11 Napster: The Black Market that Publicly Dominated the Music Industry

By Elliott Obermaier

Compared to most black markets, illegally downloading and trading music online is unusual. It is widely used, does not produce grotesque, shocking stories, and revolves solely around money, computers, and copyright laws. In short, illegally distributing music online is an almost public affair. Though the growth of servers such as Apple Music, Spotify, and Tidal has shrunk the market today, during the late 1990’s and early 2000’s, illegal music trade was universal and constantly in the public hands. Unlike many other black markets, illicit music streaming was simply a part of the normal internet, accessible to anyone with a search engine and wi-fi. This accessibility made the market for online music trading difficult to track and analyze. The variety and amount of people, sources, and components reached a wide degree ranging from college teenagers to Metallica to the Ninth Circuit Court of Appeals. [i] The age of music streaming that dominates the world today comes from this extensive illicit market and the startup company that created the market itself: Napster.

Before social media revolutionized the age of connection and personal internet presence, Shawn Flanning saw the web as an ideal place to share ideas. As opposed to today’s social media platforms, Flanning wanted to center this sharing space around a singular theme: musical MP3 files. In order to understand the development of Flanning’s goals, one must first learn the details of an MP3 file. In 1992, Karlheinz Brandenburg developed a means to compress musical files into a size small enough to be transferred electronically rather than by conventional means (CD’s, Cassettes, LP’s). [ii] While this was a revolutionary technology, it did not take off quickly as few accessible music files existed on the internet. Here, Flanning comes into the picture. Flanning wanted a website that could, “included a search engine, file sharing (the ability to trade MP3 files directly, without having to use a centralized server for  (the ability to trade MP3 files directly, without having to use a centralized server for storage), and an Internet Relay Chat (IRC)” [i]. So he created one. After several months of coding, Flanning developed a site that provided easy access to MP3 files as well as a means to trade them with other users. [i] Figure 1 demonstrates how easy the platform was to operate [iii]. By June of 1999, Flanning’s creation, coined Napster, was born.

Figure 1. [iii] Operating the Napster Platform

Immediately, Napster saw users flood in due to easy access and its non-profit status. As a peer-to-peer website, users could easily share MP3’s with one another, but more importantly, users could download the MP3’s straight to their computer through Napster’s services. [iv] Impressive as the company was, Napster created a black-market. If the company’s website was just a platform where users shared music tastes and legally bought music, nothing would have been problematic. Instead, the ability to download music exposed Napster’s fatal flaw. They had not received any copyrights to music already owned by record labels. [iv] Napster became a way for users to skip buying music. Royalties did not exist within Napster as neither artists nor record labels profited. Rather than go to the record store and buy a Nirvana album with several songs they didn’t like; people now downloaded only their favorite songs straight to their computer via Napster. This provided the foundation for a worldwide black market that traded MP3’s. Without the legal rights to songs, bands, and records, Napster severely damaged music sales. In 2000 alone, total recording sales decreased by 33%. [v] The black-market Napster created was active and damaging record labels and artists.

Napster’s danger to the music industry was fueled by its popularity. By the end of 2000, it had an estimate of 75 million users, proving how impactful it could be. [v] But what made it grow so quickly and what made it so appealing? One way to answer the question is to analyzing Napster’s spread with Malcolm Gladwell’s Tipping Point factors, [vi] including the stickiness factor and connectors, the people who helped shared Napster. Gladwell’s best-selling novel, Tipping Point, analyzes how ideas gain popularity and remain relevant in society. His work outlines social phenoms similar to Napster and provides a comprehensive way to analyze Napster’s growth.

