People love scapegoats. A target for blame makes for an easy explanation of unfortunate incidents. This is common in the music industry. A frequent claim in the many assessments of today's music industry is that it should have made a deal with the original Napster when it had the chance. Rather than litigate, the argument goes, labels should have embraced P2P and monetized all those billions of shared files. As illegal file-sharing traffic continues to dwarf traffic from legitimate sales - 19-to-1 is a commonly accepted illegal/legal ratio - the concept of a monetized Napster comes from the idea that the record industry's digital era suffering could have been avoided. No such luck. For the most part, the industry was destined for a long, painful evolution. There was not going to be an easy way out.
Granted, the record industry has committed its fair share of blunders in the last ten years, and its slow-footedness has put it at least a few years behind a proper transformative pace. DRM was a non-starter, and CD copy protection looked good only on paper. But missing in the "Should have made a deal with Napster" arguments is any semblance of the shape and structure of such a partnership. Just how what would that partnership look like? The answer is there is no answer. Not doing a deal with Napster was not a mistake because it never could have happened.
Slate's Farhood Manjoo wrote an article on Hollywood's inability to create the perfect movie service that has tens of thousands of movies for on-demand streaming or download. The problem, he wrote in "My Mythical Online Rental Service for Movies," is not unwillingness but "a byzantine set of contractual relationships" that "don't reflect the current technology." Sound familiar?
Not unlike the movie industry, the music industry is a tangled web of legal rights, contracts, government intervention and infighting of stakeholders. Record labels could not get their head around P2P in 1999. They saw it as a threat, not an opportunity. They were fearful and fought to stop it. But even if they understood P2P, did not see it as a threat and wanted to harness the technology, the very nature of the business would have stood in the way.
In hindsight, the music industry's defensive reaction to P2P should appear as a fairly standard response that fell in line with historical precedent. Large industries do not change quickly. This leaves the door open for nimble competitors and emerging threats (or opportunities that will takes years, if not decades, to fulfill their promise). Examples are plentiful. The computer industry showed great indifference to personal computers in the late '70s. The original Apple computer received no interest from the employers of Steve Wozniak and Steve Jobs, Hewlitt-Packard and Atari, respectfully. American electronics manufacturers were slow to respond to competition from Japanese companies in the '70s and '80s and gave up a first-mover advantage in products such as the VCR. The entrenched shipping industry vigorously fought against the introduction of the more efficient shipping container - dock workers, truck drivers and many others faced permanent unemployment (just as many music industry employees fight against the eventual obsolescence of their jobs).
At his Copyrights and Campaigns blog, attorney Ben Sheffler commented on the piece at Slate.
Put another way, it's one thing for Shawn Fanning to sit in his dorm room, code a cool new piece of software, put it out on the web, and sit back and watch what happens. It's quite another for a multi-billion dollar public corporation to start an entirely new, legally dubious, distribution channel that would require breaching hundreds of contracts, upending decades-long business relationships, risking ruinous litigation from distributors, etc. Big corporations are...big corporations, and even the best of them simply aren't as agile and willing to take on uncertain risks as a startup -- or a kid in a dorm room.
Even when an industry adjusts, it may happen over a long period of time. Shipping containers made their appearance slowly - just a few ports at first, then more infrastructure (container-carrying rail cars) and, eventually, standards that made widespread adoption possible(specific dimensions so a container could be shipped and transported anywhere). Shipping containers revolutionized global trade. It is difficult to imagine today's world economy without the shipping container and the cost and time efficiencies it enabled. But it didn't happen overnight.
While the music industry's shift from physical to digital has followed a familiar path of stubbornness and reluctance, there have been many signs steps toward the inevitable transformation. The majors got out of the CD manufacturing business and some have outsourced physical distribution and marketing in some territories. Physical distribution-related headcount has been cut dramatically while digital and mobile have taken on greater importance. Entire organizational structures have been rebuilt - physical and digital sales and marketing divisions have been integrated. Smaller labels and management companies have been extremely innovative in meeting their fans' changing listening and discovery habits.
A decade after Napster, nobody has figured out an access model that mainstream consumers will adopt. SpiralFrog went under. Qtrax and iMesh are hollow imitations of traditional P2P that shackle tracks with DRM and lack P2P app's ease of use. Advertising-based models, one of the assumed methods of monetizing the original Napster, will need a few more years of tinkering before they allow for a sustainable business that compensates content owners.
Today, distribution - for legally available content - is just as controlled as it was ten years ago. Access, the goal of a P2P-based model, is mostly limited to online streaming and subscription services with tethered downloads. MP3 downloads are today's equivalent to the LP, cassette and CD. They're another format to be sold in purchased transactions. In the '90s it was CD singles and CD albums. Now there are track downloads and album downloads. From time to time there is serious talk about ISP-based download services that would collect revenue based on access rather than individual sales. Blanket licensing and other schemes that would enable these services are discussed. Inevitably, though, labels fall back on the comfortable transaction-based payment system and look to ISPs to help police their networks.
Since Napster, what has worked best is not much of a change. The greatest digital success, iTunes, has the same steps in its supply chain - the music still goes from artist to label to distributor to retailer - and the cost structure upon which artist contracts are based. iTunes, like Tower Records and Sam Goody before it, pays a negotiated wholesale rate for the music it sells to its customers. Only the means of distribution and the format of the product have changed. The supply chain for a P2P-based model is considerably different since distribution is less important and there is no retailer. The value chain in a P2P-based model is drastically different than today's transaction-based model. There is no distributor or retailer to add value to the product. The value would come from creation and promotion. A P2P-based revenue model is another big difference and one that requires an entirely new way to pay rights holders.
For an indication of the squabbling and delays the mythical partnership with Napster would have experienced, look no further than the outcry against Choruss, the not-for-profit group that is working with universities on experimental, access-based models. Choruss is seeking ways to allow for unlimited downloading and to pay content owners through disbursements of pooled user fees. Any model, if eventually implemented, will not stray far from what would have been required of a partnership with Napster. But rather than relief and joy, Choruss has run into a surprising amount of opposition and concerned outcry. The hubbub is emblematic of the forceful push-and-pull required to advance any innovation in the record industry.
Embracing Napster would have meant doing away with the supply chain and wholesale-retail model that have long been the bedrock of recorded music. A legal Napster would have required a complicated process of creating new contracts and a new method of determining payments to content owners. Changes of these sorts cannot happen within the brief window in which a disruptive technology can appear. As the long road toward the implementation of Choruss shows, years of negotiations and discourse between stakeholders is needed to simply agree upon a course of action.
Ten years after Napster arrived, the record business has changed in some ways but remains unchanged in others. The best way to view the post-Napster years is to accept its inevitability. It was exactly as one should have expected.