How music got free

CHAPTER 7

By 1996, following its early adoption of the mp3, Telos Systems controlled 70 percent of the North American market for digital sports broadcasting. Its primary competitor had opted for mp2 encoding, and Telos had routed them. There were now Zephyr boxes in nearly every major North American stadium, and many large-market radio and television stations as well. Voice-over artists began using Zephyrs to set up digital home recording booths, eliminating the need for expensive studio visits. The word “zephyr” had even become a verb, meaning “to stream digitally,” as in, “Can you zephyr me that interview with Pavel Bure?”

The head-to-head success of the device in the open marketplace revived interest in a format that the world had left for dead. The standards committees had hated the mp3, but the customers sure loved it. This success brought attention, and soon Fraunhofer was cutting other deals. Macromedia licensed the mp3 for use with its multimedia Flash codec; Microsoft licensed it for an early version of Windows Media Player; a start-up satellite radio provider named WorldSpace licensed it for broadcasting to the Southern Hemisphere. The overall revenue from these deals was modest—enough to justify the technology’s continued existence, but not enough to justify the thousands of man-hours and millions of dollars Fraunhofer had spent in development.

And so, toward the end of 1996, Fraunhofer was preparing to retire the mp3. Its development was complete, and there was no longer anyone actively working on it. The plan was to shift the technology’s limited customer base to the second-generation Advanced Audio Coding, which was now nearing completion. AAC had delivered on its promise. It was 30 percent faster than the mp3 and employed a variety of new techniques that allowed it to compress files with perfect transparency even beyond the 12-to-1 goal. After 14 years, Seitzer’s vision was real, and when Fraunhofer submitted the AAC technology for standardization in late 1996, the event formally marked the mp3’s obsolescence.

What happened next was like an episode of Star Trek. A mysterious case of amnesia struck every member of the crew. Brandenburg, Grill, and Popp; Gerhäuser, Eberlein and Herre; even Seitzer was afflicted. The Fraunhofer team generally had excellent memories, and could often recall events more than twenty years past with great clarity and precision. They were good record keepers too, and the stories they told of the early days could almost always be corroborated with photographs and documentation. But when it came to the mysterious period of late 1996 to early 1997, every one of them drew a blank. No one—not one—could remember the first time they’d heard the word “piracy.”

The Fraunhofer team were no strangers to the Internet, but the Internet they knew was a collaborative tool for research and commerce, not some grimy subculture of anonymous teenage hackers. In their naiveté, they had not seen what was coming. Somewhere in the underworld, L3Enc, the DOS-based shareware encoder Grill had programmed several years back, was being used to create thousands upon thousands of pirated files. Meanwhile, somewhere else in the underworld, the commercial WinPlay3 player that supposedly self-destructed after twenty uses had been cracked, enabling full functionality. Together, the two were now being distributed in chat rooms and websites as a bundled package.

That wasn’t all. Some of the Warez Scene groups were also providing direct links to Fraunhofer’s FTP server, along with stolen serial numbers for L3Enc and WinPlay3. By the middle of 1996, Fraunhofer’s database administrators would have seen a spike in the FTP traffic for mp3 software. By late 1996 the surge in downloads of L3Enc and WinPlay3 would have been impossible to ignore. After years of neglect, there was finally interest in mp3 software—but, amazingly, none of the Fraunhofer researchers could recall the details of this remarkable turnaround.

The official Fraunhofer narrative only resumed on May 27, 1997, when Brandenburg, in America for a conference, was handed a copy of USA Today. There, buried on page eight of the newspaper’s “Life” section, in an article by the music journalist Bruce Haring, was the first ever mention of the mp3 in the mainstream press. “Sound Advances Open Doors to Bootleggers,” read the headline. “Albums on Web Sites Proliferate.” Included in the article was a short interview with an 18-year-old Stanford University freshman named David Weekly.

In late March of this year, Weekly put 110 music files—including cuts from the Beastie Boys, R.E.M., Cypress Hill and Natalie Merchant—on his personal Web server, run through the university system. Soon, more than 2,000 people a day were visiting, representing more than 80% of Stanford’s outgoing network traffic.

Brandenburg recognized the importance of this development. He knew he needed to remember this moment, and he knew he needed to bring it to the attention of his colleagues back at Fraunhofer as well. So he cut the article out of the newspaper with a pair of scissors.

Brandenburg disapproved of piracy. Everyone at Fraunhofer did. These men were inventors who made a living by selling their intellectual property, and they deeply believed in both the letter and the spirit of copyright law. They were not participants in the file-sharing subculture, and they never pirated music files themselves. Upon Brandenburg’s return to Germany, they prepared a course of corrective action. They reported some of the more brazen hackers to the authorities, and they scheduled a meeting with the Recording Industry Association of America, the music industry’s lobbying and trade group, at their headquarters in Washington, D.C., to warn them of what was occurring.

