The Free Juke Box

By Karl Taro Greenfeld

The Internet is great not only for distributing homemade digital entertainment. It's also increasingly being used for swapping and swiping products, especially music, made by major artists and studios. By now, the long-running legal battle between the Record Industry Association of America (RIAA)--representing the traditional recording industry--and the millions of college kids downloading free jams over the Net has begun to resemble those chewing-gum commercials where fusty geezers shake their canes at crazy kids and their "flavor crystals." The latest twist in this saga of college kids ignoring their elders, not to mention copyright law, is the emergence of file-sharing software that makes it easy to swap with fellow pirateers music stored on computer hard drives--generically known as MP3 files.

Napster, the most popular of these software clients, has been downloaded more than 5 million times, causing its parent company's CEO, Eileen Richardson, to boast, "We're the fastest-growing company in the history of the Web." Gnutella, an open-source variant of Napster created by ex-hacker and current AOL employee Justin Frankel, 21, caused a buzz last week when AOL scurried to pull the software, calling it "an unauthorized free-lance project." AOL is planning to merge with Time Warner, a major player in the music industry. But by the time AOL yanked Gnutella, enough copies had been downloaded to ensure that it would soon be reproducing virally through the Web.

It's fitting that college campuses are the breeding ground for these infectiously growing programs. Founder Shawn Fanning, 19, wrote the original code for Napster while he was a freshman computer-science major at Boston's Northeastern University. An admittedly lousy guitar player, Fanning began writing the code so he could distribute his own six-string doodlings and squelch his roomie's constant whining about unreliable MP3 search engines. Back in the MP3 stone age--you know, eight months ago--too many links to too many tunes were outdated or invalid, frustrating many a prospective pirate.

Fanning's software, released last August, included the features that made Napster a millennial college trend: live chat and MP3 indexing combined with fast, clean file sharing that bypasses your computer's sluggish send-mail program. It wasn't revolutionary so much as ingenious, linking existing concepts rather than breaking new programming ground. The day Fanning put the software online via a server at his uncle's office, he knew he had a huge hit: "As soon as we were up we were getting blasted with traffic." The company claims its user base growth rate has been between 5% and 25% a day.

For the recording industry, Napster provided another chilling glimpse into the dark void of a postcopyright economy. After spending months hunting down pirates, working on SDMI (the Secure Digital Music Initiative) and investing millions in litigation, battling companies like MP3.com and Scour, the industry may have thought it had begun to stuff the digital genie back into its shrink-wrap. Despite the initial hype about MP3s, the format turned out to be downloadable music for geeks only. The rest of us couldn't be bothered spending hours wandering through dead-end links searching for a particular Phish bootleg. With Napster, however, all you have to do is type in the name of the song or artist and up will pop 2,745 Phish songs sorted by the host computer's type of modem connection and ping rate.

"Napster is the greatest example of aiding and abetting a theft that I have ever seen," says Ron Stone, manager of Bonnie Raitt and Tracy Chapman, among other artists. "Ninety-nine percent of their content is illegal." What really bothers Stone and the rest of the biz is the fact that 100% of their content is free--no money for the labels, artists or managers. "Napster is the nail in the coffin if you're in the business of selling digits on a disc," says music-industry consultant Jim Griffin.

It certainly looks fatal to the industry's current business model. Sure, free music has long been available to listeners: it's called radio, and a few people have made a few bucks from the medium. But the crucial difference comes down to a business-school concept known as option value. One of the reasons you are--or were--willing to pay $17 for a CD is that you can listen to it whenever you want, as many times as you want. With radio, you don't pay a cent but you don't have any choice of when your favorite song plays.

Napster destroys option value, letting you listen for free to whatever you want right now. That's one reason the RIAA filed suit last December, charging that Napster "is operating a haven for music piracy on an unprecedented scale." Yet no pirated files ever sit on the Napster server--Fanning considered legal liability when he wrote the software--so those charges may not stick. Meanwhile, college campuses, claiming that Napster is sucking up too much bandwidth, have begun blocking access to the site. Gnutella, which doesn't require a centralized server, will be harder to shut down. But even if there is a way to disable Gnutella, so what? "Every time a 42-year-old figures out how to lock something up," says Griffin, "a 14-year-old is going to figure out a new program."