The Revenge of Napster's Children: Peer-to-peer file swapping is alive, and the recording industry is fighting back
On an afternoon hike in an wooded park, I kept coming across posted signs, all with the same message. "This is a wildlife preserve: your dog must be on a leash," said one. "Keep your dog on a leash," said another "Voice commands don't count-use a leash." But within a half mile, many people had dogs and there wasn't a leash in sight. With no park rangers writing up citations and no obvious harm (no dead birds, lizards or deer litering the trail), otherwise law abiding people had decided to let their dogs run free.
The recording industry has a similar problem. It argues that MP3 file swapping is no different than shoplifting-no different than if you walked into a record store, stuffed some CDs under your shirt and walked out. If you download songs without paying for them, if you get them from your friends, you are, in fact, stealing. You are getting the music for free and the musicians, songwriters, and recording studio-who made the song possible-get nothing. As a result, piracy is killing the recording industry, hurting established musicians, and discouraging new ones.
But that kind of argment has had about as much effect on piracy as it has on dog walkers. In a poll taken by Ipsos-Reid last March, nearly half of Americans aged 12-17, and 42 percent of 18-24 year olds, said they downloaded music over the previous month. Of all Americans 12 and over, 18 percent said they did so over the time period. Not all of this was necessarily theft: some MP3 files are put on the Internet by the artists and publishers themselves. Still, 39 percent saw no problem with passing copies of music they possess to friends.
Matt Kleinschmit, a director with Ipsos, said in a statement that the data "clearly shows that current U.
Still, the industry claims real harm is being done. Overall sales revenues on CDs, cassettes, and other formats have dropped 11.
Glazier has no patience with people who think the cost of music is too high. They argue that the CD itself is cheap to manufacture, yet the wholesale price is $11, with retail prices approaching $20 in some stores. The recording industry says it loses money on most of its recordings, spending huge sums on marketing and promoting unknown talent. The gamble they take is reflected in the price at the store. And besides, says Glazier, "the pricing of anything based on the marketplace is certainly no justification for theft. Some people may think the price of milk is too high. But that doesn't justify them going into a market and stealing a gallon of milk as a civil protest." As long as music pirates are getting the goods for free, legitimate online services-which could cut the price through reduced expenses- won't get a foothold.
The RIAA's campaign may change some minds about what is and is not theft. But that approach alone won't work-music piracy is too easy, music CDs are too expensive, to keep even honest people honest. "We've done a lot of focus group research, and we wish it worked better," Glazier says. "Unfortunately, the fear of getting caught-especially among certain age groups-seems to be more persuasive than simply letting people know the practice is wrong or illeagle." That may be less so in Japan, where the responsibility to the group is stronger. He says the Recording Industry Association of Japan has done advertising that includes "more of a 'shame' element. But this is a worldwide problem, and the Japanese recording industry is just as much at risk."
And so what will see is continued combination of "carrot" and "stick" measures that attempt to punish bad behavior while tempting people onto the higher road. The sticks include copy protection at the CD level and litigation of both file swapping services and a few unluckey users. The carrots include reasonably priced fee-based distribution systems that take into account a new age of portable digital music. One would also hope that the recording labels would take another look at CD pricing. One of the most common user complaints is that users are forced to buy a largely mediocre CD to get a few good tracks.
"For whatever reason, few artists have figured out how to make a 70-minute album that's consistently good and that works as a whole," writes columist Jason Fry. "Labels should consider cutting CD list prices to the vicinity of $10 and returning album lengths to the neighborhood of 40 minutes, which was the standard until the late 1980s." He point out that pricing has gotten so absurd that some CDs of movie soundtracks cost more than the DVD containing the entire movie. At some point, the convenience factor of a cheap CD would outweigh the work of downloading it. CD's selling at $2 apiece might end piracy forever. But don't hold your breath.
