The digitalization of music, along with all the accompanying innovations (access to virtually unlimited music anywhere, anytime with a device smaller than a pack of cigarettes) and pitfalls (the significant decline of the traditional music industry), has defined the past decade. However, the consequences of the digitalization of video, delayed by the need for far more Internet bandwidth, are only beginning to unfold.
When Napster first launched in 1999 there was no iTunes store; there was no widely accepted digital music distributor. Then the music labels failed to cooperate and turn Napster into a legitimate, economically feasible subscription service, further engraining music piracy in our culture. Instead, iTunes used the traditional per-album payment structure—at the behest of the labels—while also pioneering the per-song model as well. I can't argue with the success of 10 billion songs sold, but I also can't help but wonder what iTunes' piracy-combating potential would have been if they had offered an all-you-can-eat-buffet service from the get-go, rather than the traditional à la carte. Fortunately, this is precisely what Netflix got right from the start.
Currently Netflix streaming accounts for 29.7 percent of peak-hour Internet usage among North Americans, finally surpassing BitTorrent, the service most-used for downloading illegal copies of movies and TV shows. In a few years, Netflix has managed to make paid, legal movie and TV streaming a common practice among a generation already accustomed to getting music for free. The secret to their success is simply that they did it early and they did it well.
First with its DVD-by-mail subscription service and then with streaming, Netflix understood that a small monthly fee for access to an extensive media catalog was the payment model of the future. Unfortunately, the movie studios and content producers of old aren't too keen on their diminishing importance and are starting to make things harder for Netflix.
The company scored a success this summer by striking a deal with Miramax for streaming rights to its catalog of classic films like ""Pulp Fiction"" and ""Good Will Hunting"". However, this week Netflix suffered a startling blow when one of its partners, Starz, decided against renewing its contract with Netflix in 2012. Previously, Netflix had a deal with Starz for streaming rights to a catalog of movies and TV shows, specifically a large portion of the newer movies Netflix has to offer.
Content owners are frightened of what an all-streaming distribution system could do to their profits and seem to be ready to fight the change, even if change may be inevitable. Perhaps they need simply to see things from a different perspective—and Steve Jobs is once again stepping up to the bat to do just that.
Recently Apple and the almighty Jobs announced a new service called iTunes Match that could be the largest leap in transforming the economics of digital music since the iTunes store. Apple's new iCloud service will allow users to store any music they purchased from iTunes free of charge online, accessible from any of their devices, anywhere.
But Apple knows that the vast majority of the average consumer's music library is, shall we say, obtained from other sources, and convincing a generation raised on unlimited free music to switch back to a 99-cent-per-song distribution model would be like trying to bring the Walkman cassette player back in style without a hint of hipster irony.
Their solution, iTunes Match, is essentially a clandestine peace agreement with pirates. For $25 a year Apple will scan your music library for songs not purchased through iTunes and swap them out for the high-quality, legitimate copies from iTunes. For just $2 a month, users could download unlimited music from any source they want and have the music legitimized by Apple. Apple has found a way to offer a buffet-style music service and get pirates to pay for their music. Even if it's just a little bit, it will add up to a lot more than what the industry is getting from pirates now. Apple may have found the next cornerstone in maintaining the profitability of media in the digital age.
There is no doubt in my mind that this is the way of the future. The economics of media distribution must undergo a drastic revolution, just as digital distribution was a monumental transformation. Attempting to force last century's payment structure on a metamorphosed system is a doomed endeavor. The problem is that the power structure—the goliath movie studios and music labels—from the old system still cling to their remaining vestiges of power and influence and are fighting tooth and nail to stay relevant. Hopefully they'll decide to work with these new distributors like Netflix sooner rather than later.
