Not very long back if I wanted music, I went to a music store and bought a CD. If I loved only one or two songs, I still had to buy the album and pay for all the tracks I didn’t want to listen to. One couldn’t do much else. It was so matter of fact that nobody gave much thought to it.
In 1990s, as computers became common there emerged a way to convert a CD to a digital file. I still remember the thrill of ripping a CD on a computer into a Wav file for when it became possible. Each file was 50 mb and my computer memory was less than 1 GB so it wasn’t a feasible idea for music listening. However, the fact that you could put music on to a computer and listen to it gave a childlike thrill. Soon after, the MP3 format appeared and began to become a standard. As you know, this format allowed one to compress that large music file to almost 10th of its size. At the same time, computer memory started becoming cheaper by the day. Then, all hell broke loose.
People began to share music files with no regards to artists and their royalties. With the rise of the internet, peer to peer file sharing services emerged and allowed piracy of music at an unprecedented scale. Services such as Napster allowed millions to share music files with each other. Although Napster is now a legitimate business and a part of an established company (Best Buy), in late nineties, it enabled piracy over the internet and had a notorious image. There were many others too.
You can well imagine the impact of MP3 on music labels. The labels saw a decline in the music revenues at a massive scale. Eventually, piracy began to subside with an end of several such services and many high profile legal cases. But just as a mind once stretched cannot go back to its original state, the consumers couldn’t go back to the pre-mp3 era. Someone figured out a way to sell music by the track and that gave me the freedom to buy a just a few tracks that I like. Music business changed forever. It is still changing and there are many twists in this tale as I will write in future.
MP3 behaved as a rogue innovation in music industry because it reduced the total demand for legitimate music – first by piracy and then by unbundling. If demand declines without a commensurate increase in profitability, profits are bound to decline. If the labels had embraced it with both hands, it would have accelerated the decline in revenues. If they had prevented it or ignored it, there was a chance that many would go out of business. But that was all from someone looking at the innovation in mid nineties. We know what happened to the music industry and how a rogue innovation caused havoc there. There is a lot more to this story than what I mentioned here. Stay tuned for more in future.
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