by Miguel Martinez, host of The SingularDTV Podcast.

On June 1st 1999, the music industry changed forever. Record Labels, Recording Artists, Developers, the Open Source community and DJs were all taken by surprise at the appearance of the first Peer-to-Peer (P2P) platform for sharing digital audio files: Napster.

Anyone could download Napster — in fact, over 20 million did — and, in turn, offer access to whatever Music Files in MP3 format they had in their /Music folder and share them using nothing but an internet connection — for free. You became a distributor of the great music you listened to, and ‘supported’ your favorite artists by sharing their work with others. It all sounded idyllic and great, but there was a huge problem with this: Copyright Infringement.

As mentioned in a previous article, Intellectual Property is a category of property that includes intangible creations of the human intellect, and primarily encompasses copyrights, patents, and trademarks. Artistic works like music and literature, as well as some discoveries, inventions, words, phrases, symbols, and designs can all be protected as intellectual property.

According to traditional law, anyone who distributed to others any type of music, samples, creative works or trademarked materials making reference to works associated with any artist without previously proper notification and authorization would be doing so illegally and subject to lawsuits. This is what happened to Napster after artists including Lars Ulrich and Dr. Dre decided to embark on a series of lawsuits against the platforms’ creators that eventually crippled their development.

There were a number of perspectives that rose up from people around the world in response to the practice of illegal peer-to-peer file-sharing. Some were opposed on the grounds of artists already being unfairly paid by the record labels, and the doubly negative effect file-sharing would further lessen sales revenue.

On the other hand, many (not coincidentally most often those who used platforms like Napster and Limewire) claimed that, thanks to the file-sharing, artist popularity and demand grew far better than could have done so through traditional methods. And this was undoubtedly true for a number of plucky young bands and artists who built early digital followings in the days before Facebook and Spotify.

Record Labels at this time were so used to their entrenched business model that when something different came along — the open sharing of music and the shedding of the physical format — they couldn’t quite get to grips. Instead of face the huge challenge of reinventing their wheel, they went gung ho into shutting the whole thing down.

What ended up happening after Napster was thwarted was that many other platforms came up and other solutions to share files such as Torrent Files, became the norm. A demand for faster processing, internet speeds, blank cds, CD burner drives, and better players than the ones that came with your computer so you could create your own curated playlist was born. Instead of having to change CDs in your car you could make playlist and order the songs the way you wanted to. You became your own curator.

The Digital Music Industry

A new era of society was kicked into high gear. The demand for the internet and the instant gratification of getting things as fast as possible became the standard. iTunes was released on January 9, 2001 as a media player, media library, and Internet radio broadcaster at first. The demand and adoption for internet home usage was growing worldwide, And so on October of 2001, the iPod was released.

A thousand songs in one device that you didn’t have to be changing, scratching, misplacing? Compared to a 12-track CD, the comparison was a no brainer. Everyone wanted their music to be digital for convenience purposes.

With the growing adoption of the digital music phenomenon. Steve Jobs went to the Record Labels and ‘asked” them to come onboard and put their music catalogs in iTunes. In April 2003, the iTunes Store became a digital music distributor, enhancing the experience of iPod users where they could buy songs or albums. They could pick which songs they would get, and thus artist became driven to create singles rather than albums. Apple signed deals with EMI, Universal, Warner, Sony Music Entertainment, and BMG.

On July 11, 2004, a 100-million songs milestone was reached. Let’s do math for a second: $100 * $0.99 = $99M. Apple takes 30% of the revenue. 99 * 0.30 = $29.7M was for Apple. The remaining $69.3M was to be disbursed to the pertaining parties.

The pricing model, the structures, promotions, quality, extras such as a digital booklets were all controlled and set by Apple and its platform. Apple, in many ways, took the place of many record labels, simply because legacy music industry organizations were not savvy enough to embrace technology.

…But with great power comes great responsibility right?

If It Ain’t Fixed, Break it Again

Through iTunes taking a significant portion of the revenue from digital album sales — which quickly became more than physical CDs — it became clear that something new needed to happen with the Record Label model. Since touring and merchandising were the primary flows of revenue from the artist, and the avenues through which they were able to make most profit from, major artists turned to blockbuster deals that encompassed their entire operation.

In October 2007, Live Nation reached a landmark, 10-year 360 deal with Madonna, under which the company would collaborate on music projects, touring, merchandising, and other facets of her career.

In the music industry, a 360 deal is a business relationship between an artist and a music industry company. The company agrees to provide financial and other support for the artist, including direct advances as well as support in marketing, promotion, touring and other areas. In turn, the artist agrees to give the company a percentage of an increased number of their revenue streams, often including sales of recorded music, live performances, publishing and more.

Madonna is the Diva of Pop Music. Everyone knows that a ticket to a Madonna Concert is over a hundred dollars. With the 360 deal she signed with Live Nation, every song, royalty, merchandise, live performance revenue — anything with Madonna or her brand related at all — went into Live Nation’s pocket. And how she manages that brand is entirely the realm of influence of Live Nation. Whereas once the record label lorded over artists’ careers, major conglomerates like Live Nation that owned the songs, the artists, the venues, and the radio stations showed a whole new level of control — and profit.

The past quarter century has shown the music industry to be at the whim of technology, constantly changing distribution and revenue models to accommodate the changing modes of consumption. In that process, the industry gatekeepers changed from record labels to tech companies to major entertainment conglomerates, but the system remained skewed against the artist.

Enter Decentralization