How Music Got Free: The End of an Industry, the Turn of the Century, and the Patient Zero of Piracy

by Stephen Witt

  Other industries were smarter. Where the major labels saw degradation, the consumer electronics players saw dollar signs. Around the time of the first RIAA meeting, Diamond Multimedia and Saehan International, both Korean companies, independently approached Fraunhofer with the idea of making the world’s first portable mp3 player. (They were unaware that Harald Popp had commissioned a functioning prototype two years before.) While neither company presented an especially impressive design concept, Henri Linde negotiated the deals quickly, believing that the Japanese consumer electronics majors like Sony and Toshiba would soon follow.

  They didn’t come. Once scrappy upstarts, the Japanese majors were now established multinationals who had lost their early appetite for risk. And the mp3 was dangerous: most of the files on the Web were illegal, and hosting them was an invitation to be sued. The electronics industry and the music majors had always had an uneasy relationship, and the introduction of the cassette tape deck in the 1980s had provoked a flurry of lawsuits. Now more cautious, Sony, Toshiba, and the rest of the Japanese leaders watched carefully from the shoreline as the Korean B-team players waded into shark-infested waters.

  But one industry loved controversy: the press. After the USA Today article, Fraunhofer’s public relations arm was swamped with interview requests, and the Erlangen campus was overrun by camera crews. Naturally, the journalists wanted to know who was responsible for this technology, and they focused their attention on Brandenburg. He carefully directed it away. Over the next few years, even as the mp3 was widely touted as the audio technology of the future, its inventor preserved a surprising degree of anonymity.

  He did this by underplaying his own role. In every interview he gave, Brandenburg denied that the mp3 even had a single inventor, instead stressing the importance of the collaborative effort of his team. (This was usually the first thing out of his mouth.) From there he would start crediting other stakeholders in the project, like Thomson, and AT&T, and, in later years, even MPEG itself. Sometimes he even credited MUSICAM, since it held the patent on the filter bank that Fraunhofer was still forced to license. Meaning that, as the mp3 money began to roll in, even Philips got a tiny cut.

  The picture Brandenburg presented to the public was of a large-scale consortium involving a complex thicket of patents and licensing cash flows, a project with a dozen stakeholders and no single driving force. But Henri Linde knew different. As licensing manager, he was one of the few people qualified to actually interpret this mess, and he could see that Brandenburg was obfuscating. It was a phenomenon he termed “escaping to the team.”

  It was certainly true that Bernhard Grill, Harald Popp, and the rest of the original six were indispensible, and that Brandenburg had been fortunate to fall in with such a talented crew. It was also true that Thomson had provided critical support, especially in the form of Linde himself. And it was true that the project had many stakeholders—the twenty different patents that covered the full suite of mp3 technology provided revenues to more than two dozen inventors, and that was after the attached institutions took their cut. You had to dive deep into the licensing agreements to learn the secret: Brandenburg earned a far, far larger share of the mp3’s licensing revenue than anybody else. Of all the names that appeared on the patents, Brandenburg’s appeared most often, and, on the first and most important one, filed in 1986, Brandenburg’s name appeared alone.

  His personal economic stake in the mp3 project was enormous. This was what he was trying to hide. He was a modest person, uncomfortable with attention, and this was compounded, perhaps, by certain German cultural values that discouraged the flaunting of wealth. Perhaps, too, he was trying to draw attention from an exquisite irony—that his intellectual property fortune was being earned on the back of the most widespread copyright infringement campaign in history.

  Others began to notice the commercial potential for the mp3. As with Diamond and Saehan, the early innovators tended to be outsiders who didn’t care much about the established body of intellectual property law. In April 1997, Justin Frankel, a freshman student at the University of Utah, debuted Winamp, an mp3 player that offered several minor cosmetic improvements to WinPlay3, chiefly the ability to edit playlists. Frankel did not bother to license the technology from Fraunhofer, even as he preserved the original sin of Grill’s design by pointlessly aping an LCD monochrome screen. Within a year, Winamp had been downloaded 15 million times. Around that time too, several different companies debuted officially licensed mp3 encoders that improved on L3Enc. Grill’s original mp3 software suite was soon overtaken by these better-designed competitors, and his own programs were retired.