Pay-to-play: download sites
The recording industry has long recognized that downloaded music will not go away, and, indeed, may represent a new revenue stream. The fee-based distributors, including Pressplay (founded by Sony and Universal and sold to Roxio, which also purchased the "Napster" name and assets) and MusicNet (owned by EMI, Bertelsmann and Warner Music) have used a subscription model-typically around $10 a month, with a slew of limitations. The most disliked is that of streaming media-you don't get a file, just permission to stream a song from your computer. Other schems do let you download files, but only play them back on one one or two machines, if you are a current subscriber. If you want to burn a file to CD, you may have to pay extra, or not be able to do it at all.
Long term, these kind of restrictions just won't work. People view music as a portable commodity-to be listened to in bed, while driving, on the bus, while flying or just walking down the street--not just at a desk. If they could, many people would gladly implant an MP3 player in their brain. Not surprisingly, neither PressPlay or MusicNet have had much success.
Enter Steve Jobs, an original thinker with feet in both the computer (Apple) and entertainment (Pixar) industries. Jobs gets credit for re-thinking the business and, through his negotiations with the five major record labels, forcing the industry to reconsider the business, as well. While not quite achieving a for-fee Napster, Apple's iTunes service dispenses with the subscription fee. You can purchase songs from the 200,000-tune library for $.99 each. You can download any song to an iPod player to take on the road, burn any individual song an unlimited number of times and unchanged playlists up to 10 times each, and broadcast via Wi-Fi to a group of people under one roof.
With the iTunes Music Store open for business, Apple claimed a million downloads the first week, three million in its first month-even though the service is restricted to Macintosh users. Indeed, that restriction has given iTune some advantages. Macintoshes can't access Grokster and other Internet-exchange services, nor are they compatible with for-fee services. So providing an Applie service could be seen as catering to a pent-up demand. But Apple's business model appears to be a breakthrough in its own right. The copany has said it will introduce a Windows version of iTune, as well.
ITunes has encountered some glitches. The collection is still relatively small and only the major labels are represented. In May, the company shut down a streaming service called Rendezvous that was intended for local area networks, after people figured out how to extend it over the Internet. But these growing pains hardly threaten to capsize the service. "Everyone in the music industry, and the film industry, and others, are looking at Apple and saying, 'Oh, my God,' " said Paul Vidich, executive vice president at AOL Time Warner's Warner Music Group, in the Wall Street Journal. "There's no question it has sparked new interest."
Others don't think iTunes goes far enough. They want to see MP3 files available for a reaonable fee with no legal restrictions. They also want access all recorded music, or at least what is still in print-from a single site. In other words, they want Napster with low fees. Six of the for-fee online services (iTunes, Rhapsody, Roxio's Pressplay/
Lose some, win some
On the legal front, the entertainment industry has lost some rulings, won others. Its defeat of Napster brought down the central file swapping service. But two other file sharing technologies, Morpheus and Grokster, were spared the axe by U.
"Such is not the case here," the judge wrote in his decision. "Defendants provide software that communicates across networks that are entirely outside Defendants' control. In the case of Grokster, the network is the propriety FastTrack network, which is clearly not controlled by Defendant Grokster. In the case of StreamCast, the network is Gnutella, the open-source nature of which apparently places it outside the control of any single entity." Unlike with Napster, the defendents cannot "supervise and control the infringing conduct (all of which occurs after the product has passed to end-users)." In that respect, the case resembles the 1984 Sony vs. Universal Studios decision, which found that Sony was not liable for its customer's conduct, even though its products could infringe on copyrighted material.
The case will invariably be appealed. But while the industry may not be able to eliminate the means of file swapping, it is free to go after the file swappers, themselves. In what is perhaps a sign of things to come, the music industry filed lawsuits against four college students at three different colleges, all of whom ran file-sharing services. All four settled, but for hefty sums--$12,000 to $17,500. That would buy a lot of CDs, and for at least one student, represented much of his college savings. "The lawsuits certainly sent a message to the university community," says the RIAA's Mitch Glazier. "Right after that, several other intranet local area networks came down in colleges around the country." Lawsuits against end-users are the last step, he says. But as the industry gets hungrier, more may follow. "It's not our first choice, but nothing is off the table."
