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Tuesday, February 21, 2012

Steve Jobs' IP Grammy

The 54th Grammy Awards on February 11 claimed boffo ratings. Some 44 million viewers tuned in, up from 27 million people watching last year.

Perhaps that was not surprising given the salute to Whitney Houston after her untimely death, along with a reuniting of the Beach Boys, the comeback of Adele, and Paul McCartney taking the stage, among other top performers.

But one of the most interesting Grammies awarded this year did not go to a singer or musician. Instead, it went to a businessman. The late Steve Jobs, co-founder of Apple Computer Inc., received a Trustees Award.

At the Recording Academy's Special Merit Awards Ceremony on February 11, as noted on the Grammy's website, "Jobs' Trustees Award was accepted by Eddy Cue, Apple's senior vice president of Internet software and services, who made note of Jobs' love of music. ‘Music shaped his life and made him who he was,' said Cue. ‘When he introduced the iPod in 2001, people asked, "Why are you doing this?" He said, "We love music and it's always good to do something you love.'"

If anyone deserved being honored by the music industry, it would be Jobs, who, arguably, saved the industry.

It's worth reminding ourselves that online theft of music took off in the late 1990s, in particular with the creation of the Napster file sharing business in 1999. Jobs responded with the iPod and iTunes in 2001, which made online purchases of songs affordable, easy and appealing.

Music theft online continues, of course. Indeed, it remains a major problem. The RIAA, for example, reports: "While the music business has increased its digital revenues by 1,000 percent from 2004 to 2010, digital music theft has been a major factor behind the overall global market decline of around 31 percent in the same period. And although use of peer-to-peer sites has flattened during recent years, other forms of digital theft are emerging, most notably digital storage lockers used to distribute copyrighted music." The RIAA numbers show how daunting music theft is: "Since peer-to-peer (p2p) file-sharing site Napster emerged in 1999, music sales in the U.S. have dropped 53 percent, from $14.6 billion to $6.9 billion in 2010. From 2004 through 2009 alone, approximately 30 billion songs were illegally downloaded on file-sharing networks."

The RIAA also notes a striking correlation between the decline in music sales and a decline in the number of people working as "musical groups and artists" according to Bureau of Labor Statistics numbers (see the analysis here.) The RIAA analysis sums up: "Selling music is an important motivator to creating music, and ... the decline in sales has correlated with fewer people making a living in music."

Keep in mind that the music business is overwhelmingly about small firms. For example, in that industry category of "musical groups and artists," 93.6 percent of firms with employees had less than 20 workers, and 99.9 percent (i.e., all but five firms) had less than 500 employees (according to the latest Census Bureau data from 2009).

Jobs' love of music, combined with his business common sense, led him to understand the need to protect intellectual property if the music business were to survive.

In another recent SBE Council Technology & Entrepreneurs analysis, we quoted the recent biography Steve Jobs by Walter Isaacson, when the author wrote about Jobs, piracy and protecting IP. That is worth highlighting here once more:

"At this point Jobs could have decided simply to indulge piracy. Free music meant more valuable iPods. Yet because he really liked music, and the artists who made it, he was opposed to what he saw as the theft of creative products. As he later told me:

"‘From the earliest days at Apple, I realized that we thrived when we created intellectual property. If people copied or stole our software, we'd be out of business. If it weren't protected, there'd be no incentive for us to make new software or product designs. If protection of intellectual property begins to disappear, creative companies will disappear or never get started. But there's a simpler reason: It's wrong to steal. It hurts other people. And it hurts your character.'

"He knew, however, that the best way to stop piracy - in fact the only way - was to offer an alternative that was more attractive than the brain-dead services that music companies were concocting."

Steve Jobs combined an understanding of the importance of IP with an incredible talent for innovating, and the result allowed the music industry to have a fighting chance in competing with "free," that is, online piracy.

Depending on your music tastes, you can always debate who did or did not deserve a Grammy. But whatever kind of music you happen to favor, there's no debating the Grammy honor awarded to Steve Jobs.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

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