Thoughts on Music

The situation

By early 2007 Apple’s iTunes Store was the largest online music store, and the iPod the dominant music player. Songs sold on iTunes were protected by Apple’s copy-protection system, FairPlay, which meant they could be played on iPods but not on rival players. Apple said the protection was required by the major record labels, which would only license their music if it was protected. European consumer groups and regulators, led by Norway’s consumer council, were challenging the restrictions and pressing Apple to make its music playable elsewhere.

What the letter argues

Jobs laid out three alternatives. The first was to continue as things were, with each company keeping its own protection system. The second was for Apple to license FairPlay to other companies, so that their devices could play iTunes songs. The third was to abolish DRM entirely.

He argued that the second option would fail. The labels required Apple to fix any breach of its protection quickly or risk losing their catalogues, and sharing the system’s secrets with many companies would make breaches more likely.

He argued that DRM was not achieving its purpose. “DRMs haven’t worked, and may never work, to halt music piracy,” he wrote. He supported this with numbers: on his estimate, only about 22 of every 1,000 songs on the average iPod had been bought from the iTunes Store with protection, roughly 2 percent, while the labels were still selling the great majority of their music on CDs with no protection at all.

He concluded that abolishing DRM was “clearly the best alternative for consumers, and Apple would embrace it in a heartbeat.” The letter noted that much of the concern about DRM came from European countries, and suggested that those pressing Apple should direct their efforts at the four major labels, several of which were based in Europe.

The decision it carried

Apple’s decision was to refuse to license FairPlay and to argue publicly for the removal of DRM altogether. The letter moved the debate away from Apple’s system and toward the labels’ requirements.

What happened

Two months later, EMI, one of the four major labels, announced that it would sell its music on iTunes without DRM, at higher audio quality and a higher price. Other labels initially resisted, partly because they were wary of Apple’s power over digital music pricing, and they licensed DRM-free music to competitors such as Amazon first. In January 2009 Apple announced that its whole catalogue would be available without DRM, in a deal that also gave labels variable pricing. Within two years of the letter, DRM on purchased music had largely disappeared.

How to read it as a product manager

The letter shows how to respond when you are blamed for a constraint someone else imposed.

Reframe the problem. Rather than defend FairPlay, Jobs argued that the constraint should not exist. That made Apple an advocate for consumers rather than a defendant.

Use data to change the frame. The small share of protected music on iPods was a powerful argument that DRM inconvenienced paying customers without stopping piracy.

Direct pressure to the decision-maker. The labels controlled the requirement, and the letter told regulators and the public so.

Recognise the self-interest. The letter defended Apple’s refusal to license its technology and preserved its position. Its argument was also good for customers. Product leaders should be honest, at least internally, about which of their positions serve customers and which serve the company.

The decision, examined closely

What triggered it

European regulatory pressure was the immediate trigger. If Apple were forced to license FairPlay, it would lose control of its system and possibly its relationships with the labels.

The constraints

Apple could not remove DRM unilaterally, because its contracts with the labels required it. It could not easily license FairPlay without risking those contracts. Its only room for manoeuvre was to change the public argument.

What the author was optimising for

The letter optimises for preserving Apple’s position in digital music while removing the pressure on it. Abolishing DRM would end the interoperability complaint without forcing Apple to share technology, and Apple believed it could compete on the strength of the iPod and iTunes without lock-in.

Second-order effects

Removing DRM from music made digital purchases more portable and paved the way for streaming services, which later replaced purchased downloads for most listeners. It also weakened one of the ties between iTunes and the iPod, but by then the iPhone was becoming Apple’s main product.

The counterfactual

Had Apple licensed FairPlay, DRM might have lasted longer, with a single dominant protection system controlled by Apple. Had Apple simply resisted, regulators might have imposed licensing. The letter found a path that served Apple and, as it happened, consumers.

What is contested

Critics at the time called the letter an attempt to deflect European legal pressure onto the labels, and some disputed Jobs’s figures. The labels themselves were reluctant to give Apple more control of digital music. These criticisms are compatible with the outcome: the letter was self-interested and also helped end DRM.

Sources and limitations

Quotations were verified against contemporary reporting that quotes the letter directly; the original Apple page is no longer online. The figure on songs bought from iTunes is reported slightly differently in different sources and is given here as Jobs’s estimate. The account of the labels’ later decisions comes from news reporting.