Turn! Turn! Turn!

To every thing there is a season,

And a time to every purpose under the heaven

A time to be born, and a time to die...

A time to kill, and a time to heal...

A time to weep, and a time to laugh

A time to mourn, and a time to dance...

A time to love, and a time to hate A time to war, and a time of peace.¹⁸

What awaited the record companies was their worst nightmare: a kid with an idea. Shawn Fanning wanted music fans to be able to share each other’s MP3 files. He wrote a little program called Napster to make his idea a reality, and Napster finished eating the music industry. What had been a time of albums gave way to a time of digital files. And so the record companies declared a time of war.

Fanning was a hacker. He was also a music fan and a frequent visitor to Internet chat rooms. In the autumn of 1998, when the RIAA was busy trying to keep the Rio off the shelves, Fanning was a seventeen-year-old freshman at Northeastern University focused on his personal hacking project. His dream was to combine his MP3 addiction with his chat room experiences. He wanted to write a program that would let him trade MP3 files with strangers around the world as easily as he traded quips with them in a chat room. The impact of his project would be revolu­tionary, but the project itself wasn’t revolutionary at all. All of the pieces were already out there. Fanning didn’t invent new technology. He simply assembled existing technologies in a new and clever way. The perfect task for a budding young hacker.

The Web itself began as little more than Tim Berners-Lee’s pipe dream. Berners-Lee started with the idea that the researchers connected to the Internet would find it easier to share their files if they adopted a uniform indexing scheme. That idea led him to develop the URL, a simple tag that assigned every file on the Internet a unique address.

Fanning put these ideas together to build Napster’s core technology. Users could ask Napster to find all MP3 files on the network—possibly with a partial file name—and Napster would return a list of appropri­ate addresses. Now, of course, there was a bit more to it than that. To begin with, it’s important to recall that “the Internet,” “the Web,” and “the network” aren’t synonyms. The World Wide Web is a popular appli­cation that runs on the Internet. Most of the computers connected to the Internet, likely the one on your desktop and certainly the one on my desktop, aren’t Web servers. When you ask Google to search the Web for a file, Google only looks at Web servers. It doesn’t come ferreting around on my desktop to see if I have anything relevant. So how does Google know where to look? Well, it turns out that Web servers hire a guy wearing a digital sandwich board to stand outside their doors yelling: “Yo! Google! Over here! Web server over here!” The self-identified Web server sends Google a few salient keywords and the address of a rele­vant page, Google combines the information on its own server, and then passes the information on to you. Thus, the Web is really a network of Web servers connected to the Internet, and when you run a Web search, you’re only searching those servers.

The Napster network works—or rather, worked—much the same way. You could join the network by downloading the Napster software— which Fanning conveniently placed on the Web. Then, whenever you were in a sharing mood, you could open the Napster application on your computer, turn yourself into a “Napster server,” and send a guy wearing a digital sandwich board outside your door to yell: “Yo! Napster! Over here! Napster user over here!” Some other Napster user would ask the Napster application on her machine to find her some music.

Napster did contain a handful of other features designed to make it user friendly and powerful, but by and large, it was just a twist on a search engine. But what a twist! While it might not have been a tech­nological breakthrough, it was an extraordinarily clever combination of existing ideas. In the long run, P2P may turn out to be the most signif­icant innovation in the information sector since the Web. It opens a whole new world of file exchanges, and makes yet another layer of com­munication cheaper and easier. Once again, cheaper, easier communica­tions promise to reduce transaction costs, and reduced transaction costs promise to generate new business models. We can’t yet imagine how far it can lead. But in the short run, it set the digital music community on fire and revolutionized the music industry.

Napster was the last missing piece. Digital music had been around for almost two decades, and large hard disks full of compressed MP3 files and CD burners had been around for years. Much to the RIAA’s chagrin, portable MP3 players did hit the market. Technology had made it cheap to copy music, the law did nothing to alter that cost reduction, and eco­nomics led many people to convert their own CD collections to MP3, to make copies for each of their computers, and to load them onto their Rios. Technology and economics also let people burn CDs to share with their friends and to gain copies of their friends’ CD collections.

And then, in early 1999, Fanning finished a beta version of Napster, gave it to some friends, and asked them to keep it to themselves. They disregarded his instructions and shared it with other friends. Within days, the Napster network boasted over 3,000 members. That number grew quickly. In October 2000, the network’s membership was estimated at 32 million, with about 800,000 logged on at any given time. By February 2001, when Napster met its ultimate—and many believe untimely—demise, membership was estimated at 58 million. By most accounts, Napster was the most rapidly adopted application in the history of software.²⁰ If nothing else, that suggests that Napster filled a rather glaring and obvious need.