Some argue that the strategy of going after end-users will backfire by alienating the industry's most valuable customers. But as CD sales continue to sink, the industry is no longer so sure. "If you think of these people as your customers, you're misunderstanding what's going on here," said Sony Music Entertainment Chairman Andrew Lack, to the Los Angeles Times. "These people are doing something the judge is clearly saying is illegal."
The RIAA also won a judicial decision to obtain the identity of a Verizon Communicasions subscriber who allegedly obtained copyrighted material. Verizon is appealing. "If users of pirate peer-to-peer sites don't want to be identified, they should not break the law by illegally distributing music," said RIAA president Cary Sherman, in a statement. "Today's decision makes clear that these individuals cannot rely on their ISPs to shield them from accountability."
Verizon aruges that the privacy of all its subscribers is at stake. "Today's ruling goes far beyond the interests of large copyright monopolists -- such as RIAA-in enforcing its copyrights," said John Thorne, Verizon senior vice president and deputy general counsel, in a statement. "This decision exposes anyone who uses the Internet to potential predators, scam artists and crooks, including identity thieves and stalkers. We will continue to use every legal means available to protect our subscribers' privacy and will immediately seek a stay from the U.
The recording industry is also doing battle on the technology front, trying to thwart CD copying and frustrate file swapping. As most recordings are still distributed via CD, one way to stop piracy is to prohibit users from copying music from CD to hard disk. Users, accusomted to unfettered CD-to-disk transfers, are not happy, and some have demanded that such restricted CDs at least be labeled. Another ploy is spoofing-putting out files for swapping that contain white noise instead of music. As with the spam wars, the swappers are figuring out workarounds. And the industry has used the chat feature on some file swapping programs to deliver its own message: don't steal
According to a New York Times report, the recording industry is also experimenting with stronger measures within a closed, laboratory setting. It has experimented with a Trojan Horse program that would direct users to a website where music could be purchased, with a program that would freeze a user's computer for a given time, and with a method of disconnecting network access while attempting to download. Some of these tactics are clearly illegal, but all are a measure of the recording industry's increasing desperation to maintain the status quo.
Sidebar: An interview with Joseph Menn, author of All the Rave: The Rise and Fall of Shawn Fanning's Napster"
At the height of Napster's popularity, so many articles were written about the file swapping service that Joseph Menn, a Los Angeles Times business reporter, didn't see what he could add. But then he met some former Napster employees who convinced him that the inside story-the one within the company-- had yet to be told. "The family betrayals, the backstabbing, the chaos, made what was going on in court look tame by comparison," he said. Menn's book, "All the Rave: The Rise and Fall of Shawn Fanning's Napster," will be published in Japanese this year by Softbank.
Napster has gone, but its successors survive. What happened and where are we headed?
Peer-to-peer networks have learned from Napster's mistakes. They did three things differently. They based themselves offshore, which makes it much harder for the U.
Where does that leave us? First of all, either the Grokster decision will be upheld on appeal or Congress will pass more laws. But either way, file swapping is here to stay; the genie is permanently out of the bottle. I personally feel that some sort of global political solution will be needed. Currently, when you buy an audio tape, some of that money gets distributed to artists and other rights holders. Something like that needs to happen with computerized entertainment files-some sort of fee that will be distributed to rights holders. It could be whenever you buy a new computer, or when you pay your ISP, or revenue from general taxes. But there's no way to stop file swapping, and the politics are going to have to adjust to meet the new reality.
The industry has talked about encrypting CDs so they can't be played on a computer. Do you think that's futile or just that people won't buy them?
The answer is both. Everything they have come up so far has been circumvented. You're not going to be able to stop hackers and piracy. And meanwhile, you're going to seriously anger your customers who are playing by the rules. That will further erode CD sales, which have now fallen for three years in a row, largely due to file sharing services, including Napster.
Some have suggested that CDs should sell less music for a lower price.
