No Napster? No Problem, As Illegal Downloads Still Thrive

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August 7, 2008 3:13 PM

No Napster? No Problem, As Illegal Downloads Still Thrive

Posted by Jonathan Thrope

Litigation and innovation be damned--illegal music downloading is here to stay.

That is the overriding message from a recent study that looks into whether free, legal downloading can ever displace illegal free downloading in the wake of the unconventional release of Radiohead's seventh album, In Rainbows. In a bold move, last October Radiohead offered the album online in a "pay-what-you-wish" format. Hoping to benefit from the expanding online music market, In Rainbows was available for download three months before the CD was sold in stores.

The marketing strategy was, by all indications, a success. Radiohead garnered tremendous publicity, and the CD became the top-selling album in the U.S. upon its official release, even though it had been available online for months. Nonetheless, according to the study--conducted by the MCPS-PRS Alliance, which represents music rights holders, and Big Champagne, an online media metrics company--In Rainbows was downloaded illegally at an exceedingly high number--2.3 million times from its release date of October 10 through November 3.

The Am Law Daily checked in with former Napster Inc. CEO and current Howard Rice Nemerovski Canady Falk & Rabkin partner Hank Barry via e-mail to chat about Radiohead's strategy, ongoing Recording Industry Association of America litigation, and Napster's role in the evolution of the music industry. Barry was Napster's CEO from May 2000 to August 2001, and as a lawyer has represented a number of clients in the digital media realm.

What was your reaction to Radiohead's innovative marketing strategy?
I liked it. Remember that the physical CD was number one in sales in both the U.S, and U.K. in the same week, a month after it was available for free. The promotion also served to direct torrent traffic to the band's site and away from other free sites. So the band got thousands of e-mail addresses from its biggest fans.

Do you think the Radiohead strategy was a one-time deal, or a sign of things to come?
It worked because it was Radiohead and it was new. But there is something general to be learned from the effort, and that is that any realistic approach to music promotion has to accept the premise that the music will be available through some "venue" for free. Once you accept that fact, then there are limitless ways to pivot and turn that to your benefit. Radiohead's effort is one way. Nine Inch Nails had another, there will be more. [Nine Inch Nails made their album Ghosts I-IV, released in early March, available online for free with no "pay-as-you-wish" caveat.]

What have been the most significant developments in music downloading since Napster was shut down [in the summer of 2001]?
Napster was a one-time opportunity. From the day Shawn [Fanning] started it in 1999 until 2001, there was no other service that mattered. For a short period there was a chance for the music conglomerates to join with Napster so it could be an industry-supported community for artists and fans, with terrific economics--economics that we presented in detail. They chose not to.

The most significant development since then has been the campaign by those same companies to threaten over 50,000 people--and they have sued over 20,000 for copyright infringement. It is a mass-plaintiff, boiler-room action against thousands of families who have little or no money. Most defendants settle, usually for all the money they have. What else can they do? Personally, I think it's an abuse of the justice system. Ray Beckerman, the Electronic Frontier Foundation, and other terrific lawyers have been opposing these actions.

This week we received news that Sony agreed to buy Bertelsmann's half of Sony BMG Music Entertainment. What is your advice to Sony and rest of the music industry?
I would just say congratulations. If you believe that music retains its cultural and social power and that there are economies of scale to making music available (and I do), then, at $900 million, Sony got a bargain. Sony recently bought Gracenote, and I think Sony sees recorded music and related services in the right context for its overall business going forward.

And, despite their protests, the major labels are doing just fine. According the RIAA's own statistics, the dollar value of U.S. recording shipments (including digital) was $5.2 billion in 1995 and over $10 billion in 2007. That's less than they would like, but not bad.

What do you think they're actually going to do?
They are going to find out whether and how scale matters in this new digital era.

Look, we know that the declining sales of physical CDs is part of a trend that affects newspapers, DVDs, books sold at retail, and many other media. The simple fact is that, given the choice, people like the convenience of digital media. We all have closets full of CDs, VHS tapes, books, and DVDs. It's just too much stuff. So we are all switching from physical to digital media for all these things. That's it, it's over.

So now what? Will the future be only about many small firms marketing music and other media directly, or will the costs of maintaining a large organization be justified by an ability to deliver revenue and margins?

Did Napster ruin the music industry?
No, Napster saved the music industry. It conclusively proved the power of digital distribution. It also showed that sharing and talking about music on the Internet could be the basis for huge communities. Hundreds of successful businesses, like iTunes, CDbaby, Tunecore, and Ioda are based on the instant availability of music. And it turns out, there is a worldwide community of music making and recording and talking about music that has been revealed by and helped by the internet.

Without Napster--and the 10,000,000 people who logged on every week--none of that would have happened.

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