An I-OnAsia Opinion. Was there Mass Complicity? Did Napster Convince Music Consumers to Steal?
By Mr. Zach Naimon
Napster recorded 26.4 million verified users in February 2001, less than two years after it first launched. Ostensibly a file sharing service, Napster was most popular amongst young people looking to share and discover new music. Napster had become an internet-wide phenomenon almost overnight, accounting for 40 to 61 percent of network traffic at universities across the U.S. and U.K.
While network administrators griped at Napster’s disproportionately heavy bandwidth usage, Silicon Valley venture capitalists heralded the company as a major disrupter in the music industry. However, Napster was most frequently described by a substantially less enticing term—illegal.
The service’s main functionality was fairly simple. Users designated folders on their computers as shareable. Napster, in turn, made any MP3 files contained in these folders accessible to all other users.
In essence, Napster was a 1990s version of the mythical pirate island—a place where thieves from all corners of the earth could come to exchange their loot—with one key difference: Napster’s island was home to 26.4 million pirates. The scale of this operation begs the question—how did an unknown company founded in a college dorm room provide a framework and subsequently persuade tens of millions of people to commit what the recording industry alleged was theft en masse?
As a widely-distributed anti-piracy ad campaign would later assert, the average young person would never steal a car, a TV, or even a movie, so how could these users justify illegally downloading copyrighted content? More importantly, how did Napster’s rapid rise to prominence affect the music industry and what lessons can other industries learn from this saga?
In this opinion article and historic review we seek to analyze: (i) the circumstances that allowed Napster to succeed despite its sophomoric beginnings; (ii) how Napster attracted so many users and encouraged their complicity in digital piracy; (iii) why the music industry failed to detect the internet threat and the consequences of its botched response; and (iv) the long-term repercussions for the music industry.
Historical Context: A Tale of Two Sectors
In order to answer these questions, it is important to frame Napster’s abrupt rise to notoriety in the larger context of the landscapes of the technology and music industries, which were then not-so-inextricably linked. In 1995, just four years before Napster’s inception, only 14% of adults in the United States had internet access, predominantly through prohibitively slow dial-up modems. According to a Pew Research Center study, “42% of U.S. adults had never heard of the internet and an additional 21% were vague on the concept—they knew it had something to do with computers and that was about it.” Still, computers had already become a mainstay in modern American life, and by 1999, the year Napster was launched, 41% of American adults were on the internet. 22 million Americans used the internet on a daily basis and, more importantly, 49% of users accessed the internet exclusively from their homes. This denotes a massive paradigm shift for the industry, which had here-to-fore been heavily focused on commercial and office users. This set the stage for a new generation of young entrepreneurs endeavoring to digitalize every aspect of American life—including music.
Concurrently, the recording industry was experiencing a period of explosive growth and record-breaking profits as a direct result of another then-recent innovation known as the compact disc, or CD. First introduced in the early 1980s, the CD was not an immediate success, but by the 1996, more than two billion CDs were being sold worldwide annually—a billion of those in the United States. Profit margins in the recording industry skyrocketed as the cost of CD production fell to $1—less than that of the cassette tape and the vinyl record. Simultaneously, record labels would allegedly “cut backroom deals with retailers not to let the price drop,” according to industry expert Stephen Witt. The average music CD retailed for $14, up 100% from traditional record album pricing.
Very close cooperation between record labels and major retailers appears to have possibly been increasing margins, and the resulting windfall profits possibly suggest a framework within which the recording industry then existed, but also reveal why it might at first been unwilling—and ultimately unable—to adapt to the fast-changing world around it. From its inception until the end of the 20th century, the recording industry grew and thrived in large part thanks to a symbiotic relationship with brick-and-mortar retailers, together with which it effectively comprised the greater music industry. Retailers handled distribution and sales, allowing record labels to focus on talent discovery, music production, and promotion. As regional and nationwide retail chains emerged, distribution channels were streamlined, providing record labels with greater access to relatively untapped markets and allowing them to more effectively dictate pricing. However, consolidation of the music industry’s retail arm also elevated record labels’ dependency upon a small number of increasingly large partners, which ultimately proved detrimental to the industry’s adaptability. When the widely adopted MP3 audio encoding format was first released in 1995, the record labels didn’t fully reject the idea; rather, they remained largely focused on ever-growing CD revenues, and according to former recording industry executive Jeff Rougvie, powerful retail forces prevented early adoption of the new digital format:
“Distributors and record stores were threatening to return every Ryko title they had, just because we were selling 10 or 12 MP3s every week. If that’s what we were feeling, I can only imagine what kind of pushback EMI or Warners were getting.”