  That September, the incoming class of 1997 matriculated, and a generation of adult adolescents now had the limitless capacity to reproduce and share music files, and neither the income nor the inclination to pay. (I was among them.) On websites and underground file servers across the world, the number of mp3 files in existence grew by several orders of magnitude. In dorm rooms everywhere incoming college freshmen found their hard drives filled to capacity with pirated mp3s. The academic institutions themselves were unwitting accomplices, and music piracy became to the late ’90s what drug experimentation was to the late ’60s: a generation-wide flouting of both social norms and the existing body of law, with little thought of consequences.

  For six years the mp3 had been the leading technology of its kind in the world. During that period it had managed to capture a fractional sliver of the total market. Now, with the introduction of AAC, it was officially obsolete, discharged from service by its own inventor, and suddenly it was the format of the future. Brandenburg benefited. So did Grill, Popp, and the rest of the team. So did any other Fraunhofer researchers who’d joined them along the way, for German law guaranteed inventors a certain percentage of royalties, and this was an inalienable right, one that could not be negotiated away. Others were not so lucky. American law, too, guaranteed patent and copyright protection—in the Constitution, no less—but, like everything in the United States, the rights to this future income could be bought and sold. Brandenburg’s American counterpart James Johnston had signed away his rights to AT&T when he’d gone to work for Bell Labs, meaning that, even as the mp3 succeeded beyond his most fervent imagining, he earned nothing.

  Around this time, Linde began to notice subtle changes come over Brandenburg. His wardrobe shifted from sweaters to sport jackets and ties. He began talking less about things like modified discrete cosine transforms, and more about things like marketplace position and long-term barriers to entry. He was starting to understand the power of open, competitive markets and, like all good capitalists, did his best to avoid participating in them. Linde noticed, too, that while Brandenburg might have been eccentric, it wasn’t as if he had a personality disorder. Indeed, he seemed in recent years to have developed an excellent understanding of people’s tendencies and motivations. He had proved to be a careful student of human nature, and his own personal awkwardness was almost like a disguise he wore.

  In the months and years to come, Linde watched as Brandenburg used this growing expertise, both in business strategy and human relations, to steer the market for global music toward the maximum economic benefit of the Fraunhofer team. It began with AAC. The new standard was better than mp3, bar none. In a perfect world, then, one designed by an engineer for the benefit of the end user, the mp3 format would have been phased out in 1996, and the superior AAC format would have taken its place. But Brandenburg was careful not to let this happen. Instead, he split the marketplace, directing AAC toward industrial applications like cell phones and high-definition TV, while pushing the mp3 to home consumers for use with their music.

  Why did he do this? Well, though he earned money from both standards, his stake in the mp3 earnings was greater. It also kept his colleagues happy, rewarding them for decades of work. And consumers were unlikely to complain. To them, the mp3 was a black box that spat out free music, and the mention of AAC would only confuse things. Still, from a
n engineering perspective, there was only one word for this kind of maneuvering: politics.

  By 1998 Brandenburg’s journey to the dark side was complete. His success with both formats was the toast of the audio engineering world, and he was coming to be regarded as a visionary. That year he was awarded a medal for technical achievement from the Audio Engineering Society, the first of many prizes he would go on to receive. The political weight inside MPEG was shifting, away from Philips and MUSICAM and toward Fraunhofer and Brandenburg. The same engineers who had once ignored his petitions for consideration now regarded his authority as the final word.

  MPEG had snubbed him many times. In 1990 it had inserted a cancerous tumor into his tech. In 1995 it had betrayed him, gutted him, and left him for dead. Now, in 1998, he basically ran the thing. In an MPEG meeting that year, when asked if a certain proposal would succeed, one of the Japanese delegates had pointed at Brandenburg, and said, “Ask him.”

