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E-Business(Updated on Thursdays)


Like it or not, Napster and its kind are here to stay


Wednesday, February 14, 2001

With a U.S. court decision only hours away, Napster users scrambled over the weekend to swap as much music as their bandwidth would allow, fearing a reprise of last summer's court-ordered injunction to shut down the system. Although the appellate court did stop short of shutting the service down immediately, Monday's decision has made it virtually certain that Napster in its current form won't be alive for much longer.

It is also virtually certain, however, that a new form of Napster, or a strikingly similar service bearing a different name, will emerge in the coming months to provide music lovers with access to millions of songs for a relatively modest fee.

Pipe dream, you say? Hardly. The future of the Napster service was written long before the Ninth Circuit Court of Appeals penned its decision, in which it bought the recording industry's argument that Napster is committing both contributory and vicarious copyright infringement. It remanded the case to the trial court to reissue an injunction requiring the music-swapping service to comply with any notifications of copyright infringement submitted by copyright owners.

The future of Napster was decided even before Bertelsmann, one of the five major recording labels, invested in the company last fall, thereby destroying any pretense of a unified recording industry front against music swapping on-line.

In fact, the future of Napster was determined back in July by the same court when it agreed to stay a lower court decision that would have effectively ordered Napster closed down.

At that time, shutting down Napster would have effectively signalled the end of the company. Napster had an impressive 23 million registered users but little in the way of revenue or industry support.

In the seven months since that last-minute stay, the landscape has changed dramatically. The Bertelsmann investment made it clear that if the recording industry couldn't beat Napster, it would join it. The registered user base exploded to a mind-boggling 60 million subscribers. Most importantly, the outlines of a business plan that includes monthly subscriber fees and access to millions of consumer music preference profiles began to emerge.

With these developments in hand, if Napster shuts down under court order over the next few weeks, few believe it will really mark the end of the company. Rather, it will simply accelerate the move toward the fee-based, subscriber model.

The growth of the Napster community to a population more than twice the size of Canada makes the economics of such a service compelling. For a $5 (U.S.) monthly fee (or the equivalent of four CDs a year), users would be provided with access to one another's music catalogues, which is roughly the equivalent of access to every song anyone could ever want. While free alternatives such as Gnutella or Freenet abound, those systems have thus far been unable to cope with a user group as large as Napster's, providing music buffs with ample incentive to choose the convenience of a fee-based alternative.

For the music industry, the fee-based Napster would effectively become a giant on-line collective, raking in billions annually. Napster could simply transfer that revenue directly to the recording companies, artists and songwriters, providing a huge revenue source to go with offline sales of CDs and other income streams. At the same time, Napster would move into the data collection business, profiting from its access to the music catalogues and downloading preferences of the world's largest music community.

What stands in the way of this win-win scenario is not the law or concern over copyright. Rather, it is the reluctance of the recording industry to cede control over the digital downloading of music to Napster. In response to the perceived Napster threat, labels such as Universal and Time Warner are developing fee-based services featuring music from their own catalogues.

Since most consumers do not know or care which label carries their favourite recording artists, this approach is certain to fail. Consumers don't buy music by recording label. They buy by artist or by genre, because someone recommended an artist, or because they heard a song they liked on the radio. In other words, they buy music in the same manner that Napster provides music, which is why whether by law or by market forces, Napster or a Napster-like service is here to stay.
Michael Geist is a law professor at the University of Ottawa's law school and director of e-commerce law at Goodmans LLP. He can be reached by email at

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