Understandably, digital distribution channels for music—or any product, for that matter—represented an enormous threat for traditional retail and distribution outfits, and because record labels’ record-breaking profits were in large part driven by these same retail partners, industry executives felt justified in turning a blind eye to digital music. Thus, as the Nineties drew to a close, the recording industry had focused its efforts towards neutralizing a more tangible, yet far less existential threat—bootleg CDs.
The advent of Napster marked the collision of the technology and music industries—a collision that could have been easily facilitated and even controlled by the executives atop the record labels. Instead, while the internet reached a majority of US consumers and became increasingly accessible and sophisticated, these executives, kneecapped by their retail partners and blinded by their own success, were deeply engrossed in a game of whack-a-mole with considerably less sophisticated car trunk CD salesmen. As a result, two enterprising college kids managed to take control of the online music narrative by harnessing their generation’s desire to share with the world, disdain for perceived corporate greed, instinctive feelings of anonymity in order to induce their complicity in wide-scale digital piracy.
A Napster World Order
Napster was originally conceived by Shawn Fanning, then an 18-year-old freshman at Northeastern University, in the spring of 1999. Fanning first pitched the idea while going by the handle ‘Napster’ on an IRC channel frequented by hackers and early internet enthusiasts. A prolific hacker himself, having hacked the FBI at age 15, Fanning had no trouble persuading a handful of chat participants to help him build the service. The idea was simple: leveraging existing peer-to-peer technology to facilitate content sharing—centered around music files. Users would download an application which allowed them to designate folders containing the music they wanted to share. Napster’s servers would keep a constantly updating index of all shareable files available on the computers of online users, which could then be searched and downloaded through the application. In this manner, Napster facilitated the connection between users without routing or storing any of the content itself. It is important to mention that despite its enormous userbase, Napster never advertised its service and, in stark contrast with other similarly sized technology startups, its interface was never optimized to exploit the predilections of users. Instead,
Napster essentially attracted its users with the prospect of easy and free access to much of the world’s music. Napster users were not provided any sort of splash page admonition regarding the severity or potential consequences of actions that infringed on the music industry’s intellectual property rights.
Many Napster users believed they were anonymous. Many users thought that they weren’t really doing anything wrong.
Fanning’s idea would have been an entirely legal if Napster’s users were sharing music which they had themselves created. But in many cases Napster users contributed to the service’s ever-expanding directory of music by copying songs from CDs onto their hard drives or in some cases even connecting their cassette tape and record players to their computers. Traditional music sales and distribution channels had relied heavily upon the assumption that listeners purchase music for their own use (hence, the record labels’ war on bootleg CD makers). Napster entirely upended this assumption because its service did enable listeners to make their collections of purchased music available to millions of other people. It also exposed a glaring market inefficiency; until then, consumers frequently bought CDs containing an album from which they actually only wanted two or three popular songs. On the other hand, Napster allowed users to selectively download their desired songs, and they did it free of charge. Fanning was soon joined by Sean Parker, a future Facebook executive, and the fledgling company quickly moved from Massachusetts to Silicon Valley, where it began to grow at breakneck speed.
Just six months after its launch in June of 1999, internet media measurement and analytics giant Media Matrix—now called Comscore—estimated that 1.1 million North American users had used Napster at least once. By August 2000, that number had increased to 6.7 million. Elizabeth Brooks, a former Sony Music executive who joined Napster as VP of Marketing early on, recalls:
“Shawn and I went up to the server room with a stopwatch and sat there counting files flying back and forth, and we realized the scope of the business because the number was just astronomical. Uncountable. Billions of songs a month, and this was early on.”
The platform’s growing userbase provided instant access to an increasingly vast universe of content, which served as a correspondingly enticing proposition to predominantly young potential new users. A major reason for Napster’s meteoric rise was that it quickly captured the imaginations of the internet-savvy young generation—a demographic that, most importantly, had not been conditioned by decades of purchasing and listening to music through conventional modes. The Guardian journalist Tom Lamont describes that,
“One day I had unsupervised access to the family PC and, for reasons forgotten, an urge to hear the campy orchestral number from the film Austin Powers. I was a model Napster user: internet-equipped, impatient and mostly ignorant of the ethical and legal particulars of peer-to-peer file-sharing. I installed the software, searched Napster’s vast list of MP3 files, and soon had Soul Bossa Nova plinking kilobyte by kilobyte on to my hard drive.”
Then a 17-year-old, Lamont was cognizant of the fact that he was engaging in what may have been illegal activity. However, like the millions of others, he was unfazed.