I think that's reasonable. It hurts the record industry cause to make consumers pay $20 for a CD when they only want one or two songs. That is one of many ways in which the record industry has contributed to the atmosphere that allowed Napster and its successors to flourish. But however they do it, the price of content has got to fall. Even [Apple's] iTune's price of 99 cents per song is too high. I think will see the price fall much lower-to maybe 20 or 25 cents.
Do you think competing formats, such as Microsoft's, have a shot at replacing MP3?
I don't think so. Proprietary formats will gain at the expense of MP3, but MP3-or other unencoded successors--will dominate for some time to come. The quality is not quite as good as CD, but it's close enough.
The existence or proprietary formats is due to Napster's recklessness. That provoked a backlash against traditional fair use rights, while inspiring Microsoft and other proprietary technology companies to try and give more control to the content industry. In a Microsoft Windows Media Player security patch, the fine print says that once you install it on your computer, they have the right to scour your computer for other songs and other content in other formats which might be adjudged to violate copyright standards and prevent you from acessing them. It's an amazing piece of fine print(※）
And Hollywood loves that stuff. That prompted Jack Valente of the MPAA to visit Redmond for the first time in his life and he came away loving it. There's going to be a war fought inside your computer between Hollywood allied with companies like Microsoft, and the forces of consumer freedom and, in some cases, piracy enthusiasts. It's going to be really complicated and ugly and we may well wind up with less rights that we had before.
You said that Napster was reckless.
Was that partly because they were first and didn't know what they were dealing with?
In large part, it had to do with the character of the individuals that were running it, starting with John Fanning, Sean's uncle. Having interviewed everybody involved in the company of any significance and many others in the record industry, I do not believe that Sean Fanning would have continued to distribute Napster if he was left to his own devices without reaching some kind of a deal. He's basically a reasonable guy. Many fewer people have described his uncle, who incorporated Napster Inc. in May 1999 and kept 70 percent of the stock for himself, as a reasonable guy. John Fanning had a history of failed businesses, unpaid debt, anf confrontations with investors. His basic plan was to grow Napster as quickly as possible without any regard to copyright in order to extort the greatest possible settlement from the record industry.
The mega-hit bands clearly have something to lose from file swapping and online music. But what about the groups below?
In general, the larger the band, the more likely they were to be adamantly opposed to Napster. Small bands, generally speaking, were in favor of Napster, at least in the beginning, because it was a way for more consumers to find out about their music, sample it, and if they liked it, buy a CD. And many, many did.
One of the things I uncovered is that there was so much PR on both sides that it obscured or amplified bands' real feelings. Some were used as pawns. Some were supportive of Napster. but scared to speak out for fear of angering their labels. I discovered that Napster paid Chuck D of Public Enemy $100,000 for his support, which included an op/
While the music industry is in trouble, it's not going to go away. What will online music-legal and illegal-mean to the music industry long-term?
It will mean disintermediation. There will be less distance between the people that make the music and their audience. In general, that's a good thing for consumers. When you look at the record industry's content over the past several decades, it's hard to feel sorry for them.
Is it a good thing for music as well?
Yes, I think it is. Most music on the air today is terrible. That's because of the way the record industry does business, including paying millions of dollars to "independent promoters" who basically bribe radio stations for air play. That practice squeezes out good music that is aimed at a niche audience. I think the spread of electronic music is going to help people find more music that they like.
- [foot note]※
- The user license agreement Menn refers to previously stated: "You agree that in order to protect the integrity of content and software protected by digital rights management ("Secure Content"), Microsoft may provide security related updates to the OS Components that will be automatically downloaded onto your computer. These security related updates may disable your ability to copy and/
or play Secure Content and use other software on your computer. If we provide such a security update, we will use reasonable efforts to post notices on a web site explaining the update." Microsoft has since changed the wording to better explain its intent. Essentially, the company claims the right to disable the Media Player's ability to play secure content if the content provider believes security has been breached. Users thus agree that Microsoft can can do this they acquire a digital rights management license-which presumably is any time they purchase new content.