How you characterize that need shows where your sympathies lie. To some, Napster filled the void of people reaching out for like-minded souls with whom to share their music. It was more than just a network of soft­ware users; it was a community of music lovers. And the community of benevolent music lovers willing to share their music opened new musical vistas to all. It was suddenly possible to find old songs with nostalgic appeal, to locate hard-to-find collectibles, studio outtakes, and live jam sessions, and to sample new musical styles and artists without having to pay the “admission fee” of a CD’s purchase price. For users, the Napster community was for sharing and sampling and reveling in the joy of music. Napster filled a need for community in an age of alienation.

To others, Napster provided digital pirates with a way to circumvent legitimate IP rights. Everyone knew that copying someone else’s digital music files without paying royalties constituted theft.

Of course, to those of us savvy in the ways and the wars of the infor­mation sector, Napster eliminated a technological barrier to entry into the music distribution business. It removed a critical transaction cost that long had been the basis of the music-information distribution business. It thus destroyed an existing business model and enabled some new ones. Napster filled a need for music consumers seeking a world without trans­action costs.

Well, maybe “destroyed” is a bit harsh. After all, the record compa­nies, BMI, ASCAP, SESAC, Harry Fox, the RIAA, Tower Records, and much of the rest of the established music business is alive and still prof­itable. Somehow Amazon even sells huge numbers of official, legal CDs over the Web. The view of Napster as a tool to sample new styles and artists, and to look for nostalgic songs that you might like to hear but would never buy—all of that was true. Many people downloaded songs from Napster and felt motivated to buy the album; I myself bought at least one album under the influence of Napster. While Napster clearly did motivate a certain number of CD sales that probably wouldn’t have happened otherwise, plenty of people decided to forego buying CDs that they would have purchased had they not been able to download songs free from Napster.

Though Napster’s short-term effect on music sales may have been unclear, its long-term potential is crystalline. In the long run, P2P file swapping will devastate the record companies’ traditional business model because in addition to copying and distribution, their models’ other critical element is bundling. The “album” is a clever mechanism that forces consumers to buy more music than they want—and to pay for it.

So there you have it: No technological barriers to copying, no tech­nological barriers to distribution, and an imminent end to bundling music into albums. No wonder the RIAA went after Napster! By the end of 1999, less than a year after Fanning’s friends circulated his beta version, young Shawn had dropped out of college, started a corporation, moved to California, attracted a huge following, appeared on magazine covers, and gotten himself sued by the major record companies. He’d spend the next fourteen months in court fighting—unsuccessfully—to keep his dream alive. But his dream was the record companies’ night­mare, and this time the law supported their case.

Once again, the actual battle hinged on various arcana of IP law. Judge Marilyn Hall Patel’s first published ruling in the matter, for example, refused to dismiss the suit against Napster under a safe-harbor provision of the DMCA.²¹ But technicalities aside, the real issues were clear. The RIAA and the record companies contended that though Napster didn’t circulate music itself—or even allow any music to pass through its own centralized system—it was still contributing to copyright infringement. The entire Napster network, they claimed, was set up to make infringe­ment easy. What’s more, they somehow felt that Napster’s own Web site, which touted its network as the “world’s largest MP3 music library” and promised its members “the availability of every song online,” was designed to encourage infringement. They also argued that Napster users could hardly hide behind the fair-use doctrine. After all, while the concept of “fair use” may be amorphous (like pornography, something that you know when you see it), the idea that “the entire population of the Internet” constitutes a small circle of friends with whom it’s fair to share does strain credulity. Finally, they explained that Napster was making it impossible for them to launch the wonderful, legitimate online music distribution that they had planned, because no one would ever pay to use their legitimate system while Napster made identical pirated copies of their products available free of charge.

These arguments all sounded reasonable, and Napster’s legal team knew that it needed help. Napster turned to David Boies, the superstar litigator who represented the government against Microsoft. Napster’s basic argument was simple: it wasn’t doing anything wrong. Napster was just a search engine, an index, a file directory. That some of its members conceivably might use this directory to infringe the record companies’ copyrights could cause the RIAA to chase those members, but what does that have to do with Napster? (“It wasn’t me.”) Furthermore, Boies argued that copyright is intended as a tool of public policy.

Copyright is therefore an incentive that we as a society grant so that we may have better access to more original expression. In the end, the copyright laws are for the benefit of the public as a whole, not the individual copyright owners. The balance requires that these rights be limited so that we as a society can share, grow and build upon one another’s creativity. But that balance is always at risk in the struggle between copyright absolutists and those who think more limited protections are appropriate.²²

Boies wanted the court to consider IP policy, to conclude that the P2P systems like Napster served the goals of promoting innovation and cre­ativity, and thus to rule against the RIAA.