Lamont’s story may hint at other Napster users’ willingness to overlook the ethical quandaries of illicit music downloading— widely perceived as a victimless crime—and a captivation by the novelty of the platform and the endless possibilities it represented. Psychologist Patricia Wallace described the possible phenomenon,
“Many Napster users do think they are breaking the law when they take one of the copyrighted songs from a fellow user, but they seem relatively untroubled by any ethical or moral concerns over their behavior — partly because they do not see much harm. From years of psychological research on moral reasoning, it is clear that people definitely consider the extent of harm that comes from a particular act, along with the intentions of the actor, when they make moral judgements. Napster users are also convinced they could never be caught.”
If users felt that their usage of the platform as individuals wouldn’t harm the music industry, and if they lacked malicious intent, then it would have been easy to justify online music piracy—especially in the absence of explicit reminders about the consequences. Again, Napster emerged in an era before widespread digital law enforcement, when users still felt anonymous and secure when using an online aliases.
Thus, if individual users on the platform were swiping a $1 candy bar from a store—one with no security cameras and a dormant cashier, no less—in order to satisfy a craving, and if they individually thought that the damage to the store and its employees caused by this candy theft was negligible, Napster’s platform was so significant in scale that it was like a hoard of hungry children regularly pilfering the store’s entire candy supply. The effects of a single user downloading and sharing a dozen songs may have been minimal. But multiplied by 26 million users—or even as many as 80 million, according to some estimations—and when considering the network effects that resulted in exchanges of billions of songs on the platform in a month, Napster’s user activities created existential challenges for the music industry.
The Recording Industry’s Response To Napster: Litigation vs Innovation
The recording industry appeared caught off-guard by Napster’s rapid rise to prominence. The industry had spent most of the 1990s enjoying record profits and healthy margins on CD sales. The industry had also been focused primarily on combating the analog mode of illicit music reproduction. Unfortunately, there were few case studies for the industry to draw lessons from as it was challenged by this true existential threat to its tenuous status quo—the dawn of the digital era.
A historic review suggests the recording industry had difficulty in capitalizing on the large market opportunity presented by the new-and-burgeoning internet. Into this vacuum, Napster gained a first-mover advantage. This meant that Napster, not the record labels and brick-and-mortar retailers which then comprised the music industry, was afforded the luxury of fundamentally shaping public perception of online music. Napster came to market first, and music on the internet was introduced as free and shareable rather than as an online paid alternative to shopping at a music store. Reshaping public opinion is considerably more difficult than creating a narrative sui generis. Key industry players were also still competing against themselves for revenues, and none of the industry’s many well-heeled players had even begun development of a paid alternative.
In retrospect it is possible to ask whether the recording industry had a proactive, forward-thinking business strategy and a plan for rapid development of an online music marketplace or the establishment of a partnership to legitimize an existing service like Napster or one of a plethora of competitors sprouting in its wake. In an increasingly internet-connected world—one in which the music industry’s online presence was minimal, no less—Napster’s instantaneous success, it could be argued, wasn’t happenstance, and signaled a major opportunity for industry-wide evolution to remain relevant and profitable in the long term.
But a historic media article review suggests the recording industry suggests the recording industry’s response to Napster was to litigate instead of innovate.
The Recording Industry Association of America, more commonly known as the RIAA, sued Napster in federal court in December, 1999—just a half year after the service was launched—and filed a preliminary injunction to force the platform to shutdown. The injunction was initially granted in July of 2000 and upheld by an appellate court in February of 2001. Out of legal options, Napster was forced to shut down less than two years after its launch. Over the ensuing six years, the RIAA continued to successfully sue Napster’s major successors in the peer-to-peer filesharing space—companies such as Scour, Aimster, AudioGalaxy, Morpheus, Grokster, Kazaa, iMesh, and LimeWire. While the war against internet filesharing companies in the legal arena ostensibly ended with a resounding victory for the RIAA, it came at a cost: no major recording industry approved technology was introduced as a legal alternative and decreased consumer goodwill and lower public opinion.
Indeed, the industry appears to have been unable to grapple with the inner workings of the internet throughout the late 1990s and early 2000s. One recording label executive’s account of the annual industry trade conference in January, 2000, was emblematic:
“A man from one of the majors [record labels] banged the table and said the answer was to ban the internet”
Looking back it seems easy to judge the seriousness of an internet ban or the wisdom of impeding technology which could otherwise provide a cheap solution for the penetration of untapped and hard-to-reach markets. But, again, there were few case studies available back then on how to navigate disruption.
