how the ipod changed everything

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    May 12, 2009

    How the iPod changed everythingBy Matt HartleyGlobe and Mail Update

    While pirates bled the music industry, other businessesrode the tide and collected the booty. Former Appleinsiders tell how Steve Jobs did it

    It was the size of a deck of cards, had enough space for about 1,000songs and no one knew what to make of it.

    On Oct. 24, 2001, The New York Times published a story[http://www.nytimes.com/2001/10/24/business/technology-apple-

    introduces-what-it-calls-an-easier-to-use-portable-music-player.html]about a quirky new portable music player made by a computer company that was small enough to fit in just about anyone's frontpocket.

    The story appeared on page 8 of the newspaper's business section.Not exactly prime real estate.

    Analysts were bemused. The device had limited commercialpotential, they said. After all, it was only compatible with less than 5

    per cent of the computers in the United States. To the rest of theWindows crowd, "it doesn't make any difference," one observer opined.

    Indeed, it was an inauspicious start for the iPod.

    The day before the Times story appeared, Apple Inc. co-founder andchief executive officer Steve Jobs unveiled his creation and laid outhis vision of the future to a gathering of technology journalists andanalysts in California.

    "Interestingly enough, in this whole new digital revolution, there is nomarket leader," he told them. "No one has found the recipe yet for digital music. And we think not only can we find the recipe, but wethink the Apple brand is going to be fantastic, because people trustthe Apple brand to get their great digital electronics from ... we'reintroducing a product today that takes us exactly there, and that

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    product is called iPod."

    And with that, Mr. Jobs pulled the white, rectangular device out of thefront pocket of his jeans and held it up for the audience. Politeapplause. Many looked like they didn't get it.

    That was just fine with Mr. Jobs. They'd understand soon enough.

    Perhaps no other company has benefited from the rise of digitalmedia as much as Apple.

    Before music lovers downloaded billions of songs from iTunes, beforewhite ear buds became as common as sunglasses on a morningcommute and before the iPhone was the most sought-after consumer gadget in the world, Apple was a computer company with a small -albeit devoted - following.

    Although the Cupertino, California-based company revolutionizedhome computing in the mid-1980s, by 1997, the company was a bitplayer in an industry dominated by Microsoft Corp.'s Windowsoperating system. It's stock price hovered between $13 and $22 ashare (today it's closer to $130 a share).

    But consumer demand for digital media, and the iPods to play it on,

    transformed Apple from a niche PC maker into a consumer electronics juggernaut. Today, Apple enjoys a stranglehold over themarket for digital music players, controlling a 70 per cent marketshare in 2008, is the largest retailer of music in the United States -digital or otherwise - and with the iPhone, has evolved into one of themost powerful technology companies on the planet and is now wortharound $115-billion.

    Not bad for page 8.

    Apple Computer Inc. unveiled a new portable music player, the iPod,MP3 music player on October 23, 2001. The device can hold up to1,000 songs.

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    However, the story of Apple is merely the tip of the iceberg when itcomes to how digital media has transformed the business world. Fewindustries, from retail operations to artistic production; fromnewspapers to telecommunications have been immune to the shiftinghabits of mass consumption. Digital media has fundamentally alteredfinancial models that existed for more than a century, and in theprocess has redrawn the power map in the corporate world.

    Any company in the business of producing artistic content andintellectual property - be it words, music, photos, motion pictures or other forms of interactive entertainment such as video games - nowmust contend with the Internet. The ability to reproduce endlessdigital copies of media by reducing it to the ones and zeroes of binarycode has upended industries that once depended on billions of

    dollars of infrastructure devoted to producing, distributing andmarketing physical products.

