iTunes turns 10

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The iTunes Store at 10: How Apple reinvented the music business

As I write this paragraph, I’m enjoying a playlist that I created from among the thousands of songs on my iPhone, and it’s no big deal. It wasn’t always so simple: Once upon a time, crafting the perfect playlist for your MP3 player felt like an epic project. You had to rip the songs from a CD onto your computer, find sources—legitimate and otherwise—for tracks you didn’t own, and then hope everything was in the right format to play on your portable device. Apple changed all that, thanks to a series of musical moves right at the dawn of the 21st century—not the least of which was the launch of the iTunes Music Store.

It was only ten years ago—on April 28, 2003—that Apple opened the iTunes Store (then called the iTunes Music Store) and changed the way we buy music. The store arrived with just 200,000 tracks; in the ensuing decade, that library has grown to more than 35 million songs, from the Beatles to Jay-Z. You can even download those tracks over your phone if you want—no computer needed. That was not possible before the iTunes Store opened.

Apple’s not fond of reminiscing, but even the company has taken note of iTunes’s anniversary. The store “revolutionized the distribution of digital content,” Peter Oppenheimer, Apple’s chief financial officer, told Wall Street analysts when announcing Apple’s quarterly earnings earlier this week. In addition to those 35 million songs, which are available in 119 countries, the store sells 60,000 movies in 109 countries, and 1.75 million books in 155 countries. By Oppenheimer’s math, the $4 billion in quarterly billings recorded by iTunes in the most recent quarter makes it the largest digital content store in the world.

The iTunes Music Store, then...

Still, the iTunes Store story begins with music. So it’s appropriate that, on the tenth anniversary of the store’s opening, we’re on the cusp of another shift in digital music, with streaming looking to replace downloads as the next listening experience. But before we think about what’s next, let’s look back at what was.

...and now, after Apple added movies, TV shows, and apps to the offerings.

The way we were

Apple wasn’t the first company to think of selling music online. Before the iTunes Music Store hit the scene, you could subscribe to services like Rhapsody, PressPlay, and eMusic that offered a certain number of downloads a month. But most of these songs came with strings attached—limits on what you could do with that music and where you could listen to it.

As a result, many music listeners turned to other avenues for getting their hands on digital songs—namely, the peer-to-peer networks that emerged in the wake of the file-sharing service Napster. Through networks such as Kazaa and LimeWire, you could find and download almost any individual track you wanted. You didn’t have to buy an entire album or deal with digital rights management (DRM) that prevented you from listening on your MP3 player or burning it to a CD. And you didn’t even have to pay for it—which was, in almost every case, illegal.

Many start-ups tried to find the right mix of selection, ease of use, and price to entice listeners into legal digital music, says Russ Crupnick, an analyst with research firm NPD Group. Most failed. It took Apple to find the magic combination.

To put it another way, Apple may not have invented the notion of selling digital music, but it certainly made the process easier than anyone who had tried before it.

Changing the music industry’s tune

Crupnick credits Apple’s digital music ecosystem with making the difference. The company didn’t just launch a store. It built that retail effort directly into its iTunes music software and made sure that the songs you bought from iTunes worked seamlessly with the iPod.

Apple also convinced record labels to buy into some important innovations as well, including letting iTunes shoppers transfer files to more than one device and burn tracks to CDs (with some limitations, of course). Before the iTunes Music Store’s arrival, you could do those things only if you had ripped music from a CD or downloaded a track without DRM.

“Apple dragged the music industry by the scruff of its neck into the digital age,” says Mark Mulligan, music industry analyst and founder of Midia Consulting.

With the iTunes Store, users could download whatever tracks they wanted instead of buying a complete album.

Digital downloads also let listeners pick and choose which songs they wanted, a dramatic change from the album-centric models we’d grown used to from records, tapes, and CDs. “iTunes enabled people to skip the filler tracks and go straight to the killer tracks,” Mulligan says.

Want to know how successful the iTunes Music Store was? Look at all the copycats it spawned. Microsoft, Virgin, Real Networks, Sony, and Walmart all started digital download services. But only iTunes worked with the iPod, and only iTunes remains relevant ten years later. Earlier this month, NPD reported that Apple still enjoys a 63 percent share of the paid music download market. (It enjoys similarly sized chunks of the market for movie and TV downloads—65 and 67 percent, respectively, NPD says.)

