Napster proved that giving away music over
the Internet is a breeze. But major record labels still aren't
willing to sell their top hits online, and dot-coms hoping to cash
in on music downloads have business models fraught with
Napster's loss in appellate court this week means the end is
near for its free-music giveaways, which rose to nearly 3 billion
songs in January alone, according to Webnoize, a research firm that
tracked the downloads.
The decision by the 9th U.S. Circuit Court of Appeals
"represents a clear victory for the creative content community and
the legitimate online marketplace," said Hilary Rosen, CEO of the
Recording Industry Association of America.
But delivering songs over the Internet won't be a sure
moneymaker until major record labels reach a consensus on new ways
to sell distribution rights for popular music. "And without
Napster keeping a pitchfork at their backside, they're probably
less motivated than before," said Phil Leigh, an analyst with
Raymond James & Associates.
One of every 10 U.S. home computer users have tried out Napster
for themselves, tapping into seemingly limitless directories of
popular music available for free, according to Jupiter Media
Closing down this free-for-all won't immediately turn all those
Napster users into paying customers for EMusic.com, which bills
itself as "the premier source for legitimate MP3s," and pays
artists a cut of the 99 cents it charges for each song download.
One reason is that the major record labels BMG, Warner, EMI,
Sony and Universal have refused to sell song rights to EMusic, so
less than 10 percent of popular music can be found on the site.
"The Big Five have the keys to the gate and to the kingdom.
They control all of this," said P.J. McNealy, who follows online
music for the Gartner Group.
Napster has shown the value in aggregating content from all
major labels. What is needed is the online equivalent of a vast
record store, where all sorts of music can be found, said McNealy.
"Consumers don't know music by label," McNealy said. "If you
want the new Britney Spears song do you go to Sony dot-com or EMI
Instead, Leigh and other analysts think the future lies in a
universal licensing scheme that would allow online music
aggregators to somehow compensate copyright holders.
One prominent Napster user is U.S. Sen. Orrin Hatch of Utah,
himself a musician who posts his own gospel tunes on the service.
Hatch plans Senate hearings on this issue.
Hatch warned that the appellate ruling, which favored an
injunction ordering Napster to remove all copyright material, "may
prove to be pyrrhic or short-sighted from a policy perspective,"
since millions of MP3 fans will find other free sources for their
Napster, meanwhile, hopes its alliance with German media giant
Bertelsmann AG, which owns the BMG label, will help it turn loyal
Napster users into paying subscribers later this year.
The Redwood City, Calif.-based company announced Friday that a
Bertelsmann subsidiary had developed the technological framework
but no working prototype yet for a system that would prevent
Napster users from pirating music by copying shared MP3 files onto
"The real questions about Napster's future are economic, not
technical or legal," Napster CEO Hank Barry said in a statement
lauding the development. He called the move "further evidence of
the seriousness of our effort to reach an agreement with the record
companies that will keep Napster running, reliable and enjoyable."
Other players also are pursuing licensing deals with record
After spending between $150 million and $200 million the exact
amount has never been disclosed settling copyright infringement
suits, MP3.com now has permission to run MyMP3.com, which allows
subscribers to keep digital copies of CDs they already own, and
listen to them over any Web-enabled device.
"I think people said `It's the end of free music' and that's
not the case at all," Michael Robertson, chief executive of
MP3.com, said in an interview this week. "It's the end of all
music for free. I believe that's true."
But click MP3.com's "Top 40" button. You'll see that Emily
Richards' song "To Love You" reigns supreme and is ready for
downloading for paying customers.
Ever heard of Emily Richards? Neither has the Billboard's top 40
But it's not just BMG, Warner, EMI, Sony and Universal that are
wary of selling online rights to their top hits. Each CD can
include songs copyrighted by a variety of other smaller music
publishers, all of which require their own online licensing deals.
The painstaking work of pursuing agreements with multiple
publishers for every album will stunt the growth of digital music
until Congress steps in with compulsory licensing legislation,
For now, online music companies offer only a smattering of
promotional material from top artists, and in ways that don't
require them to relinquish control. MP3.com partnered with Warner
Music Group to stream Madonna's hit single "Music" for free, but
not in a way that would allow music fans to download and share the
"The protagonists in this case see value in this. What they
just don't like is seeing their profits being given away," said
Clay Ryder, a senior analyst for Zona Research.
There's simply too much money at stake to risk giving away
profits by placing Madonna's songs alongside Richards' to be zipped
to millions of personal computers and music players.
Officials with Sony, BMG, EMI and Universal would not comment on
the issue this week despite repeated telephone inquiries.
The recording industry sold 420 million full-length CDs in the
first half of last year, a 6 percent increase over the first half
of 1999. Evidence, Napster supporters say, that the free trading of
MP3 files actually improved the market for legitimate CD sales.
Record labels claim they've lost hundreds of millions of dollars
in profits since computer programmer Shawn Fanning unleashed the
Napster software in May 1999 and they're ill-disposed to make deals
with dot-coms, Leigh said.
"EMusic they're great people, but they're not in the
fraternity," he said. "I think the labels will attempt to do it
themselves. But they won't have as much motivation as they would
have with Napster being a constant force, indoctrinating consumers
to the possibilities."