, and feared illegal file-sharing of the songs if they were ever available online.

All 17 of the Beatles’ albums were among the top 50 sellers on iTunes the day they were made available. Apple is even selling a virtual “box set” of the Beatles. The top single was “Here Comes the Sun,” appropriately enough, since the lyrics “it’s been a long cold lonely winter” summarize a music industry just emerging from the destruction element of creative destruction.

Music has been a test case for technology transitions before. In the 19th century, the sheet-music publishers of Tin Pan Alley dominated the industry but were disrupted by recorded sound when Thomas Edison invented the phonograph. This was in turn replaced by newer physical forms of recordings, from eight-track tapes to cassettes and CDs. In the Internet era, sales of albums—bundles of music—broke down as consumers downloaded just the songs they wanted, usually illegally.

The iTunes store, launched in 2003, popularized legal downloads. Streaming music online has also become popular. Today one quarter of recorded-music revenue comes from digital channels. This tells us that technology can reward both creators and consumers, even as traditional middlemen such as record companies get squeezed.

A Beatles song plays on an iPod.

The Beatles have been accused of being digitally backward, but last year the group targeted younger listeners by cooperating with a videogame maker on “The Beatles: Rock Band” that lets people play along.

“We’ve made the Beatles music,” Paul McCartney told London’s Observer last year. “It’s a body of work. That’s it for us—it’s done. But then what happens is that somebody will come up with a suggestion,” like a video game.

Consumers get more choice through digital products and seem happy to pay for the convenience of downloads through iTunes, despite the availability of free music. Apple can charge more for a Beatles download than Amazon can charge for a CD, even though CDs are usually higher-quality and the songs can be transferred to devices such as iPods.

Several years ago the big legal battle featured music industry companies suing some 35,000 people who illegally downloaded songs. Piracy continues, but now the industry is instead looking for new revenue streams. Sean Parker, founder of the original downloading service, Napster, has advice for music companies. “The war on piracy is a failure,” he says. “Labels must offer services that consumers are willing to pay for, focusing on convenience and accessibility.”

Some musicians still hold out against digital downloads. Country star Kid Rock explained to Billboard magazine recently why he stays off iTunes. “I have trouble with the way iTunes says everybody’s music is worth the same price. I don’t think that’s right. There’s music out there that’s not a penny. They should be giving it away, or they should be making the artist pay people to listen to it.”

Still, there are encouraging signs that creators and distributors are coming together. Artists often skip the music industry altogether by using new technology to make songs cheaply, then market them on the Web. For many musicians, the real money comes from concerts and merchandising. For bands that appeal to older audiences, such as the Beatles, CD sales remain brisk.

For music and many content-based industries, the shift to the Information Age from the Industrial Age is a shift to digital versions from older analog versions. The older forms don’t disappear altogether. Instead, traditional products find a more limited role alongside newer versions that take advantage of new technology to deliver different experiences to consumers. Sellers may lose scarcity value for their goods as digital tools make copying easy, but as iTunes has shown, convenience is also a service worth buying.

If the music industry can learn new tricks, there’s hope for all the other industries that are being transformed as technology continues to give consumers more choices. The best alternative for smart industries is to take the advice of the Beatles song “Let It Be”—make the most of technological progress, and recognize that certain things are beyond anyone’s control.

L. Gordon Crovitz, Wall Street Journal

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Full article and photo: http://online.wsj.com/article/SB10001424052748704496104575627282994471928.html