Gladwell uses the ideas of Connector’s (people who spread ideas with their large networks), Mavens (knowledgeable sources who promote the good makeup of the idea), and Salesmen (simply those who pitch the phenom to a wide scope of influential people) to explain his methods. All three played roles in the spread of the Napster. [vi] However, the wide scope of the company’s users played a massive role in its growth as well. The nature of Napster’s function gave it an inherent focus on connection. Users spread the music they loved by trading MP3’s then downloading them. The more a certain song got downloaded and advertised to others, the more it was heard by a large variety of users. The site’s social aspect enabled songs to be exchanged with the click of a mouse. Similarly, the Salesmen of the equation were the users of Napster too. [vi] Those who were incredibly passionate about a genre of music promoted that genre’s MP3’s on Napster’s websites. Often, Napster’s users were not just the everyday music listener. Startup artists found Napster to be the ideal platform to promote their music, as it was a phenomenal way to broadcast files if they were not yet signed to a record label. Even established artists supported the simplicity of spreading music through Napster. Grateful Dead lyricist John Perry Barlow encouraged spreading music on a free market, expressing how music should not be controlled by industry rules. To him and many others, listeners should dictate music’s popularity and spread. [ix] The example of Barlow shows that Napster received promotion and approval of influential salesmen, a critical need in Tipping Point. [vi] Mavens are harder to define in the Napster phenomenon. [vi] What information holds the most value in this market? Is it an intense knowledge of musical trends? If so, then artists and record labels would play the role. Conversely, was the information simply Shawn Fanning’s computer skills that coded an ingenious site? If true, then he and several partners held the key to Napster’s development and impressive spread. While no human factor can be truly labeled as a Maven, Napster’s extensive catalog and the large number of users ensured that an abundance of musical knowledge was supplied. Either way, the simple truth of the scenario is that Napster contained all of Gladwell’s factors that ultimately lead to its evolution as a worldwide black- market.

Three main components of Napster’s makeup factor into its ability to stick. [vi] Most noticeably, it was a free exchange site. The only money involved rested upon the royalties lost by artists and record labels. No money circulated within Napster’s user platform. Secondly, using the internet as a distribution platform allowed for a huge network of people to access Napster’s services. Napster’s illicit users could reach literally anyone by accessing a computer and downloading MP3’s from Napster. Finally, Napster was incredibly simple and user-friendly, consisting only of a search bar, chat room, and storage for MP3’s. Easy transactions on a universal site where any music fan could share and listen was a dream come true. [vii] Moreover, Napster had no security measures when downloading MP3’s, creating an incredibly fast downloading process. [viii] No fees, uncomplicated transactions and a limitless user platform were the roots of an incredible free market, all which had blossomed after the April of 1999 launch. Napster stuck.

Furthermore, an increased use of the internet allowed more people to obtain Napster’s and other illegal sites’ services. This rise of in-home internet use perfectly coincided with Napster’s creation. As shown in Figure 2, more people had access to the internet, exposing themselves to Napster’s newly created black-market.

Internet Adoption by Age Group: Figure 2 [iii]

Napster’s growth was not only noticed by those with a computer who enjoyed listening to music. The music industry itself quickly identified Napster as an illegal institution that hurt sales for both labels and artists. The Recording Industry Association of America, (RIAA) who represented major music companies, were the first to publicly attack Napster’s business model. [x], [xi] The association claimed that Napster’s illegal streaming, downloading, and trade without paying royalties caused a decrease in record sales. RIAA claimed Napster was guilty of illegal copyright infringement. [xi] By December of 1999, only months after Napster’s inception, RIAA sued Napster for copyright infringement. [xii] It claimed that Napster’s sharing process directly reduced record sales and a clearly exhibited intellectual property theft. RIAA said Napster had “repeated and exploitative” means of distribution, therefore damaging the company and artists alike. [xiii] ”It’s time for Napster to stand down and build their business the old-fashioned way; they must get permission first,” proclaimed Hilary Rosen, former president of the RIAA. [xiv] Despite the seemingly obvious nature of Napster’s wrongdoing, Napster officials decided to appeal the charges, taking the case to the Ninth Circuit Court of Appeals. At the time of the claims, Napster was reported to have over 58 million users and were adding 300,000 by the day. [xiv] The sheer number of users terrified the recording industry which deemed Napster too impactful to be easily overlooked. Unlike other services, Napster was too big to integrate easily into record labels. It was a separate technology and independent company unknown to the music industry.  The RIAA saw no easy way to control Napster.

Ultimately, the Court of Appeals ruled that Napster was indeed guilty of copyright infringement, posed danger to record label sales, and severely reduced the royalties received by artists. [xv] Over 87% of the MP3’s shared on Napster had already been copyrighted by record labels, clearly eliciting that the platform was not primarily functioning as exposure for new, unsigned artists. [iv] Napster was obviously an illegal distribution site, just like any other black-market. The court ruled that Napster had to cease the trade of MP3’s already copyrighted by plaintiffs. The ruling required Napster to immediately begin eliminating previously downloaded files from its server. [xv] Napster argued that the Audio Home Recording Act–a law that enabled legal release of digital recordings– [xvi] allowed for the trade of the files. However, the court determined that the act did not cover MP3’s and therefore did not protect Napster. After several other lawsuits–notably one with Metallica in May of 2000–Napster shut down in 2001. [xii] It could not sustain itself without the illegal trade of music. The court mandated Napster shut down the accounts of servers who still uploaded and shared these copyrighted files, effectively ending all trade.