The RIAA’s subsequent legal efforts reveal that the industry didn’t, of course, ultimately target the entire internet. Instead, it focused on the specific technology behind Napster—peer-to-peer (P2P) filesharing—and endeavored to curtail further innovation of this technology, or, as the Electronic Frontier Foundation describes, “to smother the technology in its infancy.” Unfortunately for the RIAA, Napster’s size and popularity proved the potential power of P2P, and no number of lawsuits could ever fully dissuade aspiring entrepreneurs from building and releasing P2P software. The EFF posits that, “most computer science undergraduates could assemble a new P2P file sharing application in a few weeks’ time,” indicating just how few barriers to entry exist for the launch of such a service.
Perhaps the RIAA missed a major opportunity to co-opt P2P filesharing for legitimate purposes and expand the scope of what the industry was all about. By 2008, P2P comprised 45% of all internet traffic. Filesharing services, which now block illicit content upon request, have since been embraced by law abiding consumers, making them a harder target. The technology has thrived and the RIAA’s lawsuits targeting P2P were unsuccessful in constraining the technology.
The Court of Public Opinion
While the music industry’s victories in the court of law were undisputed, did it lose the fight against internet piracy in the court of public opinion? In a sense, it very well may have.
By seizing upon the un-utilized internet opportunity left open by the music industry, Napster was able to leverage its status as a first-mover to define the public’s view of online music. This meant that the legal actions targeting Napster could be branded as stifling important innovation.
Napster received extensive national and international media coverage beginning in December of 1999 as a direct result of the RIAA lawsuit against it. In this coverage, the music industry and its executives—largely viewed as old and out-of-touch, yet incredibly wealthy and powerful—were portrayed as the Goliath to Napster’s David in a 21st Century reenactment of the biblical tale. Engaging some of America’s most expensive law firms to fight against a six-month-old company founded by two teenage college dropouts proved detrimental for the RIAA and simultaneously bolstered Shawn Fanning’s fame, popularity, and his company.
Between December 1999 and February 2001, when the appellate court confirmed the injunction against the company, Napster continued to operate, as its here-to-fore organically growing userbase was augmented by new media coverage-driven user traffic. In October 2000, the same month Napster’s appeal against the preliminary injunction was heard in court, Fanning appeared on the cover of Time magazine, with the caption, “How Shawn Fanning, 19, upended music and a lot more.” Perhaps more than any other coverage, this headline indicated where the media’s sympathies lay. ComScore, formerly Media Matrix, estimated that by mid-October of 2000, Napster’s userbase had ballooned to 28.5 million not including users outside North America. Although this figure may have contracted slightly by February 2001, when the service was finally shuttered in compliance with the court’s ruling, Napster’s unbelievable growth and public image undeniably benefited from the legal controversy that surrounded it.
Conversely, the RIAA—best viewed as the larger music industry’s surrogate—was publicly lambasted everywhere except for the courtroom. A New York Times article titled “Napster Users Make Plans for the Day the Free Music Dies,” published concurrently with the court’s final ruling, quotes a Stanford University internet law expert:
“My view is that the RIAA loses the battle and loses the war, because they become the bad guys. With every song they tell Napster to remove, the political resistance to this extreme view of copyright law will grow stronger.”
A U.S. News and World Report article with the headline “The Empire Strikes Back” goes one step further, explicitly drawing comparisons—not only between the RIAA and the imperialist space villains popularized by Star Wars, but also between Napster users and the film series’ rebel heroes. Beyond prescient, this coverage encompasses the public sentiment that Napster and its users were somehow “fighting the good fight”, while the RIAA’s efforts to preserve traditional copyright law branded it as a powerful political antagonist.
It is worth asking if the RIAA became an obstinate to the old-guard’s evolution by destroying important bonds customers and further exacerbated its already rapidly deteriorating public image by targeting individual users. Beginning in the summer of 2003, the RIAA began employing investigators to identify users sharing copyrighted recordings, exploiting “a special subpoena power that its lobbyists had slipped into the Digital Millennium Copyright Act (DMCA) in 1998.” Before the practice was halted by a federal appellate court in December 2003, the RIAA subpoenaed thousands of customer records from American internet service providers (ISPs) armed with only suspicion of wrongdoing. The group then either threatened or sued these users to extract settlements, which occasionally precipitated gross miscarriages of justice. In one instance, it sued a twelve-year-old girl living in New York City public housing, who, despite her age and socio-economic status, was ultimately forced to apologize and pay $2000. In another instance, it sued an elderly woman accused of illegally sharing rap songs from her Macintosh computer using a Windows-only sharing service. In response to public backlash to these cases, an RIAA spokesperson apathetically acknowledged, “When you fish with a net, you sometimes are going to catch a few dolphins.”
