Commentary: Roxio, Napster, and Why the Music Industry Just Doesn’t Get It
Posted Feb 1, 2003

Roxio's recent $5 million purchase of the remnants of Napster caused more than a few music and technology pundits to scratch their heads. The marriage of peer-to-peer filesharing, music downloading, and CD burning might have seemed a match made in heaven back in 2000, but now you can't help wondering— what's the point? After all, Napster's been out of commission for more than a year, and its physical assets recently hit the auction block (literally; computer parts, laptops, and Napster-logo items went up for sale in San Francisco in December). Music enthusiasts have moved on to other peer-to-peer networks like KaZaA to acquire their ill-gotten booty. Just what does Roxio get out of the deal?

For the record, at least, Roxio's not talking, beyond a prepared statement it issued when it first announced the transaction, which was approved in November by the California bankruptcy court overseeing Napster's status. "We feel that Napster has value that is synergistic with Roxio's current digital media offerings and long-term vision for the future of digital media entertainment," the statement reads, adding that Roxio acquired all of Napster's assets—including several technology patents—and none of its liabilities, including defending the once-dominant filesharing service from litigation against the record labels. "Following the close of the transaction, we will provide consumers and investors a strategic vision of how Napster will expand Roxio's role in the digital media landscape and enhance our offerings to consumers." Not exactly enlightening, but then again, it's not exactly surprising that Roxio is keeping mum about its plans, since Bertelsmann—parent company of record company BMG—was evidently unable to forge a new pay-for-play service after it cut a deal with Napster in 2000.

So now the future of Napster lies in the hands of Roxio, which took its first step toward a still-undefined downloading/burning service when it entered into a partnership with EMI Recorded Music in 2001. At the time, Roxio and EMI promised to "commercialize consumer CD recording" by allowing users to burn licensed EMI recordings with its Easy CD Creator software. Roxio now provides the CD burning technology for Pressplay—a service that offers streaming and limited copying of songs from the Sony, Universal, and EMI catalogs in a proprietary format—and MusicNet, which offers the same services with the Universal, BMG, and AOL/Time Warner Music Group catalogs. But that's still a far cry from the "heavenly jukebox" idea that appealed to Napster's users, which numbered 26 million at the service's peak popularity in early 2000, before the record label lawsuits forced it to shut down in June of that year. And while Pressplay and MusicNet, as well as similar services like Rhapsody and Liquid Audio, are picking up steam, none of them offers the sort of song selection that Napster did. In the meantime, other peer-to-peer networks like KaZaA and LimeWire have stepped into the void, and users accustomed to free, unfettered downloading and burning have migrated to those services rather than to the subscription models. According to one study, KaZaA boasts about 3.5 million users at any given time, while the pay-to-play services have managed to muster only about 500,000 combined users.

"Free music for download is still so prevalent that the migration to paid services will be a very slow one," says Jupiter Research analyst Lee Black. "Even though the free services are full of headaches, like unpredictable file integrity and download speeds, users tolerate those problems because it's free. There's some merit in the argument that the Napster name is worth something, but that name was associated with something free."

No matter what they're called, veteran music critic and industry observer Dave Marsh says the industry-sponsored music services are fraught with problems that make their success improbable, if not impossible. One problem, he says, is image: "The labels are perceived as having destroyed the Napster network, which is quite accurate, and to have done it out of stubborn selfishness and through being backwards to a primitive extreme about the potential of new technologies." And this perception, he says, is "not entirely inaccurate." The second issue, he says, is that "there is a fundamental problem with access. It is one thing to go to one dealership for Ford, another for GM, a third for Toyota. But to do that for Columbia, Universal, and WEA? It's stupid."

And while people might be willing to put up with MP3's inferior sound quality for free, Marsh says that fans have shown they're not willing to settle on it for a price. "Plus, the marketing leaves literally everything to be desired," he says. "You aren't getting graphics, liner notes, DVD attachments, none of the stuff you get from a CD. So, essentially, you are paying for nothing more, certainly nothing better, than you get in (peer-to-peer) swap."

The marketing of the services themselves is, thus far, "laughable," Marsh says. "When's the last time you heard a radio or saw a TV commercial for MusicNet or Pressplay? When's the last time you saw a magazine or newspaper ad for one? Got an email about it? Who knows these services are out there?" he says. "I wouldn't if I relied on any of the above."

So does that mean music fans think they deserve all the music they want without having to compensate the artists who make it? The answer to that question might be different had the music industry not made such monumental PR gaffes in its response to Napster's popularity, culminating in National Academy of Recording Arts and Sciences president Michael Greene's embarrassing, vicious tirade against downloaders on the 2002 Grammy telecast. NARAS had hired three college students to download music for three days to demonstrate how downloading was killing the music industry. Greene claimed that the students were able to download 6,000 songs in that time—a number that defied the rules of both bandwidth and sleep deprivation—and that such downloads prevented artists from getting paid for their work.

(The RIAA's claims that piracy is killing music sales are the product of similarly fuzzy math. While music sales dropped 4.1% in 2001, the number of new releases dropped by almost 25%, and the labels invested less in music than in any year since 1997. So demand for music, in relation to market offerings, has stayed relatively strong in a weak economy.)

Greene might have been more convincing if it weren't for the fact that by now even casual music fans believe that it's not downloading but the record labels that prevent artists from getting paid for their work with unfair contracts and shady accounting practices, practices exposed in California state senate hearings last fall. After three hearings, California state senator Kevin Murray wrote that artists feel they're working in "an indentured servitude system designed to keep them perpetually indebted to the companies who also own the product of their labor."

Consumers feel, rightly or wrongly, that by the time they get their hands on the music, they're not paying the artists but rather the record labels, and that the musicians won't see much—if any—of the $17.98 they're asked to plunk down at the cash register. It's not that they think they've got a right to free music; it's that they think the music industry is so corrupt that they're in fact taking the side of the artists when they snag the music they want for free. "The word is out that none of the money is going to go to the artists," Marsh says. "Who wants to make (Universal Music Group CEO) Doug Morris rich? We mightn't mind Ashanti or even Korn, but Doug and (Sony Music executive) Tommy Mottola?"

If you really push music fans on the issue, I'd bet that most would say they'd be happy to pay reasonable prices to legally own the music they love, as long as they can play it any time and any place they want to. But the music industry—and we may soon have to include Roxio and other recording software companies in that mix—insists that it, and not the artists or the fans, owns the music and that listeners can only license it for limited use via proprietary technology. Fans don't want to have to pay a separate fee for each copy of a song—one for the car, one for the dorm room, and on and on—and it's unlikely that Roxio or anybody else will be able to figure out a licensing deal that gives the people what they want.

"Phil Spector and three drunken chimpanzees could conjure a better plan than any of these," Marsh says, "and have time left on their hands while they waited for the sun to come back up."

—Eric Schumacher-Rasmussen