That argument—which should be quite compelling—rarely works. The courts tend to look at the text of applicable IP statutes and declare that the law is what it is; policy be damned. And to make matters worse, it’s not even clear that Napster would have won the policy debate if the courts had agreed to conduct one. Plenty of people believe that unre­stricted P2P wrenches hard-earned rewards from legitimate copyright holders, curbs their incentive to innovate, and threatens to reduce musical creativity. Who knows which camp would have claimed Judge Patel? Setting aside law and policy for the moment, many people have strong moral reactions to unauthorized music downloads. Some see it as theft, plain and simple. Others see it as a benign form of civil disobedi­ence targeted at a corporate system working to stamp out individual cre­ativity and free speech. Had Judge Patel found this case stirring her moral center, it easily could have tilted her view of public policy. And that’s precisely why many people believe trial judges should not engage in policy debates.

Of course, the policy argument wasn’t the only one that Napster for­warded. Boies also tried to convince the courts that there was little dif­ference between Napster and Sony’s Betamax—which the Supreme Court had explicitly allowed. But the courts found one. In the judges’ opinion, the Betamax had many legitimate uses, starting with personal time shifting. They saw only one use for Napster: encouraging individuals to infringe musical copyrights (though how they missed the obvious popular legal use of swapping uncopyrighted adult pornography remains something of a mystery).

The case never went well for Napster. Early in the proceedings, Napster agreed to shut out any network members known to infringe legitimate copyrights. So a team of lawyers, accompanied by Metallica drummer Lars Ulrich, gave Napster a list of about 300,000 names. Things went downhill from there. Though in the final analysis Napster lost both at trial and on appeal,²³ the specifics of the rulings don’t matter much. But the rulings buried the company. Napster ceased operations in February 2001, after a prolonged period of limping along with stripped­down functionality and a reduced membership network.

Now, in all honesty, there was more to the Napster story than that. In fact, there always is. Some egos appear to have gotten in the way at various times. Shawn’s uncle John Fanning, for example, has become a common target of opprobrium among erstwhile Napster fans. And in an interesting little denouement, BMG (the Bertelsmann Music Group), one of the five major record labels, broke with the crowd to try to develop a relationship with Napster—essentially to convert the valuable name and the even-more-valuable membership network into one that respected legitimate IP rights—but that deal never quite happened.²⁴

More to the point, though, as popular as Napster was, it never had much of a revenue model. While Napster was great at making headlines, it’s not clear how anyone ever expected it to make money. After all, it was little more than a file directory that allowed people to exchange files without paying for them. That left it with a straight advertising model, at best—and that model proved incapable of sustaining most of the many dot-coms that relied upon it. So even under the best of circumstances, Napster may have had a short life expectancy anyway. Its legal troubles may just have buried it sooner, rather than later.

And so, with the Rio on the shelves and Napster off the Internet, the record companies appear to have won one and lost won. But appear­ances can be deceiving. For while Napster may be dead, P2P music swap­ping is something of a hydra. Kill one service, two more arise to take its place. The RIAA is now running around the globe chasing Grokster and Aimster and Morpheus and KaZaA. It’s discovering the difficulty of pro­ceeding against corporations of one country whose personnel are in a second and whose servers are in a third—each of which interpret their own national IP laws in ways that sometimes differ from those of the United States. And as KaZaA fans might remind the RIAA, Vanuatu’s IP laws are what they are—don’t try to confuse them with Vanuatuan IP policy.²⁵

In the final analysis, the damage is done and it’s long-lasting. Napster, or more precisely P2P, finished a job that started way back when that first insightful composer devised a coded way to “write” music. It con­verted the music-information business into a permanent resident of the information sector. Technology has removed virtually all transac­tion costs related to copying and distributing music. Technological advances—mostly outside the information sector—also are reducing the capital costs required to produce original high-quality sound recordings. Garage bands with a bit of computer equipment and a good soundboard can produce their own songs at qualities that were once possible only in professional studios. They can then distribute their recordings as widely as they desire. Economics suggests that someone will devise a lucrative business model that works in this new technological reality. That someone may well be the record companies. They’ve done it before, and they begin with assets and capabilities that no one else can match. But so far, nothing they’ve tried has worked. One way or another, though, their traditional business model relies on technological barriers that no longer exist. The law is already straining under the effort of trying to recreate the defunct barriers. It can’t hold on too much longer.