Net Prophet: Napster's Message

SAN MATEO (05/01/2000) - The noise over MP3s and Napster Inc. just got cranked up a notch louder. High-profile bands such as Metallica are filing suit against Napster, alleging racketeering and piracy. Rapper Dr. Dre is threatening to sue and the attorney for Metallica is hinting that more artists are waiting in the wings.

But Napster's wild success indicates that the music industry has a severe customer service crisis. Customers aren't happy so they've created a new market, albeit an illegal one.

How often does someone buy a CD for one or two songs, getting stuck with another 10 that are, shall we say, less than compelling? It seems like many artists these days are coasting on one good song.

Artists find their copyrighted music available on Napster and see dollars that aren't reaching their pockets. This is problematic, because it assumes that everyone stealing music would -- in a perfect world -- be buying that music.

Forrester Research claims that $10 billion was lost to music piracy last year.

The entire music industry only generated $14 billion in 1999. I have a hard time believing that in that perfect world, where it's impossible to pirate songs, people would put another $10 billion more in the music industry's coffers.

I wonder if there would be a Napster and MP3 debate if you could go to Sony's Web site and buy the latest single from Jennifer Lopez or Cypress Hill and download it for 25 cents? Would the music industry have been better served developing quick and easy electronic cash systems, rather than the Secure Digital Music Initiative? If music files were of terrific quality and available on reliable and fast servers, would people pirate? With value-adds (for every 10 songs you buy online you get a T-shirt), would anyone bother to pirate? And I wonder if at the end of the day the music business would find itself with 10 times the customers for any piece of music.

Radical price restructuring is not something the music industry wants to do.

Some artists have hit the jackpot. Music stores and Wal-Mart only have so much shelf space. The artists who manage to get on those shelves make a fortune.

They have the most to lose by an upheaval in the industry.

But industry upheaval happens. The automobile was brutal to the horse-and-buggy industry. New technologies are introduced that change the dynamics of the game.

Some will win, and some will lose.

The software industry struggles with the same piracy issues. Microsoft's main competition for Windows is pirated Windows. And the software industry makes lots of money.

But software has a value-add to the basic product: the documentation and the technical support and warranties.

The Napster question essentially asks, "What value does the music industry provide?" The music industry's best consumers (college students) are the most fervid users of Napster. They're saying every day they don't perceive enough value for their money.

The Recording Industry Association of America wants to educate consumers with the message, "Artists deserve to be compensated -- artists won't make music if they can't make money." I can only imagine the public service announcements with multimillionaire artists pleading for their right to a seventh Porsche in the driveway.

There's no rationalization for piracy; it is what it is. However, rampant music piracy online indicates that the music industry's distribution and pricing model is out of whack with what people want. The problem isn't the piracy; the problem is unhappy customers.

And the music industry had better do something about it. This is a dinosaur moment -- with the big rock looming overhead -- where the music industry needs to ask itself how it will adapt.

Because, to protect copyright with technology, the music industry needs to make it impossible to copy files. But the Internet is built on copying files. It is the most fundamental characteristic of computer systems and the Internet. To protect copyright with technology, the music industry needs to create a system that swims against the entire tide of computer technology. And that's an endeavor doomed to failure.

Send e-mail to Dugan is a senior research editor.

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More about DrivewayForrester ResearchMicrosoftNapsterRecording Industry Association of AmericaSecure Digital Music InitiativeSonyWal-Mart

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