The store enjoyed success right from the start. People rang up 1 million downloads from iTunes within the first week the music store opened for business. That number grew to 25 million tracks by the end of 2003. These days, the milestone is 25 billion downloaded songs and counting.

Flying Chili
Music downloads from the iTunes Store have grown steadily over the years; not coincidentally, so did holiday season sales of iPods for most of the years the store has been open for business. (Click to enlarge.)

Steve Jobs certainly saw the store as an early-on success. “When history looks back, the iTunes Music Store will gain recognition for being an incredible landmark in the music industry because it was the first time that online music could be sold really legally in a pay-per-download model, so good and easily and fun and fast and reliable,” Apple’s then-CEO told the UK’s Independent in 2003.

A pirate’s life

The iTunes Music Store came along at a time when piracy plagued the music business. Crupnick says that at one point 50 percent of college students were using services like LimeWire to download tracks without paying for them.

Wider access to broadband gave piracy a boost, contends Josh Friedlander, vice president of strategic data analysis for the Recording Industry Association of America (RIAA). But that same access to broadband also made a legal alternative like the iTunes Music Store possible.

When it launched, tracks on the iTunes Music Store came with FairPlay, Apple’s DRM. You could listen to a song on up to five computers and burn a playlist ten times. That put some restrictions on users, but FairPlay didn’t get in the way of listening to your music as much as other DRM schemes did, NPD’s Crupnick says.

Still, some dispute what impact the iTunes Music Store really had on stopping piracy. In the first five years of the store’s existence, piracy continued unabated. After all, Mulligan notes, not even iTunes could give pirates what they really wanted—unlimited music, wherever they want it, whenever they want it, for free. Analysts think continued litigation by the RIAA and rights holders as well as the rise of free streaming options did more to stem piracy than Apple’s music store.

Do the evolution

The iTunes Music Store changed the landscape of digital music instantly, but it also has continuously evolved over the past decade as entertainment and technology have changed. Consider some of these adaptations rolled out by Apple over the years:

  • The iTunes Wi-Fi Music Store, introduced by Apple in 2007, as a way for iPod and iPhone users to buy music straight from their devices. These days, every iOS device ships with mobile stores for both entertainment and apps already installed.
  • Apple dropping DRM in 2009, following the lead of competing services like Amazon’s MP3 music store.
  • iTunes Plus, Apple’s first foray (in 2007) into DRM-free music. It also offered songs encoded at higher bit rates for better sound quality.
  • Adding more cloud-based services such as iTunes in the Cloud and later iTunes Match to let you download tracks you’ve bought to any of your devices.

iTunes has also moved beyond music, even dropping the word “Music” from its name. These days, iTunes is more of an entertainment store, where you could buy or rent movies and TV shows, download books, and—of course—load up on mobile apps.

Apps, introduced as a section of the iTunes Store in 2008, also wound up creating some competition for its music business. Through apps like Pandora, you could stream music over your iOS device—no purchase necessary. Now, with subscription services like Spotify and Rdio, you have access to millions of songs, anytime, anywhere (though not for free).

In the stream of things

With the iTunes Store, Apple took the existing physical record store model and made it digital. And while the iTunes Store is still about ownership, it’s a transition technology, Mulligan says.

Analysts agree that the future of music lies not in ownership, but in access. In other words, you won’t have a copy of a song on your device, but you’ll stream it on demand when you want to hear it—essentially the model that Spotify, Rhapsody, and Rdio follow. Crupnick thinks that we’re still five to ten years away from this becoming the standard, but it is coming.

What place do Apple and the iTunes Store have in this brave new world? Expect Apple to remain dominant in digital music for a long time to come. iTunes is now entrenched in the way that many people think about music.

Whether Apple creates a long-rumored streaming service of its own, or, through iTunes, it just continues to be the platform that other apps use to provide those services, it will remain in the middle of digital music in large part because it makes the devices that people use to listen—iPhones and iPods, especially.

When downloads go the way of 8-track tapes, we may not feel nostalgia for the files that consumed our drive space, but we should appreciate the role that the iTunes Music Store played in freeing us to listen to music when we want, where we want, and how we want.

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