The Free Juke Box

For the recording industry, Napster provided another chilling glimpse into the dark void of a postcopyright economy. After spending months hunting down pirates, working on SDMI (the Secure Digital Music Initiative) and investing millions in litigation, battling companies like MP3.com and Scour, the industry may have thought it had begun to stuff the digital genie back into its shrink-wrap. Despite the initial hype about MP3s, the format turned out to be downloadable music for geeks only. The rest of us couldn't be bothered spending hours wandering through dead-end links searching for a particular Phish bootleg. With Napster, however, all you have to do is type in the name of the song or artist and up will pop 2,745 Phish songs sorted by the host computer's type of modem connection and ping rate.

"Napster is the greatest example of aiding and abetting a theft that I have ever seen," says Ron Stone, manager of Bonnie Raitt and Tracy Chapman, among other artists. "Ninety-nine percent of their content is illegal." What really bothers Stone and the rest of the biz is the fact that 100% of their content is free--no money for the labels, artists or managers. "Napster is the nail in the coffin if you're in the business of selling digits on a disc," says music-industry consultant Jim Griffin.

It certainly looks fatal to the industry's current business model. Sure, free music has long been available to listeners: it's called radio, and a few people have made a few bucks from the medium. But the crucial difference comes down to a business-school concept known as option value. One of the reasons you are--or were--willing to pay $17 for a CD is that you can listen to it whenever you want, as many times as you want. With radio, you don't pay a cent but you don't have any choice of when your favorite song plays.

Napster destroys option value, letting you listen for free to whatever you want right now. That's one reason the RIAA filed suit last December, charging that Napster "is operating a haven for music piracy on an unprecedented scale." Yet no pirated files ever sit on the Napster server--Fanning considered legal liability when he wrote the software--so those charges may not stick. Meanwhile, college campuses, claiming that Napster is sucking up too much bandwidth, have begun blocking access to the site. Gnutella, which doesn't require a centralized server, will be harder to shut down. But even if there is a way to disable Gnutella, so what? "Every time a 42-year-old figures out how to lock something up," says Griffin, "a 14-year-old is going to figure out a new program."