Notes from the Epicenter: Napster Unplugged

Andrea Dudrow

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A San Francisco court ruled on February 12 that Napster, the online music sharing service that finds it way into every other Silicon Valley cocktail-party conversation, was indeed in violation of the law for knowingly letting its users traffic in copyrighted material. This is a big deal. It’s a big deal not only because one of the most popular sites on the Web (visited by 61 million users!) will likely have to shut down at least for a while, but also because the decision and Napster’s fate will likely play key roles in shaping the future of music distribution.

All Copyrights Are Not Created Equal
As I’ve said before, it makes sense that copyright owners should be able to control their intellectual property. That’s why we have copyrights in the first place. However, it’s unfortunate that Napster has to be the example of this rule. Unlike most creative fields (writing for example), where artists directly own the rights to their creative works, recording artists generally have to surrender those rights to the major labels they’re signed to. (If you want to get technical, recording artists still own the rights to their compositions — basically the sheet music — but their label owns the rights to the recording.) So in this case, the interests of large corporations (specifically the five major labels represented by the Recording Industry Association of America), have won out, and not necessarily the interests of individual artists.

This is why I don’t put much stock in the argument that if artists aren’t getting paid for the distribution of their work (as with Napster) they don’t have any incentive to produce. Most artists affected by Napster have contracts that pay them more or less the same (royalties on singles generally amount to less than a few pennies); it’s the record companies that have less incentive to produce. And there are plenty of artists out there without major label contracts — artists who continue to make art.

Peer-to-Peer Piracy?
That said, what is really significant about Napster is its technology. Peer-to-peer technology has been around for a while (heck, the telephone is a peer-to-peer technology), but Napster was the first online application to really take advantage of it. For those sticklers among you, Napster is not a true peer-to-peer system, since it has a centralized database that all communication goes through, but it is close. This technology is not going away, and the record companies quickly need to find a way to turn it to their advantage.

After all, they were lucky Napster presented such an easy target. Other, true peer-to-peer services are out there and they are harder to levy charges against. Take Gnutella, which doesn’t have a centralized database and is run by a loose consortium of developers (as opposed to Napster’s commercial entity), or Freenet, which offers its users at least partial anonymity. Plus, there’s always the chance that a Napster-like service will be set up outside of the U.S., where people care significantly less about intellectual property laws (in some parts of Asia you can buy bootlegs of any movie or CD you can think of).

Prohibition Is a Losing Fight
The recording industry needs to keep Napster’s users from straying to a service that won’t be so vulnerable to a lawsuit, and to do that they should seize the chance to set up a for-pay service using peer-to-peer technology. If they help Napster go to a subscription-based model as soon as possible (minimizing the amount of time the site is shut down) they stand a good chance of retaining its many users. Napster has already been in talks with one label, Bertelsmann, to do this, and users so far haven’t balked at the $5 per month figure the companies mentioned a while back.

Alternatively, the record companies can abandon Napster altogether and instead pour their money into one of the many already established subscription-based services. In fact, many of those services experienced a boost in stock price the day the Napster decision came down. Emusic.com’s stock rose 69 percent on the news (though it is still trading at less than a dollar), and RealNetworks’ stock was up ten percent.

The important thing for recording companies to note is that digital music delivery is here to stay, and that now that they have their court victory they should move quickly to take advantage of the technology that is surely the future of music distribution on the Internet.