José M. Guardia

Internet, Media & Technology Analyst

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Paying the piper

By developing their own file-sharing services, record labels could drive peer-to-peer exchanges underground. That's if legal action doesn't get the Napster clones first

By Jose M Guardia - March 14, 2001


After months of defiant wrestling with the music industry, and following a court decision that went against it, file- swapping site Napster took everybody by surprise in February when it offered to bury a remarkably expensive hatchet. The company said it would pay the labels $1 billion (1.1 billion euros) over five years for the licensing rights to the copyrighted songs exchanged through its service.

The music industry gave the offer a cool reception, effectively saying that it was too little, too late. At this stage, it's hard to figure out whether the offer was only a marketing stunt or a sincere attempt to settle the issue out of the courts in order to guarantee the continuity of the service.

But it's even more difficult to imagine how Napster could ever be able to raise that billion dollars.

A few months ago Napster struck an alliance with German media giant Bertelsmann. That day the company pledged to build a new, secure and legal version of its system. Since then we've learned that the model could be based on monthly user fees, which could range from $5 (5.30 euros) to $10 (10.70 euros) a month depending on the service (limited or unlimited downloads, ability to burn your own CD, etc).

Let's imagine for a second that the music industry drops its legal action and joins "Napster 2". To be sustainable, such a system would need to convince a significant number of current Napster users to pay the monthly charge – the very same people Napster itself has educated into getting everything for free.

Assuming that there will be such a group of people (say, half of the current 60-million user base), and provided that the digital rights management issues are solved (which remains a daunting task), what would those Napster 2 customers actually pay for?

The answer is: not much.

If it maintains the current Napster distributed architecture, a paid version wouldn't be selling music, but merely providing listings and allowing searches for and access to music files stored on other people's computers. There's nothing wrong with this of course. But Napster can't control its users' hard drives, and therefore it cannot guarantee the quality or the reliability of what's stored there.

The 60 million current users of Napster are evidence that in its current free form it provides a valuable service, despite the high probability that file quality, integrity, bit rate, or download speed might not be perfect (or even that the file content doesn't match the file name). After all, it doesn't cost anything. But if subscription becomes the model, then users are going to ask that the Britney Spears song they are downloading is indeed the original version of Oops – I Did It Again, that it is of the best quality, it is not randomly cut in the middle, there are no transfer errors, and it's not going to be downloaded at 1 Kb per second because the user Napster pointed them to is having a "bad modem day".

The only way Napster could guarantee this level of service – and if it doesn't, nobody's going to pay – would be by storing quality-checked files in some centralised servers with high-speed connections. But if that happens, you can say goodbye to the magic of peer-to-peer (p-to-p), the file-sharing revolution and the rhetoric about empowering the individual.

The rejection of Napster's $1 billion offer by the music industry has also overlapped with three other items of news: the announcement of Duet, a Sony-Universal joint service for the sale of secure, copyright-protected music; the media revelations about Snoopstar, Bertelsmann's file-sharing search engine; and the legal actions initiated by the Recording Industry Association of America (RIAA) against several Napster clones.

The RIAA is suing groups operating servers that offer a service similar to Napster, and it's likely that it will succeed in shutting them down, at least those that are based in the US. This would leave us with only a small number of "pure p-to-p" systems, such as Gnutella, FreeNet and MojoNation, which don't use a central server as a clearing house – as Napster does – but which are also much more difficult to operate for less-sophisticated computer users.

At that point, we will discover that most of the flamboyant Napster rhetoric of the last year had no foundation: people have not been embracing p-to-p for itself; they just were enthusiastic about easy access to free music. While the music industry may have been slow in "getting it", it's now getting it better than anyone else.

Here's the scenario. The record industry (like any other business based on intellectual property) assumes that it is materially impossible to build a 100 per cent foolproof system to prevent any intellectual property theft, appropriation or misuse. By flexing its legal muscles and pushing Napster and similar services aside, the industry will ensure that the only room left will be for "pure" p-to-p music exchanges which are, as stated earlier, more complicated, much less attractive for mainstream users, and insular – they're not connected to each-other

If the record companies simultaneously launch and promote their own legitimate services (and they're all working on this; either overtly, as in the Duet project, or secretly, as with Bertelsmann's Snoopstar), and if they can guarantee a rewarding, easy, flawless customer experience, they'll be pushing free services more and more into the underground.

Now consider Metcalfe's Law – named after the American entrepreneur who defined it. It states that the actual value of a network equals the square of the number of its members. In other words, the beauty of a service like Napster is proportional to the number of its users. A single, easily accessible system, with 60 million users sharing hundreds of millions of music files and all at each other's disposal is an irresistible proposition. But 10 or 20 smaller, complex and incompatible services may not be a match for an easy-to-use, secure, paid-for-but- not-too-expensive legal online music distribution system built and managed by the industry itself.

Business, somebody once said, is the continuation of war with other means. You may disagree, but you've got to acknowledge that what the industry is trying to perform here is just the p-to-p version of the old "divide and conquer" tactic.


© 2001 Jose M. Guardia, Barcelona -- All Rights Reserved