Business & Finance
Commentary
8/10/2007
12:36 PM
Cory Doctorow
Cory Doctorow
Commentary
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Why Is Hollywood Making A Sequel To The Napster Wars?

Shutting down Napster was a huge blunder for the record companies, leading to the collapse of the entire industry. Now, movies and TV studios are looking to repeat the failure by going after YouTube, says columnist Cory Doctorow.

Hollywood loves sequels -- they're a safe bet if the franchise is already successful. But you'd have to be nuts to shoot a sequel to a disastrous flop.

The Napster debacle was the entertainment industry's biggest-ever flop. That disaster took place six years ago, when the record industry succeeded in shutting down the pioneering file-sharing service. Record companies show no signs of recovery.

The disastrous thing about Napster wasn't that it it existed, but rather that the record industry managed to kill it.

Napster had an industry-friendly business-model: raise venture capital, start charging for access to the service, and then pay billions of dollars to the record companies in exchange for licenses to their works. Yes, Napster kicked this plan off without getting permission from the record companies, but that's not so unusual. The record companies followed the same business plan a hundred years ago, when they started recording sheet music without permission, raising capital and garnering profits, and then working out a deal to pay the composers for the works they'd built their fortunes on.

Napster's plan was plausible. They had the fastest-adopted technology in the history of the world, garnering 52,000,000 users in 18 months -- more than had voted for either candidate in the preceding U.S. presidential election! -- and discovering, via surveys, that a sizable portion would happily pay between $10 and $15 a month for the service. What's more, Napster's architecture included a gatekeeper that could be used to lock out nonpaying users.

The record industry refused to deal. Instead, it sued, bringing Napster to its knees. Bertelsmann bought Napster out of the ensuing bankruptcy. Later, Universal followed the same patttern when it killed MP3.com in the courts, then brought home the corpse on the cheap, running it as an internal project.

After that, the record companies had a field day: practically every venture-funded P2P company went down, and the record companies made millions of dollars.

But the record companies weren't ready to replace these services with equally compelling alternatives. Instead, they fielded inferior replacements like PressPlay, with limited catalog, high prices, and anti-copying technology (digital rights management, or DRM) that alienated users by the millions by treating them like crooks instead of customers. These half-baked ventures did untold damage to the record companies and their parent firms.

Just look at Sony: It should have been at the top of the heap. It produces some of the world's finest, best-designed electronics. It owns one of the largest record labels in the world. The synergy should have been incredible.

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