  In May 1998, Saehan’s MPMan arrived. The first consumer-grade mp3 player was a box-sized contraption with a tiny monochrome screen that cost $600 and held five songs. It was roundly criticized by reviewers, and sales were limited to enthusiasts. Brandenburg thought it was wunderbar, and ordered three. Many other companies began approaching Fraunhofer. Popp and Grill shifted roles, away from building technology and into managing people and streams of revenue.

  Late in 1998, Bernhard Grill traveled to Los Angeles to work on the details of a licensing agreement. Afterward, he went shopping at a nearby suburban mall. Standing on the escalator behind two teenage mallrats, he heard a discussion of the technology he had helped to invent. They’re called mp3s, said one mallrat to the other. You can use them to put music on your computer. Then you can share them on the Internet. Haven’t you heard about this yet? It’s how I get all my music now.

  The golden ear of Fraunhofer eavesdropped on this conversation, saying nothing. Something extraordinary was occurring to him, something he was realizing for the first time. The format war was over. He had won.

  CHAPTER 8

  In 1998 Glover built a tower. That is, seven compact disc burners, stacked vertically, that duplicated perfect copies of a source. The burners ran at four times speed, so in the course of an hour Glover could produce about thirty clones. Glover scoured #warez and other underground networks for material to sell. PlayStation games, PC applications, mp3 files … anything that could be burned to a disc and sold in a hand-to-hand transaction for a few dollars in loose cash.

  He focused especially on movies. Video compression was just arriving to the pirate networks, and this had led to an influx of low-grade rips. Home DVD burners hadn’t yet arrived, and the release groups relied on an inferior technology known as “Video Compact Disc.” Glover downloaded this material, made copies with his tower, then sold the bootleg discs for five to ten dollars apiece. The video quality was poor, but business was brisk.

  Soon he was buying blank CDs in bulk, snapping up spindles of hundreds of discs at a time. He bought a label printer to catalog his product, and another color printer to make mock-ups of the movie posters. He bought a black nylon CD binder, filled it with the color posters, and used this as a sales catalog. He kept his inventory in the trunk of his Jeep and sold the movies by the side of the road.

  The one thing he didn’t sell was leaked CDs from the plant. While these continued to trade on the black market, Glover considered them too risky. It had taken an awful lot of overtime hours to make the move to permanent, and he didn’t want to chance his employment status. Also, he needed health insurance. His son Markyce had been born the year before, and his mental ledger now contained terrifying entries for things like diapers and child care. His own upbringing had instilled in him the importance of family, and he was mentally prepared for fatherhood, if not marriage exactly.

  He matured a little. He tried, for a while, to spend more time at home. He got another tattoo, on his bicep, of an enormous Christian cross. In the mornings before work, he would rise from his restless sleep and brush his teeth with little Markyce. In the evenings, he would sit the child on his lap and play with him amidst the whirring background of the burning bootlegged discs.

  As soon as he’d saved up enough cash, he moved with his girlfriend out of the trailer and into a modest apartment. The move marked the end of the dog-breeding experiment. This had not been a lucrative venture. Pit bull puppies were a pure commodity, a market with no barriers to entry, and the premium on pedigree litters had been competed away. This experience was a lesson for Glover, as he began to see that success in a capitalist economy required a durable competitive advantage. So he started to act as a middleman between the street and the Scene. But even so, he struggled, losing out to his primary competitor: Tony Dockery.

  Dockery had built a tower, too, and he sold to many of the same customers. But Dockery’s inventory was better than Glover’s—better in fact than anyone in the state. Dockery was somehow finding things on the Internet that Glover couldn’t: movies still in theaters, applications still in beta, PlayStation games that weren’t scheduled to be released for months. When Glover asked Dockery where he was sourcing this material, the answers he received were evasive.

  Competition sucked. Dockery’s refusal to share put a strain on the two men’s friendship. They stopped commuting together, and at the plant they scheduled different shifts. Thus Glover was alone when he was pulled over in 1999 for a routine traffic stop while driving through the town of Kings Mountain. He hadn’t committed a traffic violation, and suspected he was guilty only of “driving while black.” This happened often, and Glover had a rehearsed routine. When the police officer approached the vehicle, Glover, as required by law, informed him that he had a gun stored in the gap between his car seats.

