Ripped, Mixed-Up and Burned
On May 14, 2002, the first wave of Internet file-sharing died. Napster, the company music lovers worshiped and the record industry loathed, closed its doors after investors and company executives failed to negotiate a deal that would save the revolutionary software company. Prior to its court-ordered close as a free music portal in July 2000, Napster offered over 80 million registered users access to thousands of MP3 files and signified a new era in music listening. While Napster struggled to build a pay-per-use site, new file-sharing services surfaced to quench fans' thirst for music and subsequently to fuel the debate over music ownership, distribution and use. The debate, which is now taking place across the web, in corporate boardrooms and in Congress, will help shape the future of all entertainment and educational media in the new digital era.
When Napster first appeared in 1999, it spread like wildfire and changed the very character of Internet use. Suddenly, music lovers didn't have to search incomplete fan sites for renegade and hard-to-download MP3s. Napster would let them use one central database, store, organize and trade files with all the ease of an AOL account. With the new software came new technology catering to its use. Listeners had the ability to download thousands of songs, listen to them via computer or portable MP3 players like the iPod, and create assorted CDs for themselves and friends.
This new versatility, however, came along with a new title: criminal. The music that people were trading, the recording industry said, was intellectual property intended for a single listen--not for burning, trading or sharing. In doing these things, consumers became "pirates" and thus the enemy. Last year, CD sales worldwide fell 5.1 percent, the first drop since the format was introduced in the early 1980s. Likewise, blank CDs outsold music CDs worldwide. Entertainment companies blame burn-friendly computer companies like Apple for creating an environment that condones theft, and have filed numerous lawsuits against file-share companies like Napster, KaZaA, Aimster and Grokster in an attempt to stop the free music's flow.
Because when billions of traded files cease to be free, they can be conceived of as profit. After waiting for Internet pioneers to create demand and to risk failure (which of course happened in the 2000 new economy bust), major labels have jumped into online music. In December 2001, the Big Five--Sony, EMI, AOL Time Warner, Bertelsmann and Vivendi-Universal--launched digital distribution sites based on a Napster-like interface. Both Pressplay (a Universal/Sony venture) and MusicNet (BMG, EMI and AOL Time Warner) distribute their own labels' content and licensed content from hundreds of independent labels--all for a monthly fee. With Pressplay, listeners can stream music while online, download it to their hard drives and burn it to a CD. MusicNet is a less tolerant system--downloaded songs expire after thirty days and no burning or trading can be done.
The number of downloads determines the fee subscribers pay, anywhere between $10 and $25 a month. Still, those who feel the moral imperative to subscribe may find, once they get to the site, that they aren't getting what they paid for. Many major-label artists, the successful ones at least, have threatened court action if their music is offered online, claming that labels are cheating them of royalties by paying them at the same rate as if they had sold a single. (Since the royalty rate for a single is determined by the label's need for marketing, distribution and packaging, all of which are different for Internet use, this is a skewed proposal.) Other catalogues, like those of the Beatles or the Eagles, have so much clout that labels simply can't negotiate for their use. So, with millions of illegal trades going on outside and infighting among artists and songwriters, the labels have been unable to assert control over the digital market.
Pressplay and MusicNet, then, operate on the assumption that in the future, through lawsuits and media-friendly legislation, consumers will have no choice but to subscribe. OC&C Strategy Consulting, an agency that helps major multinationals build competitive business models, reports that earnings for paid-for music content were barely over $1 million in the United States and the United Kingdom last year. MusicNet currently has around 40,000 paid subscribers. Meanwhile, almost 2.7 million people are engaging in free file-sharing at any one time. They have a long way to go, and there are still many blocks in the path.
Whispers of "antitrust" have already begun with the two services and recent court actions have begun to consider artists' and consumers' rights before rushing to hand down major label-friendly rulings. In late February, US District Court Judge Marilyn Hall Patel demanded that the labels suing Napster prove that they, in fact, own the copyrights for digital use of songs. This is a major step toward restructuring artists' digital rights and suggests that artists may eventually gain the ability to license material to independent companies regardless of their label affiliation. Patel also referred to the labels' "inequitable conduct" in assuming rights over all their licensed music and noted that their consolidation into two behemoth on-line companies represents "near monopolization of the digital distribution market."
On the other side of the Atlantic, a Dutch appellate court recently overturned a November 2001 decision that ordered peer-to-peer file-sharing service KaZaA to block users from downloading copyrighted songs. The court determined that the users of the company's software were responsible for the infringements, not KaZaA itself. Like many of the new file-sharing services, KaZaA relies on individuals searching one another's databases and taking files directly from each other's computers. (Napster used a centrally maintained server to run searches and manage traffic, which made the company itself susceptible to legal action for copyright infringement.)
Other services run off of the Gnutella network, a decentralized series of database pockets all over the Internet that are fed by an open source (meaning that the software has free, noncopyrighted source code) network. Services like LimeWire, a popular Macintosh file-sharing service, connect with one or more of these servers to trade files, but do not have exclusive rights to the server. Through Gnutella and databases like KaZaA, responsibility for illegal trading activities moves from the software companies to the individuals who engage in trading. But when millions of people are trading files daily, it becomes very difficult to pinpoint a single responsible party.