The Rise of Napster

The arrival of the internet in the early 90’s, and its continued popularity during the early 00’s, affected the music industry tremendously. It introduced the rise of new platforms which (just a decade or so before) were simply unthinkable. This was the biggest change that the industry had faced for a long time. The internet’s impact and influence has now spread to the entire music industry. Not content with cornering the music sales market (iTunes recorded its one billionth download in February 2006,) the internet has now provoked what Q magazine has described as the biggest revolution in music since punk, 30 years ago.’

As the technology advanced and internet speeds increased one teenager by the name of Sean Fanning changed the world. Sean had a vision in which people would be able to seamlessly share mp3 files with each other under a centralised server, this was the beginning of Napster. Once launched at the start of 1999 Napster began to build in popularity so quickly that it caught the attention of the music industry (along with the major record companies) almost instantly. The industry witnessed huge drops in revenue as the file sharing company gained thousands of new users each month until they eventually took Napster to court. ‘It brought the music industry to its knees, eventually leading to an unprecedented legal battle over intellectual property. At its peak, Napster had 70 million users -- a feat considering consumers were only getting their feet wet with broadband Internet service. Even in the age of Google (GOOG, -0.50%) and Facebook (FB, +0.04%), Napster is still enshrined in the Guinness Book of World Records as the fastest-growing business ever’. Richard Nieva.

Whilst Napster’s rise was and is still to this day a record in its own right, its overall life as a peer-to-peer file sharing company was somewhat abrupt. It only actually lasted for three years in total after the company shut its service down back in July 2001.

Despite its short life and money issues Napster gave the industry one of its biggest scares in its entire history.

Due to plummeting sales figures the company was taken to court by the RIAA (the Recording Industry Association of America) alongside the likes of Metalica and Dr Dre and ended up winning resulting in Napster being forced to pay millions of dollars to the major record companies at the time. ‘A federal judge in San Francisco yesterday ordered Napster, the internet service that allows the trading of MP3 sound files by linking personal computers, to stop permitting the exchange of copyrighted music owned by major music labels.

Even after paying millions back to the major record companies, the Napster case was still far from done. Next they targeted the German media giant Bertelsmann who had been an active partner with the file sharing service since 2000, which it was speculated was because of plans to turn it into a paid membership based service much like ITunes.

The industry claimed that by funding Napster, Bertelsmann ended up keeping the file-sharing service alive and active for a longer period of time and so was there for responsible for a large amount of lost revenue for the major record labels. Eventually the case ended in 2007 after some jaw-dropping large sums of money were paid. According to A.E Johnson (2007)

The Napster case as a whole ended with both companies being sued around $400 million with Universal, Warner’s music group and EMI receiving huge payments.

‘The settlement means that the Napster litigation has been settled for a total of about £400m. Since last summer, the company has settled with Universal Music for $60m, Warner Music for $110m and EMI for an undisclosed sum thought to be close to $100m. although the final settlement is well below original estimates of the potential liability, it is about £200m more than the sum Bertelsmann had to set aside to cover payments’. Despite the fact that the industry ended up winning the case and coming out with millions of dollars, the Napster controversy shook things up a lot in the industry for a few years and caused a lot of uncertainty among its professionals, for the death of Napster signalled the beginning of internet piracy.

George Capon

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