This course provides an engaging and methodical insight into the past and present cultural and commercial music industry developments, directions, and trends. It will equip the students with the knowledge and skills necessary to appreciate, understand and more productively participate in today’s music industry field.
Roots: CD, MP3, and Online Marketplace (Part 2 of 4)
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En provenance du cours de West Virginia University
Today’s Music Industry
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À partir de la leçon
CD, MP3, and Online Marketplace
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Darko VelichkovskiMusic Industry Program Director
Music Industry
It was 1999, just two years after Brandenburg’s MP3 audio file format unintentionally became
a free-for-all. Frustrated with the difficulties of browsing for music on the Internet, and
finding different MP3s he can download using web search engines, Shawn Fanning got an idea
to build a software which would use a peer-to-peer, or P2P protocol, and which would consolidate
the browsing of the users’ music files collections and downloading, on the centralized server.
Other words, using a client software and the internet connection, the users would be able
to see the music files on each other’s hard drives and download them as they like, to
their own hard drives. The centralized server would therefore contain no music files, only
the users’ information and the files’ text information. It would enable the users
to search and download the files using the P2P protocol, not store the files on the server.
He named his new platform – Napster - his Internet Relay Chat nickname, which was, by
the way, the nickname he got as a kid because of his haircut at the time.
By the mid 1999, Fanning created the first version of Napster and gave it to a two-dozen
or so people to try it out. Everyone loved it, and pretty quickly after that, thousands
were beginning to download it and use it on regular basis. A promising start. So Fanning’s
uncle, John Fanning, offered to assist Shawn with the business end of things, and incorporated
the company, splitting it 70/30. 70 percent for the uncle, and 30 percent for Shawn. Nice
uncle. We should all have an uncle like that. Provided, there was no money to split yet,
but still. 70 percent. Just a bit distasteful, don’t you think?
Anyway, and what was the business plan here? How was Napster going to make money? Well,
there was no business plan. Shawn figured, if they would just work on improving and creating
a good and powerful platform, it will happen in one way or the other. “If you build it,
they will come” principle. Except that they didn’t really know who, and why, and when,
and how will they make money when those “they” come. But since they needed to raise money
and get some investors in, in order to grow, they needed a business plan to show some form
of actual commerce happening using the platform that might make profits. So the first official
business plan was to get 10 million users and eventually sell them concert tickets and
music merchandise. And on that plan they got their first 250,000 dollars in exchange for
1.25 million shares. The game was on. By the fall of 1999, Napster had 150,000 registered
users, and their number was multiplying at an unprecedented rate, already sharing millions
of files. New investors joined in and brought additional 2 million dollars of new funds.
The company was growing by leaps and bounds. They hired a CEO, software engineers, installed
hundreds of servers handling the users’ traffic, rented offices in the Silicon Valley.
So when the Recording Industry Association of America, RIAA, the body that represents
the record labels in the United States, when they filed a lawsuit in December of 1999 against
Napster, citing infringement of the music copyright, no one in the company panicked,
or even worried, because of it. It was seen as a negotiation tactic by the labels to eventually
get the best possible deal from Napster when the time for such deal comes. After all, it
was the labels’ product being shared here, and they should be the most interested party
out there, as they stood to gain big when this thing gets monetized somehow. In the
past, Napster tried to get labels’ executive to make some kind of a deal, any deal, but
no one in the labels’ world would touch it. And now this lawsuit. They must be ready
to deal. Not really. It wasn’t an overture to negotiations.
It was an overture to a kill. Labels were not amused or intrigued by what Napster was
doing. They were furious at what was happening at the Napster dot com, all the files of their
music being downloaded for free, and they saw it as a brazen and clear cut case of copyright
infringement; not as any kind of business opportunity or possibility. Now to be fair,
it is not like Napster was oblivious to the fact that copyright issue may be a problem.
But their opinion, from the beginning, was that since there are no copyrighted files
sitting on their servers, and since the files were being downloaded by their users directly
from other users’ hard drives, the company was in the clear. Besides, even if their users
were infringing on the music copyright, they figured there was that “safe harbor” provision
in the Digital Millennium Copyright Act that would protect them, as the service provider,
from the action of their users. We talked about that provision, remember? So they were
confident that they were untouchable and kept concentrating on managing the growth and improving
the platform. The Recording Industry Association lawsuit
brought unexpected stardom to Napster and Shawn Fanning. Napster dot com was the talk
of the media. Front pages of New York Times, L.A. Times, features on MTV, cable networks.
