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.
Exciting hardware and a critical mass of titles were integrated into an elegant e-book package that piracy has never matched. Brian Stauffer
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 Listen.com, 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.
But the music labels sought to protect the CD through a court-ordered technology ban, citing a pirate boogeyman that barely existed. A federal court scuttled this in June 1999. Had things gone differently, it's unlikely that the iPod would have been developed. And that would have derailed the chain of products and innovations that led to the reinvention of cellphones and mobile computing that is so electrifying the world today.
Consumers who had finished ripping their CDs were eager for new digital tracks as the capacity of MP3 players expanded from dozens of tracks to thousands. But while the major labels couldn't ban the devices, they weren't about to sell songs that could be played on them. So they withheld their music from countless entrepreneurs like me, who were desperate to develop licensed online services.
By then, digital music was starting an exponential expansion of the sort that VCRs, cellphones, TVs and so much else has experienced. Markets, like nature, abhor vacuums. And it was into this vacuum that Napster launched.
Napster's popularity surged, and the labels continued their blanket online boycott, insisting that the world be satisfied with CDs. It was therefore through illicit channels that millions—and then hundred of millions—of consumers discovered the huge advantages of obtaining music digitally. There simply wasn't a sanctioned alternative.
Napster raised institutional money and hired managers who—like the rest of us—wanted nothing but to sell the labels' music. But their overtures were shunned, and Napster was shut down. And the labels continued to ignore the public's voracious demand for MP3s, enabling a new crop of illicit (and largely offshore) file-sharing operations to attract massive user bases.
Eventually the labels issued streaming licenses to my own company's Rhapsody service and a few others. But the market only wanted downloads back then, and the major labels didn't license a download store until April 2003. This was almost five years after the first MP3 players appeared.
Licensing expanded quickly after that. But the damage was already done. The labels had granted piracy a half-decade monopoly on awesomeness, and consumers had grown technically adept at illegal downloads—and morally comfortable with them, in the absence of any legal alternative. Piracy's momentum was so great that music sales kept falling until last year.
Enlarge Image
Barnes & Noble's Nook Tablet at a bookstore in November. The ready availability of licensed books means most consumers view piracy as a low-rent and time-consuming experience. Reuters
Compare this to the situation in books. Although it had some small-time forerunners, the Kindle, like the Rio MP3 player, brought portability to a mass market. But the Kindle launched with licenses rather than lawsuits from the key rights-holders in its domain, and offered more than 90% of the day's best sellers when it shipped.
This meant that consumers discovered digital books through a licensed experience that delighted them. Exciting hardware, a critical mass of titles and Amazon's retail sensibilities were all integrated into a single elegant package that piracy has never matched.
Of course, piracy emerged anyway. Countless unlicensed e-books can be found online, and millions of people use them. But sales figures suggest that relatively few of these downloads represent foregone purchases. Most Kindle, iPad and Nook owners seem to view piracy as a low-rent and time-consuming experience compared with the sanctioned alternatives. They probably wouldn't if the publishers had kicked things off with a five-year content boycott.
This doesn't necessarily make publishers the Einstein to the music world's Ozzy Osbourne. Publishing had music's dismal example to learn from. It is also easier to see the digital light when a game-changing product is released by a major partner and customer, even if Amazon inspires more dread than comfort among publishers. Of course, things haven't gone perfectly smoothly: In April, three publishers—Hachette Book Group, Simon & Schuster and HarperCollins—settled a Justice Department lawsuit alleging they conspired to raise e-book prices. (HarperCollins is owned by News Corp., as is The Wall Street Journal.)
Publishers face many challenges today, and some may be existential—Amazon's dominance, for one, and the potential for authors to sell directly to readers. But as one industry executive wryly observed to me after ticking off a list of his industry's perils, "at least we're not self-immolators."
—Mr. Reid founded Listen.com, the company that created the Rhapsody music service. Copyright law features in his first novel, "Year Zero," which will be published by Random House in July. Find him on Twitter: @Rob_Reid.