Napster Era Ends

  |  November 2, 2000   |  Comments

Napster offered free music without a business model. Now one of its sworn enemies is endorsing a bolted-on business model while hoping others will join in. What's going on?

I think my dentist fit me in for a check up last week just so he could vent to me about Napster.

They're thieves, he said. All Napster users are thieves. Napster is organized theft. Something must be done about it. I tried to argue with him, but the man was holding sharp instruments.

My dentist doesn't own a record company, but he isn't alone in his feelings. Napster is one of the biggest news stories of 2000 precisely because opinion about it is sharply divided. Even many Napster users have reservations about what they're doing.

Changes in the copyright and criminal laws, particularly the 1998 Digital Millennium Copyright Act and the 1997 No Electronic Theft Act, were bound to sink the service, as the government now argues. The only legal argument left is based on the First Amendment, beloved of porn stars and Nazis. It was no surprise that the Napster legal dream team was searching for a life raft before the Court of Appeals ruled.

So why did Bertelsmann throw it one? Unless Bertelsmann Chairman and CEO Thomas Middelhoff can convince all the other record companies to drop their jihad, his company's loan and options are worthless.

Sony, Time Warner, VIVENDI's UMG, and EMI have invested a ton of sweat and equity in the proposition that Napster is evil and deserves no reward for that. The argument is now getting all kinds of support. Meanwhile, all of Bertelsmann's rivals now have download services of their own. The services are kludgy and expensive, but they exist. Moreover, Napster's MP3 file format may be popular, but it's not really very good, delivering "near CD quality" in a world where CD quality is a base line.

If its rivals agree to make nice, Bertelsmann's the hero, and the rivals are at a disadvantage. The price is set at $5 per month, but the record companies still dream of getting $1-4 per song.

There's also a technological risk. Napster's present system doesn't support the kind of tracking Bertelsmann and the other companies need. Making Napster legit still leaves a host of other client-client services like Gnutella that in theory can't be stopped because there is no one to sue.

The only argument I can find supporting Bertelsmann's action is that Gnutella has problems of its own. As the flood of users came down on it following the Napster lawsuit, the service slowed to a crawl. Version .56 software was rushed out the door, and the programmers behind the effort can't come to consensus on upgrades that will stop the slowdown.

Then there are other problems. Spammers, virus authors, and anti-porn activists have all hijacked portions of Gnutella, using it for their own agendas. When there's no one in charge, there's also no sheriff.

It's all fascinating stuff. People want music in new formats, and they want to buy it using new economic models. Napster offered free music without a business model. Now one of its sworn enemies is endorsing a bolted-on business model while hoping others will join in. Apparently no one knows what is going to happen.

So stay tuned.

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ABOUT THE AUTHOR

Dana Blankenhorn

Dana Blankenhorn has been a business reporter for more than 20 years. He has written parts of five books and currently contributes to Advertising Age, Business Marketing, NetMarketing, the Chicago Tribune, Boardwatch, CLEC Magazine, and other publications. His own newsletter, A-Clue.Com, is published weekly.

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