The record industry failed to notice the potential for distributing music digitally via the Internet because those at the top were out of touch with what people were doing and what they really wanted. Lucky for them, Apple was on the case, according to a report.

The Observer examines why the music industry failed to recognize the potential of the technology, and failed to innovate in that direction as Apple did, and as the title of the piece states, it was Apple who saved the music business.

Apple's willingness to truly innovate has won it a million track sales a day, according to recent figures.

According to reporter John Naughton, record companies would probably claim that they are innovating all the time, but this is just "incremental innovation" and "everybody does it if they want to stay in business".

He explains: "It's not the most important kind of innovation: disruptive innovation – the kind that creates new industries, new business models, new commercial realities. And that's what established companies seem unable to do."

Real world

Another reason why the record companies failed to move in the direction that Apple did was their failure to spot the revolutionary potential of the technology. Naughton writes: "The people in the organizations who did understand it were low-status techies with poor lines of communication to board-level folks. And those at the top failed to spot what was happening because it was going on in a universe they didn't inhabit."

"The entire industry, in other words, suffered from a serious knowledge deficit,' he writes.

Incentive schemes were the other reason why change didn't happen. Albums were more financially attractive than singles so the industry shipped albums and gave incentives to its executives to do just that.

"The only problem was that many consumers wanted tracks, not albums. The industry couldn't - or wouldn't - give them tracks," Naughton explains.