The Evolution and Revolution of Napster

Abstract:     
As the twentieth century drew to a close, the record companies were scrambling in desperation, attempting to shut down a tiny company named Napster. Employing Peer-to-Peer architecture, Napster had created a simple file-sharing program that allowed people to search each other's computer hard drives for songs and transfer the songs to their own hard drives for free. In its first year of operation, Napster became the fastest growing Internet site in history, reaching more than 20 million people.

The record companies screamed "piracy," claiming that Napster interfered with their copyrights. Although it was not necessarily in their best interests, the record companies - dependent on an antiquated business model - were intent on shutting Napster down. Indeed, Napster lost to the record companies in the Ninth Circuit and soon became defunct. But the record companies' victory was a Pyrrhic one. The genie had been released from the bottle, and the music business would never be the same.

Although this essay was published in 2002, this essay is of historical significance. It provides important context to the fast-moving issues of Internet downloading today. The essay also narrates Napster's litigation history and describes the old music business distribution model of manufacturing albums, packaging albums, placing the albums on pallets and delivering the albums to music stores. At the time that Napster turned the music business upside down, the music companies' primary objective was to control the promotion and distribution of its music, regardless of whether it was really in their best economic interests.

This essay suggested a "compulsory license" model as a resolution that would have satisfied the record companies' fear of copyright exploitation and still allowed innovation. But since the record companies were fundamentally opposed to any resolution that would have diminished their control, they convinced the Congress not to adopt the compulsory license proposal.

Keywords: Napster, Peer-to-Peer architecture, compulsory license

JEL Classifications: K39

Accepted Paper Series