The public opinion was divided, of course, which made for even better media piece. It
went something like this: Napster is freeing music, liberating it from the chains of big
bad labels that grew rich on the sweat of their artists. Napster is a folk hero who
finally gave all the music lovers the freedom and the power they deserve. Long live Napster!
How can you say that? What are you a communist? Those songs didn’t just appear by themselves
on some song tree out there. It cost money, and time, and effort to make those things.
Napster is a thief and a criminal. It robs the artists of their income and it steals
bread from their mouth. Off with its head! Good drama, right? Media loved it. So much
fun, and besides, now that everyone had an opinion about it, and so many people would
tune in to see what’s up with the whole Napster thing, and who will win and who will
lose, and so on, they could sell advertising for those shows for a little more money. See,
fun and profitable. What’s not to love? But in the real world, it did create this
almost generational rift. Most of the young people, college students, and so on, loved
Napster, and vehemently sided with it. Even some music artists and bands supported it
and defended it publically. Limp Bizkit, Chuck D, Courtney Love. And of course, some stood
up against it. Eminem, Dr. Dre, and most famously Metallica, whose drummer Lars Urlich went
as far as to personally, and very publically, deliver to the Napster’s offices a dozen
boxes, filled with a print out of the names of over 300,000 Napster users that illegally
shared Metallica’s songs. Overnight, Metallica went from the leader of the rebels, to the
enemy of everything that the rebels stood for. Not the best publicity move to say the
least. But, of course the media loved it. Couldn’t get enough of it.
By the mid 2000, Napster’s user base grew to over 20 million. And tens of millions of
dollars poured in by investors. But Napster also got a new CEO, a lawyer who was brought
in as the new CEO, as the condition for all those millions in the investments. That lawsuit
was not going away, and by now, everyone knew that it was a serious thing. So, a serious
lawyer was needed at the helm of the company to handle it, and to assemble the legal team
for the court fight of their lives. It became the company’s new focus. After all, if they
lose the case, they lose everything. But Napster’s crew was optimistic. How can
they lose given that they themselves did not keep, nor transferred any files? Plus, that
Digital Millennium Copyright Act’s “safe harbor” provision was there protecting them,
too. But, there was one thing. One little part, of one sentence, amongst all the thousands
of emails that had to be turned over to the RIAA lawyers as part of the pre-trial procedure.
One little part, of one sentence, in one of the internal Napster’s emails on the management
level. The RIAA lawyers noticed it, and underlined it, and enlarged it, and framed it, and talked
to it, and took good care of it, for it was their star witness. It was a sentence referring
to the Napster users, ending with: “…since they are exchanging pirated music”. It was
written by Sean Parker, Fanning’s second partner, after his uncle, to Fanning, way
back when the company was just gaining its foothold. And why exactly is that small part
of a sentence so important? Because it proves that the management knew
all along that Napster is a platform for illegal downloading, that it was built to be so. And
knowingly aiding in copyright infringement was illegal and punishable by law. It was
one thing to build a networking platform for users to network and communicate and share
files if they want to, and if some of those files happen to be illegal, there was that
“safe harbor” provision for you as a network service. But it was a totally different thing
to build the platform as a copyright infringing tool, to be aware of its main purpose, and
still allow it to function, to manage its components, to cater to its users, and so
on. That was expressly forbidden by law. No wonder the RIAA’s lawyers put their hope
into it, as the final nail in the Napster’s coffin.
In the late July of 2000, the trial began. On the first day, both sides presented their
case to the judge. The judge went to her chambers. 30 minutes later she came back to the courtroom,
and said that she was ready to rule. Both sides froze. She was ready to rule on such
a complex, groundbreaking case after just thinking about it for 30 minutes? No questions,
requests for clarifications, additional documents? No. The judge ruled for the record labels
and against Napster, and ordered that Napster removes all the information about copyright
protected files from their servers and stop aiding in the exchanging of such files. Well,
that kind of meant shutting down Napster. So it was over, after all.
Not yet. The Napster’s lawyers appealed the decision and the court’s injunction
order, and in a few days, the court of appeals granted them their request for another trial.
Napster dodged the bullet, and stayed opened. And the user base continued to grow, and billions
of files continued to be exchanged and downloaded. Napster was now actively seeking investors
whose funds would help with the lawsuit and ensure its continued operation. And in the
fall of 2000, just three months after the first trial, they got the most unexpected
one - Bertelsman company, the owner of the BMG record company, one of the major record
labels at the time. Gave them a 60 million dollar loan in exchange for the major stake
in the company, and became a Napster champion. In spite of its own record company being a
part of the lawsuit against Napster. Well, can this get any better? A Spanish soap opera
is a child’s play for this.
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