Brandenburg arrived at the RIAA meeting that summer with an enhanced piece of tech: the copy-protectable mp3. Although his recent experience had showed how this protection could be disabled by technical experts, Brandenburg believed that the majority of casual downloaders would never make it past this hurdle. At the meeting, he demonstrated the use of the file, then urged the RIAA to adopt this technology at once. The best way to get ahead of mp3 piracy, he believed, was to provide a legal substitute.

He was informed, diplomatically, that the music industry did not believe in electronic music distribution. To him this was an absurd argument. The music industry was already engaged in electronic distribution. To the recording executives those racks of CDs at the mall might look like inventory, but to an engineer they were just an array of inefficiently stored data. Brandenburg explained his position again, but his patient, methodical style of scientific argumentation failed to ring the appropriate alarm bells. So he got on a plane and went home.

Why didn’t they listen? The RIAA would later offer various explanations:

The first explanation was that Brandenburg’s argument was self-serving. To sell mp3s legally, the industry would have had to license them from Fraunhofer, and that would have been expensive. Given the number of pirated files being hosted online, Brandenburg’s proposal might even have looked like blackmail, although this was certainly not his intention.

The second explanation was that the RIAA was not actually in charge of the music industry. The opposite was true: it was just a lobbying arm that took its orders from the Big Six. RIAA employees were Beltway insiders who talked to the legislators about copyright policy, or private detectives who worked with law enforcement to hunt down bootleggers, or accountants who certified gold and platinum records. They weren’t capital allocators, and they didn’t have the authority to make large-scale investments in digital distribution technology. Brandenburg had scheduled a meeting with the wrong people.

Still, if they’d really cared, the RIAA could at least have referred Brandenburg to a major label. But they didn’t do that either. And that was for a third reason, the best explanation of all: their technical people told them not to. The studio engineers hated the mp3. These were the knob-twiddling soundboard jockeys who actually mixed the albums. Responsibility for the sound quality of recorded albums fell to them, and, in their consensus opinion, the mp3 sounded like shit.

This guildlike resistance to the technology proved to be the biggest hurdle to early adoption. In one regard, the studio engineers had a point. The cracked version of L3Enc floating around on the Internet did not produce high-quality audio, and even a casual listener could easily distinguish between a compact disc and the early pirated files. But it went beyond that—the studio engineers were irredeemable audiophiles who regarded even high-quality mp3s with disdain. For them, capturing the subtle acoustic qualities of recorded music was a professional obligation that bordered on obsession. Now Brandenburg was proposing to irretrievably delete 90 percent of their life’s work.

Brandenburg had heard this argument before. In rebuttal, he pointed to Eberhard Zwicker’s theoretical work, which showed that the deleted information was actually inaudible, and to the double-blind tests that empirically confirmed that this was the case. Transparency had always been Brandenburg’s goal, and by 1997 he felt he could achieve it in 99 percent of all cases. But the studio engineers weren’t having it. They remained convinced they could perceive vast differences between CD audio and mp3 audio at any level of quality, and, furthermore, they resented having their professional judgment called into question.

Many prominent artists agreed with this assessment. Some, like Neil Young, would go on to spend years fighting a losing battle to preserve audio quality standards. But this wasn’t a technical disagreement—it was a culture clash. Although they notionally worked in the same field, the studio engineers were a separate breed from the Fraunhofer guys. They tended to have associate degrees in music management, not PhDs in electrical engineering. Many were themselves musicians or songwriters, while others ended up as high-paid record producers. (Jimmy Iovine had started out as one.) In other words, they were artists, and they tended not to see the world in scientific terms. For the studio guys, sound was an aesthetic quality that you described in terms of “tone” and “warmth.” For the researchers, sound was a physical property of the universe that you described in logarithmic units of air displacement. When an acoustic researcher argued with a record producer, the debate wasn’t really conducted in the same language.

And in the end, all the data in the world wouldn’t have conclusively proved Brandenburg’s point. The ear was an anatomical organ, one as distinct as the fingerprint, and each person’s acoustic reality was different. While it seemed unlikely that a studio engineer might hear something that hundreds of trained professionals had missed, it was certainly not impossible. For a while, at least, this argument carried the day.

The RIAA snub was a minor setback for Brandenburg. For the music business, it was a terrible, unforced error. Even if you granted the soundboard jocks the point about audio quality, it wasn’t relevant to sales. Not long ago the home audio experience had meant scratched-up vinyl on a cheap turntable, and the mobile experience had meant an AM transistor radio at the beach. The mp3 certainly sounded better than either of those. Most listeners didn’t care about quality, and the obsession with perfect sound forever was an early indicator that the music industry didn’t understand its customers.

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 an 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.