The Perfect Storm (part 1)

“Meteorologists see perfection in strange things, and the meshing of three completely independent weather systems to form a hundred-year event is one of them.” – Sebastian Junger, The Perfect Storm: A True Story of Men Against the Sea (Norton, 1997)

“Some of the guys get to where they feel invincible, but they don’t realize that there’s a real fine line between what they’ve seen and what it can get to.” – Captain Albert Johnston, quoted in The Perfect Storm

Almost everyone knows the story – and the metaphor – made famous by Sebastian Junger’s 1997 bestseller The Perfect Storm. The book recounted the saga of six veteran fishermen from Gloucester, Massachusetts, who decided, after weeks at sea in the fall of 1991, to sail home through dangerously stormy weather. Looking to protect a valuable catch, the men reasoned that they had survived many storms in the past and there was nothing special about this one. What they didn’t recognize was that they were heading into seas buffeted by not just one storm but several, all of which had converged to create an unpredictable and monstrous weather event: a perfect storm. When the weather hit, the men responded with survival strategies that had always worked for them in the past but then discovered that they were battling conditions they didn’t understand and weren’t prepared to cope with. Overwhelmed, they perished at sea.

You know where we’re going with this, right? For a long time, the creative industries – because they had evolved in market conditions that allowed a few big players to establish and maintain dominance – had smooth sailing. When the occasional storm of technological change blew in, they knew how to ride it out – even how to use it to boost their own competitive advantage. But in the 1990s several very different kinds of change arrived all at once: a pervasive transition from analog to digital media, a boom in micro-computing and mobile technologies, and the advent of the internet. The result was a new kind of turmoil that the creative industries simply hadn’t evolved to cope with – a perfect storm of change that threatened their profitable business models and their established sources of market power.

Change of this kind is difficult to foresee – particularly for incumbent firms, which tend to judge new innovations on the basis of the measures of success and profitability that apply to their existing business. Consider the tale that Howie Singer told us. Today, Singer is a senior vice president and the chief strategic technologist at the Warner Music Group, but in the 1990s, when that perfect storm of change hit the creative industries, he worked at AT&T. Singer and one of his colleagues, Larry Miller, sensed a great opportunity in that storm, and in 1997 they joined forces to co-found a2b Music, a service that made it possible to distribute compressed digital music files securely over the internet. AT&T announced the launch as merely a trial, but Singer and Miller felt they were on to something big: a revolutionary new business that could transform how music was sold and consumed.

The a2b service was indeed new. To appreciate just how new, remember that the iTunes store was launched in 2003, the iPod in 2001, Napster in 1999, and the Diamond Rio (the first MP3 player) in 1998. The a2b team had a jump on them all. They were proposing that consumers anywhere with an internet connection could download digital songs onto their computers, which they could then listen to wherever they wanted. In addition, the team had designed a portable music device to go along with the service that could play back an entire album’s worth of music stored on a removable flash card – a remarkable technological feat at the time.

To ease concerns in the industry about this fundamentally new means of distribution, the team had also devised a digital-rights-management protocol and had developed plans to (as they put it in announcing the service via press release) “incorporate micro-billing capabilities in future stages of a2b Music development and investigate other ways in which to integrate market strategies with retail outlets, so that the internet can be used more efficiently and effectively for the emerging application of downloadable music.”

Singer and his colleagues thought they had done all that was necessary to help the music industry take charge of what was clearly its future: the internet-based distribution of digital music. Enthusiastically, they began pitching their service to executives at the major music companies. They began by explaining that “a2b” referred to the shift from atoms to bits that was about to transform the music business. Thanks to coming advances in computing power and broadband connectivity, they continued, all music would soon be sold only as digital files, the management and sound quality of which would improve rapidly. The compact disc would become a thing of the past.

This ruffled some feathers. CDs were a source of great profits for the music industry in the 1990s, and their sales had been rising steadily for years. Why, executives asked, would we want to embrace a technology designed explicitly to replace our big moneymaker? One executive told the a2b team that he considered it an insult to hear this company’s music referred to as “bits.” Another – when presented with the idea that the a2b model would allow the labels to “disintermediate” and offer their music directly to consumers (which would have made it much harder for Apple to establish a beachhead with iTunes a few years later) – told the team they were speaking “a different fucking language.”