    Apple's Recipe

    Matt Hartley speaks with former Apple insiders to get the insidescoop on how CEO Steve Jobs rode the iPod to one of the mostremarkable turnarounds in business history

    Download (.mp3)[http://beta.images.theglobeandmail.com/archive/00024/apple_s_recipe_24881a.mp3]

    "Every movie has had its price reduced to zero," Chris Anderson,editor in chief of Wired Magazine said in an interview. "Every bit of music, every bit of content, every bit of software has had its pricereduced to zero. Now, it's not the only version in the marketplace,there's also a version in the marketplace that has a price of whatever the creator intended, but it's happened and there's nothing new aboutit."

    Record companies and movie studios claim they're losing billions inrevenue. Newspapers such as the Rocky Mountain News and SeattlePost Intelligencer stopped printing while others hemorrhage cash.

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    Now, 10 years after Napster set the wheels of The Download Decadein motion, many businesses that remain tied to older business modelsare suffering and being driven to the brink of insolvency in the face of the worst economic recession since the Great Depression.

    Digital media acted as a tsunami that crashed through the businessworld, reordering traditional power structures. Now the collapse of global financial markets could be the tide that washes away thosebusinesses not strong enough to fight the current.

    Which businesses survive and which are relegated to the textbooksof first-year economics students may depend on their ability to finallystop worrying about digital media, and learn to love the ones andzeroes.

    THE DEC ADE THE MUSI C DIE D

    Before digital came along, the music industry had total control over itsformat transitions. Labels would introduce new formats slowly towean the public off previous generations, eking out every possiblebenefit. The industry touted eight tracks and cassettes as alternativesto vinyl records because they offered portability and then applied thesame philosophy to the transition from cassettes to CDs.

    "In prior shifts between technology platforms - vinyl to cassettes,cassettes to CD - these had been shifts that were stage-managed bythe business end of things," said Graham Henderson, president of the Canadian Recording Industry Association in an interview with theGlobe. "When a new technology came along such as cassette -which might not have been the greatest in audio quality, but it offeredportability - that was gently introduced into the marketplace when thetime was right and the same thing would have been true of the CD."

    However, with each format change, control slowly transferred fromthe record companies to the consumer. With cassettes, music fanscould make copies of records, albeit at a lower quality, and theindustry was not happy with the situation. Throughout the 1980s, theBritish Phonographic Industry, a trade group representing the recordindustry, conducted one of the first anti-piracy campaigns. It wasdubbed "Home Taping is Killing Music" and the posters featuredcrossbones beneath a cassette made to resemble a skull, similar to a

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    pirate flag.

    CDs were seen as a leap forward for the industry, which was nowable to produce high quality remastered original recordings from their catalogues. Although users could still make tapes for their friends, thehigher quality offered by CDs was supposed to keep consumerscoming back.

    Although the MP3 file format dates back more than 20 years, it wasn'tuntil 1995 with the release of a program called WinPlay3 that theformat started gaining traction on PCs. Still, with the average MP3weighing in at anywhere from three to five megabytes (MB) and theaverage computer containing only about 500 MB of storage capacity,the MP3 wasn't quite ready for prime time.

    Remember, this was at a time when Windows 95 was the dominantoperating system and required just 55 MB of free hard drive space torun, as opposed to Windows Vista, which requires 15 gigabytes,about 300 times as much space.

    It wasn't long, however, before hard drives started getting bigger andcomputers got faster. Soon, computer makers were packaging CD-burners in with their PCs.

    Suddenly, users could buy a bunch of CDs, rip the music to their computer and create near perfect copies or mix CDs of therecordings on blank discs for their friends.

    Then along came Napster in 1999, offering users the ability to takethose files on their computer, skip the burning process, and sharetheir MP3 files with their friends.

    Effectively, the ability to share digital files removed the music industryfrom the distribution equation.

    " If you look at labels and how much they've shrunk in the last fiveyears, a lot of them have had huge layoffs. The reason being isbecause when you're not selling that piece of plastic any more, youcan't support the infrastructure that delivers that piece of plastic and

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    is built to sell that. "- David Usher

    It's hard to understate the financial impact that the transition to digitalhas had on record labels.

    In