Reinventing Napster

Case 11 – Reinventing Napster

(Professor Arun Jain)

Background:

About P2P networks (Peer to peer) – One could share various type of files including ones that hold copyright, like digital music files – MP3 (Motion picture engineering group audio layer 3)

Napster P2P - With improvements in internet speeds, allowed users to copy limitless copyright music files for free. (Stored on a hard-drive & shared at will with a simple web search)

Voices against Napster

· All music giants including Sony, Warner Brothers Music, BMG, Universal, EMI group settled lawsuits with MP3.com to protect right of copyright owners (Exchange of songs over the internet for free)

· Some supported Napster (like Fred Dust of Limp Bizkit music band) stating that it helps in marketing music to mass media

Result:

· By mid-2001, Napster lost its court battles with music industry

· Its free music file sharing service was shut down

· Napster’s name, intellectual property & hardware sold to Roxio Inc. (CD burning application)

Napster’s 1^st Incarnation – Focus on online music sales

· Features:

o Free catalogs to select the music (listen to tracks free for 3 times)

o Users can purchase track for $ 0.99 / track

o Online music unlimited access (to listen) for $ 14.95 / month

· Disadvantage – Need to renew subscription even to listen to bought out tracks as files were encrypted with DRM (Digital Rights Management)

Napster 2^nd Incarnation – New features

· Use of advertising to give customer limited opportunity to listen in Napster’s technology for free (5 tracks free while viewing advertisement without possibility of copying)

· Mobile music partnerships

· Converting all music in Napster catalog to MP3 – Music could be played on any portable music player

Napster’s 3^rd Incarnation

· In collaboration with AT&T, Napster made its 5 million songs available for purchase & free wireless downloading for $ 1.99 / song in their computer & phones

· Purpose of above was to compete effectively with Apple iTunes & increase customer’s base

· Napster in January, 2008 – Sell MP3 format without DRM (Digital Rights Management) encryption that limits how buyer can use them to be able to sell them to Apple i-pod users also

· Sony BMG music already started selling MP3s via Amazon.com

Dilemma faced by Music Industry

· CD sales dropping with rise of digital music, which Music industry resisted initially

· With customer’s demand tilted towards digital music, Music industry is now becoming more focused towards developing & investing in digital music

Vicious Circle

The story is again repeating itself where now Music industry is helping digital music to develop - which could potentially lead to easy file sharing (MP3 without encryption), which bought downfall of Napster in early 2000. Hence, what was seen illegal in 2001 is being seen as the probable solution benefiting all stakeholders in the current scenario