After five years of employing litigation as a piracy deterrence strategy, the RIAA ended its large-scale legal operations in 2008. In the face of public outcry and vilification, it is worth reviewing the strategy’s success from a damages standpoint to. Here, the data suggests that lawyers were the only winners, not the business owners: the RIAA collected only $2.5 million in settlement awards and simultaneously paid upwards of $90 million in legal fees.
Thus, the music industry’s response to the shifting economic landscape precipitated by widespread adoption of the internet not only soured public perception but also incurred substantial financial losses—on top of the losses caused by piracy itself, and the opportunity costs. One can only imagine if executives took their lumps and translated the lessons learned into investments in new frontiers, akin to oil majors’ more recent moves into green energy.
Fallout, Rebirth, and Key Takeaways: Conclusion
Looking back from the year 2021, the Napster saga appears to be an industry-scale failure—to both remain cognizant of ever-changing market forces and proactive in addressing these changes.
As the 1990s drew to a close, the internet had become a widely used technology, already spawning a new generation of wealth and opportunities. Despite this, the music business remained offline, in part because analog sales were both more profitable for the record labels and more conducive to the existing business models of their retail partners.
Napster took the internet by storm, capitalizing on the near- complete absence of internet-based music solutions and a large population of young internet users willing to ignore the legal and moral pitfalls of digital piracy, and quickly becoming a threat to the industry as it existed. Attempts to de-platform Napster, while ultimately successful, only raised its profile and turned the platform from a piracy machine into a popular movement. When the music sharing movement was undeterred by Napster’s demise, the industry began targeting individual users, or described differently, the music industry sued thousands of music fans. Its advocacy group’s questionable tactics beginning with the Napster lawsuit proved highly detrimental to the entire industry’s image and conveyed to the world that despite its incessant assertions of victimhood, it was in fact far more reminiscent of the schoolyard bully.
But Napster’s impact on the industry reaches far beyond some PR woes and a $90 million legal bill. Between 1999 and 2009, music sales dropped from $14.6 billion to $6.3 billion, with the industry reporting declining revenue in nine of the ten years following Napster’s launch. Suffice to say, none of the industry’s concerted legal efforts even slightly curbed declining sales, however, this legal strategy did waste a considerable amount of time that could have otherwise been spent formulating a paid alternative—or better yet, a partnership—to provide music to consumers over the internet. During its court case against the RIAA, Napster even proposed such a partnership, offering to convert itself into a service through which users could pay $1 for each song they downloaded. The music industry, which then scoffed at this proposal, ultimately took an identical deal from Steve Jobs in 2003, when Apple introduced the iTunes Music Store. However, in the words of Forrester Research music analyst Sonal Gandhi,
“That four-year lag is where the music industry lost the battle. They lost an opportunity to take consumers’ new behavior and really monetize it in a way that nipped the free music expectation in the bud.”
The massive paradigm shift catalyzed by the internet and Napster also forced the music industry to evolve; the recording industry, long a favored partner for retailers across America, decoupled itself from the brick-and-mortar model, instead finding new opportunities for collaboration with technology companies. In this sense, the music industry has been reborn, and in 2018, global music sales surpassed $19.1 billion—$11.2 billion of which was digital revenue.
Many American industries are incredibly vulnerable to disruption by legally-questionable and often illicit enterprises. It is important for businesses and other organizations at the helm of any established industry or sector to learn from the Napster saga in order to mitigate the kind of harmful disruption it brought about. Most importantly in this era of rapid innovation, it is imperative to remain attuned to technological developments that have the potential to reshape even the smallest facet of an industry. Put simply, proactivity is the key to protracted relevance, and the music industry managed to regain this relevance only after it began proactively exploring internet opportunities In the words of the RIAA’s vice president of research:
“There have been a lot of changes over the past 10 years. the industry is adapting to consumer’s demands of how they listen to music, when and where, and we’ve had some growing pains in terms of monetizing those changes.”
Controlling public opinion is also crucial—it is much easier to form than to re-shape. In its two years of existence, Napster entirely upended a widely held public perception about legal music purchasing. Ten years later, a CNN report stated that:
“Now just 44% of U.S. Internet users and 64% of Americans who buy digital music think that that music is worth paying for, according to Forrester. The volume of unauthorized downloads continues to represent about 90% of the market, according to online download tracker BigChampagne Media Measurement.”
Effects of Napster’s success in the court of public opinion were felt for more than a decade. By the same token, maintaining a good reputation, especially in the face of adversity, can make all the difference; rejuvenating a tarnished reputation—as evidenced by the recording industry—can be a costly and drawn-out ordeal.
In this sense, the lessons we can glean from the Napster saga are more important than the tens of billions of dollars it erased from a legacy industry.
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