Industrial Evolution

The record industry crippled Napster with litigation. But has it made things worse for itself?

Oppenheim says that just because the companies built their programs so that they can't easily detect and stop piracy, they and their users don't get a free ride.

"Sure they get more sophisticated," Oppenheim says. "Does that mean it's theft to any lesser extent? No. Theft is theft. The issue is not whether they're responsible for what they're doing. The issue is whether we're going to be able to figure out what they're doing and pursue them."

Webnoize director of research Lee Black says the new companies face "a sort of double-edged sword" by building their technology the way they have. "Because of the architecture they've set up, they're proving themselves guilty of trying to circumvent the law," Black says. "I think it comes down to the legal interpretation of knowledge and control. There is knowledge that [piracy] can be done. But whether they have control of it is another thing. [The programs do] have legitimate uses, and they can't control how people use it. You need a judge to do a ruling."

Mark Poutenis

That will take awhile. The suits against Aimster are still in procedural mode and months from anything substantive. The Los Angeles federal court case against Music City and Consumer Empowerment was just filed a month ago and is even further from a decision.

Is the record business worried about these networks? Certainly it should be. The RIAA's own figures show that CD sales dropped in 2000, only the second decline in a decade. And sales in the first half of 2001 dropped again, particularly among the under-30s who have long been music's biggest buyers. The presumption, of course, is that those tech-savvy fans are busily downloading all the music they want from Napster and its successors on high-speed networks at colleges and workplaces, which make swapping music much easier than actually going out and buying it.

But that's not all the story, of course. A rotten economy has hurt the entertainment business across the board, and as the baby boomers who make up such an outsized proportion of the population age, they aren't buying as much music as they once did. And analysts point out that selling CDs is now a mature, 20-year-old business. Most people have largely bought the CD versions of old favorites they once had on vinyl, flattening what has been a huge revenue source for the labels.

The Big Five are rolling out their own online music services, though analysts give them little chance of early success, given their limitations. MusicNet users can download songs but can't transfer the files to other devices like handheld MP3 players and even other computers, while pressplay, a streaming service, won't even give subscribers a file to keep. Neither will have music from all five of the big record companies. And neither will be free.

"I wrote when the Napster decision came down that the labels had a very narrow window of opportunity, that consumers could have been retargeted by a legitimate service if it was launched in a timely fashion, even as a placeholder," says Forrester's Scheirer. "But what we have seen is that the window has largely elapsed."

Even record business executives acknowledge they're feeling their way through the challenges of the online business in haphazard fashion. And some, when they're feeling candid, acknowledge there's only so much the industry can do to stop the free competition, especially when their for-pay alternatives are so weak.

"Napster is dead, but consumers will always be able to get music online for free," says Dave Goldberg, the blunt-spoken CEO of Launch, the Santa Monica music site recently bought by Yahoo!. "Overwhelmingly, they listen to music and things they can't get elsewhere. Subscription services will only succeed when they do what customers want, not what record companies want."

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