Although Napster as a streaming service effectively died, its impact on music is infamous. The black-market it created only expanded until the creation of iTunes in 2003. By then, Napster was not the only internet site for illegal music trade. It was merely the most public and most common. Other sites such as Limewire and Kazaa used the same business and technological model and technology as Napster, proving the black market had expanded. [xvii]

Apple iTunes’ model for an online music network was based on Napster. The MP3 sharing format was the same and quite simply, brilliant. “It was very exciting to finally have access to something close to a celestial jukebox—all music, instantly,” said Brian Hiatt of Rolling Stone Magazine. [xviii] Napster synchronized the internet’s growth with an expansive music and social network. If it had obtained the copyrights to the music it purveyed, it could quite possibly be the music industry giant that preceded Apple Music, Spotify, and Tidal. Napster provided a service, filled a need, and was cost effective. As a black market that was both publicly spread and publicly prosecuted, Napster revolutionized music unintentionally and illegally. It took off in perfect sync with the Information Revolution of the late 90’s and early 2000’s, all but ensuring that it would reach the computers of millions. [ix] Still, Napster’s expansion is a clear example of black-market failure because of its public nature.

When an illegal service is that publicly used, lawmakers and licit industry members will take notice. Ironically, Napster was bound to fail because it was an incredible idea and unlike many black markets, not overtly immoral. Something as technologically impressive and socially innovative as Napster would not and did not stay silent. It ultimately grew beyond the control of an underground technology company. Still, if Napster obtained the legal copyrights to the MP3 files its service shared, it quite likely would be the platform used to listen to music today. A black-market service provided the technological foundation for the iTunes launch in 2003, subsequently changing the way most people around the world exchange and listened to music.

[i] Law Library-American Law and Legal Information. (2001). Napster and Intellectual Property. Law Library-American Law and Legal Information.

[ii] Ganz, Jacob, and Rose, Joel. (Mar 2011). The MP3: A History of Innovation and Betrayal. National Public Radio.

[iii] Boorstein, Eric S. (2004). Music Sales in the Age of File Sharing. Princeton University Department of Economics.

[iv] Mota, Sue Ann. (2001). Napster: Facilitation of Sharing, or Contributory and Vicarious Copyright Infringement?. The Minnesota Journal of Law, Science, & Technology. University of Minnesota Library Publishing.

[v] Hong, Seung-Hyun. (Jan 2004). The Effect of Napster on Recorded Music Sales: Evidence from the Consumer Expenditure Study. Stanford Institute for Economic Policy Research. Stanford University.

[vi] Gladwell, Malcolm. (2002). The Tipping Point: How Little Things Can Make A Big Difference. Boston: Bay Back Books.

[vii] Bergmann, Frank. (Jul 2004). Napster & The Music Industry. ESADE Business School at Barcelona.

[viii] Francis, Abbey. (Aug 2011). Case Study: Business Model of Napster. MBA Knowledge Base.

[ix] Kıranoğlu, Gülbin. (2016). Copyright and the Internet: The case of Napster. Journal of Human Sciences. Volume: 13. Issue: 2.

[x] Recording Industry Association of America. (2019). About RIAA. Recording Industry Association of America.

[xi] Blackowicz, Jeremy U. (2001). RIAA V. NAPSTER: Defining Copyright for the 21st Century. Boston University.

[xii] The Associated Press. (Feb 2001). Timeline of Events in Napster Case. The Associated Press.

[xiii] Washington University in St. Louis. (Aug 2013). Case Study: A&M Records, Inc. v. Napster, Inc. Washington University in St. Louis School of Law.

[xiv] Richtel, Matt. (Feb 2001). The Napster Decision: The Overview; Appellate Judges Back Limitations on Copying Music. The New York Times.

[xv] A&M RECORDS, INC. v. Napster, Inc. 239 F. 3d 1004. (2001). United States Court of Appeals, 9th Circuit.

[xvi] U.S. Copyright Office. Chapter 101: Digital Audio Recording Devices and Media. United   States Copyright Office.

[xvii] McIntyre, Hugh. (Mar 2018). The Piracy Sites That Nearly Destroyed The Music Industry: What Happened to Napster. Forbes.

[xviii] Suskind, Alex. (Jul 2017). 15 Years After Napster: How the Music Service Changed the    Industry. The Daily Beast.