  The officer told Glover that he had just committed a crime. He explained that North Carolina state law required handguns to be placed on the dashboard during a traffic stop, in full view of the officer. Even though Glover had a permit for the gun, the traffic stop ended with him facing a felony weapons charge. Before the first court date, the prosecutor offered him a bargain: turn the weapon over to the cops, and the charge would be dismissed. Glover did so, and his record remained clean, but the experience felt to him like a shakedown.

  A dark period followed. His sleep apnea worsened. Two of his friends died in street racing accidents, and, confronted with his own mortality, he sold the Suzuki bike. He began working hard again—long hours, late hours, overnight shifts. His relationship deteriorated. He spent too much time on the Internet. His girlfriend moved out, taking their baby.

  Then came the announcement: Philips was selling PolyGram to Universal Music Group. The sale included the music labels, the studios, the intellectual property, the contracts with artists, and the entire pressing and distribution network, including the Kings Mountain plant. The employees were nervous, understandably, but management told them not to worry. The plant wasn’t shutting down—it was expanding.

  The production lines were upgraded to the point where they could manufacture half a million CDs a day. An extra warehouse was built to store the finished product. The labor force nearly doubled and the empty positions were filled by temp agencies in a mad rush of hiring. The parking lot overflowed with cars, and the cafeteria could barely feed the workers.

  One of the new hires was a Shelby local by the name of Karen Barrett. The manufacturing floor was not normally a place of beauty, but Barrett was a stunner. She was thin, with high cheekbones, fair skin, and long, naturally blond hair. Her squarish jaw and her slightly upturned nose gave her a spritely, impudent appearance, and while shy on first contact, she soon revealed her true persona through tart and surprisingly opinionated exchanges with her coworkers. She showed up in late 1999, and they put her on the packaging line.

  Dockery tried first. He was unsuccessful in repeated attempts. He did, however, manage to convince her to join him, Glover, and a group of other employees in regular outings to the bowling alley. At the lanes, o
ver beers, as Dockery continued to petition, Glover noticed that Karen was looking in his direction instead.

  In the weeks to come, the two learned they had much in common. Like Glover, Barrett was a product of the small-town South. She spoke with an accent as thick as Glover’s, and used many of the same regional colloquialisms. She had the same education and similar economic prospects. She shared his taste in music, listening to a broad variety of country, rock, and rap. And she loved car culture—loved the big stereos and the joyrides and the rims.

  Like Glover, Barrett had a child from a previous relationship, and the two commiserated over the difficulties of single parenthood. Within a few months, they were discussing cohabitation, and soon lived together in a complex family relationship. Glover informally adopted Barrett’s child and began to raise him as his own. When visitation allowed, Markyce stayed the night as well. Barrett and Glover arranged offsetting shifts at the plant, ensuring that one would always be home with the children.

  Karen wasn’t the only new face at the plant. A new manager was brought in from Denmark as well, a tightly wound expert in manufacturing efficiency. Other local facilities were shut down, and Kings Mountain became the regional command center. (If you followed that chain of command up through several levels of hierarchy, you would eventually get to Doug Morris, and above that, Junior himself.) The merger was a hassle, but it meant more shifts, more overtime hours, and, best of all, more music. Universal, it seemed, had cornered the market on rap. Jay-Z, Eminem, Dr. Dre, Cash Money—Glover packaged the albums himself.

  The company understood how desirable this product was becoming. Before, leaking from the plant had been a lark, one that caused small amounts of localized damage to the parent company. In the Internet age, though, a leaked album was a catastrophe. All it took was one disc in the hands of the wrong person to screw the whole release process up. Universal rolled out its albums with heavy promotion and expensive marketing blitzes, including videos, radio spots, television campaigns, and the late night circuit. The availability of prerelease discs on the Internet interfered with this schedule, upsetting months of work by publicity teams and leaving the artists betrayed.