Playback and Payback series; (part 17) panic in the Suites – Napster, Grokster, the Last Kazaa (III)

The record business’s ostrichlike procrastination made possible a future in which music became a free good rather than a commodity, via a means of distribution over which it had no control, and indeed one it had ignored for the previous decade. Now, hundreds of thousands of people could and did share songs online – and not just college students, either. Accountants, writers, grade-schoolers, attorneys, people from all walks of life tested the digital waters of file sharing on Napster. Any mainstream song they could think of, they could find, and even a few oddities.

The word Napster became a curse word on the order of payola in the halls of the major record companies. In fear, the record companies and their business and lobbying trade group, the RIAA, started a campaign of terror directed at internet websites, fans, and even the artists themselves. Toward the end of 1998, Universal made rap group Public Enemy take a downloadable track from its new album off its website. Capital Records then forced both the Beastie Boys and Billy Idol from the MP3.com site that eventually bore the brunt of a nine-figure settlement for copyright infringement. In Idol’s case, a source close to the singer’s inner business circle said, “Billy thought it was important to get some music out to his fans.”

The RIAA denied that its members had anything against MP3 files as such. “There is no music industry campaign against the use of MP3 files,” claimed Rosen. “Our concern is with the rampant posting of files without the copyright owners’ or artists’ authorisation, free for the taking of their recordings online in the MP3 or any other format.”

By 1999, with the dot-com boom booming and the internet bubble still swelling, the battle lines were drawn. In the far corner weighing 800 pounds was the gorilla called the record industry. In the near corner, weighing about three pounds, with a cute kitty cat face and headphones was Napster. Again, rather than trying to do anything constructive on its own, the record business seemed to spend most of its time either trying to crush the Napster or saying terrible things about it when Napster managed to avoid getting crushed.

By fall 2000, the gorilla and its assistants, the weasels, had gotten a toehold on Napster, bringing Fanning and his associates to court. At the same time, all the major labels, scattershot, put up some form of internet music service that they either bought out or created out of whole cloth. In either case, the companies’ self-confident miscalculations became quickly apparent. “The problem is twofold,” noted an anonymous Sony executive.

First, everyone has their own proprietary technology and their own ideas of how it should be done, which is just confusing to consumers. Then there’s the idea that people are interested in only Sony or only Warner product. That might have been the case back in the fifties when you knew that Atlantic records pretty much had all the really cool R&B acts, but all these companies now cross genres and have no single, definable identity for consumers.

So the majors’ early efforts on the web were once again doomed by hubris. It was also still much easier to download from Gnutella, Kazaa, Grokster, or any of the other peer-to-peer programs on the web (which the industry referred to as “pirate-to-pirate”). “It’s a complicated process,” admitted the RIAA’s Doug Curry. “It’s much easier for someone to upload thousands of CDs and put them online for free as opposed to changing 60 years of a large industry’s practices overnight.”

Market research analyst Mike McGuire from the Gartner Group agreed. The record companies, he said, “have a 100-year-old business model that’s based on controlling distribution by controlling a physical thing. They can’t do that anymore, or they can’t rely on that entirely.”

By 2001, the Copyright Control Services reported that music fans had downloaded a quarter of a billion tracks the previous year. Another study found that during one 30-day period, over 50 percent of the 12- to 24-year-olds had downloaded a P2P MP3 file, not only in the United States but in Canada, Sweden, Taiwan, Italy, the Netherlands, South Korea, and even urban areas of Mexico.

Then came the one-two punch of the early 2001 dot-bomb and the terrorist attacks of September 11, 2001. The former found that most of the for-profit interest music sites (along with about 80 percent of the other new internet-based companies) had burned through their public capital, sending their stock values plunging. At MCY, one of the vice presidents had to get a “bonus” from the company because the stock options he had to exercise after a year would cost him more in taxes than stocks were worth. Fortunately, it was a loan he would never have to pay off, as the company burned through its assets, instituted massive layoffs, and eventually shuttered. It was hardly an isolated case.

Another reason that the record industry had trouble getting it together online was its control issues. These date back quite some time, as we’ve seen; the record business simply does not play nice with others. For example, in the 1980s there was a company called Personics. For around a dollar a track, it would make you a custom, high-quality cassette with any songs in its catalog of thousands. Unfortunately, very few of these songs came from major labels and virtually none of them were hits. The major labels just didn’t trust these valuable properties to outsiders and thought that allowing them to be used in this manner would devalue them.

However, by 2001, the web had become a free-for-all Personics squared. People downloaded virtually any song they wanted and could then burn their favourite mixes onto CDs or download an hour’s worth of music to their portable MP3 players, which had proliferated in penetration and grown in capacity over the previous two years. The record companies’ worst nightmares were coming true: chased by the interconnected monster of the internet, they jumped off a cliff of revenues and kept falling and falling, only they didn’t wake up. The Pew Internet and American Life Project drove this home. In a survey of people who downloaded music, 80 percent of them didn’t consider it stealing, and 60 percent didn’t care about copyright, nor did they even want to think about paying for music over the internet.