Introduction

The Holy Grail of online music sales is the ability to offer iPod-compatible tracks. Like the quest for the mythical cup itself, the search for iPod compatibility has been largely fruitless for Apple's competitors, whose DRM schemes are incompatible with the iconic music player. For a music store that wants to succeed, reaching the iPod audience is all but a necessity in the the US market, where Apple products account for 78 percent of the total players sold. Perhaps that's why eMusic CEO David Pakman sounds downright gleeful when he points out that "there's only two companies in the world that can sell to themApple and eMusic."

It's rather a startling point—given the worldwide success that Apple has had selling iPods, one would think that music stores would do whatever it takes to make their offerings iPod-compatible. Attempts at bypassing or emulating Apple's FairPlay have not been successful, however, and FairPlay is (famously) unavailable for licensing. So what's a music store to do? To eMusic, the answer was simple: you offer songs as high quality, variable bit rate MP3 files instead. DRM is removed, consumers are happy, and the vast white fields of the iPod are ready for harvest.

It sounds like such a simple idea, but in the context of the music business, this is radical, French Revolution-type stuff. What's perhaps even more interesting is the fact that eMusic's decision to offer unprotected MP3 files was not an ideological one; the idea made great business sense, and has established eMusic as the #2 retailer of downloadable music behind the iTunes Music Store. The fact that it opened the way for iPod compatibility was really just a bonus, since a couple of years back, it was much less clear that Apple would come to dominate the market in the way that it does today.

"It's really not a philosophical decision; it's a practical one," says Pakman. "Early on, the belief was that we had to sell music in the only universally compatible format that existed. TiVo was just about to come out with MP3 playback on their machine and we didn't know if that was going to be big. There were a bunch of MP3 players on the market, including the iPod, and that market was growing. There were MP3 car stereos happening. There weren't any phones, but you can see that's where it was going. Everyone was putting MP3 in their device, so why not sell in a format that works in all those places?"

Indeed, when put this way, it sounds amazing that no one else (apart from some dubious Russians) has released music that will play on the widest possible array of devices. There's a reason this doesn't happen, of course: the music labels won't allow it. Actually, the major music labels won't allow it—but there's a whole ecosystem of independent music labels that want nothing more than wide exposure and fair compensation. What eMusic has done is to construct a business model built around indie music—and they're now selling 5 million tracks a month doing it.

That's because indie music doesn't (necessarily) mean bands with a fan club of six. A good chunk of the best work being done today comes from indie musicians like Bloc Party, the Drive-By Truckers, Gomez, Interpol, Belle & Sebastian, Tom Waits, Nick Cave, Pedro the Lion, Dolorean, Calexico, Arcade Fire, Spoon, Dar Williams, Ron Sexsmith, Modern Skirts, and Ryan Adams, all of whom are carried by eMusic. The company has built itself into an indie music powerhouse that now offers more than a million tracks and 175,000 subscribers, and it sells its songs for about a quarter each. Though in no danger of eclipsing Apple's one billion track sales, the company looks well-placed to cater to the over-25 music lover, a group not always well-served by the major labels.

But things haven't always gone so well for the company...

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