Format Wars From 1912 to 2007

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Format Wars From 1912 to 2007

April 9 - In 1912 the Victor Talking Machines Company paid opera star Enrico Caruso a whopping 25% royalty of the $2 retail price of each disc he recordedâan arrangement that earned Caruso $90,000 a year. (The next highest-paid recording artist earned just a quarter of Caruso's windfall.) The competing Edison Phonograph Company was appalled by the vast amount of money Victor liberally threw around to acquire artists, and refused to follow suit.

In the early days of the CD era, Sony Corporation paid $4 billion in cash for Columbia Records and its vast music library move that analysts at the time derided as a gross overvaluation of the venerable record company. (Ironically, Columbia Records was one of three competitors, along with Victor and Edison, in hardware and music in the early part of the 20th century.)

These two events, separated by 70 years, turned out to be astute moves for both Victor and Sony, and for exactly the same reasonâif you want to sell hardware, you need to make available compelling software. The success of new hardware formatsâwhether competing with a legacy format as in the case of CD vs. LP, or in a format war as in Victor Talking Machines vs. the Edison Phonograph Companyâis largely determined by content availability.

Sony understands this concept well; it's no coincidence that the company has purchased media giants with deep content libraries coincident with new hardware-format launches in which it has a major stake: It bought Columbia Records in 1988 just after the launch of CD, acquired Columbia/Tri-Star Pictures in 1989 when DVD was first in development, and, two years ago, led a group that acquired MGM and its vast film library on the eve of the high-definition disc (Blu-ray) era.

This link between hardware and software was forged at the very beginning of the history of recorded media, as brilliantly described in a new book, The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World, by Randall Stross (Crown Publishers).

Stross' chronicle includes peripheral information and insight into the beginnings of the music business that are alone worth the price of admission. The music industry's fundamental underpinningsâa few hits subsidizing a larger catalog of poor-selling artists, format wars, competition for artists, vast profits generated by software sales, the great wealth accumulated by top-selling musicians, and, of course, the "content is king" principle were established right from the beginning and have continued through roughly a century of massive technological change.