Napster's long haul

The legally hounded music-sharing service has struck a deal with the record labels, but the "celestial jukebox" is still a long way off.

Published June 6, 2001 7:30PM (EDT)

Just when Napster seemed finally on the ropes, the File-Sharing Service That Refused to Die may have come back to life.

Napster interim CEO Hank Barry announced Wednesday night that the company would become an affiliate of MusicNet, the forthcoming subscription service that combines the catalogs of three of the five major labels: Warner, Bertelsmann and EMI. Later this summer, Barry said, MusicNet, which uses technology from RealNetworks, will be combined with a new, pay version of Napster's original file-sharing service as part of an ambitious two-tiered system.

In a joint telephone press conference with Barry, RealNetworks CEO and MusicNet interim CEO Rob Glaser repeatedly stressed that the agreement was but "one of many steps" toward creating the celestial jukebox -- the long-envisioned, fully interactive music subscription service that makes all of the world's recorded music available at the click of a mouse. And indeed the new Napster still faces many obstacles.

Just hours before Napster's announcement that it was licensing Warner and EMI music, both labels issued statements insisting that they would not allow the company's tens of millions of users to listen to a single one of their songs until they were satisfied that their copyrights would be protected. And according to a Napster representative, even Bertelsmann, which has partnered with Napster since October, is not yet ready to drop out of the bitter, multibillion-dollar lawsuit the major labels filed against the service in 1999, which led a court to order extensive filtering on the site, vastly reducing what music can be found there.

Perhaps more importantly, the announcement said nothing about whether Napster would be able to come to terms with the other key player in the digital-music wars -- the 800 members of the National Music Publishers Association, who are in legal conflict on many fronts with both Napster and the major labels, and therefore MusicNet. (Each musical composition is covered by two copyrights, one associated with the performance, which is usually controlled by the record label, and one associated with the underlying composition, which is controlled by the songwriter and publisher.) Without understanding how much publishers will charge, MusicNet cannot know whether, as Glaser optimistically predicted, monthly subscription prices will really be "about the cost of a new CD every month." Indeed, without publishers' approval, no interactive Net-music service -- Napster, MusicNet, or Duet, the Sony-Universal alliance that is MusicNet's main competitor -- may be possible at all.

Finally, launching the new Napster will require surmounting enormous technical challenges. Napster will have to integrate its service -- which is based on widely separated computers exchanging MP3 files -- with MusicNet, which is based on streaming or downloading music in Real's own formats from a few central locations. Indeed, there are serious doubts as to whether MusicNet will be up to its part of the job. No company, even streaming leader RealNetworks, has ever streamed tens or hundreds of thousands of songs simultaneously to users over long periods of time. (The same questions apply to Duet, which will apparently be powered by technology from, the San Diego-based start-up that Universal acquired last month, reportedly for more than $300 million.) According to company representatives, no one outside Real -- nobody at Napster or even America Online, which is also going to license MusicNet for its 29 million subscribers -- has seen MusicNet in action, even though Real is supposed to have the technology ready by mid-June.

The new Napster, which is supposed to launch later this summer, will at first be an ungainly hybrid of the old service and MusicNet. According to Barry, the service will have two levels of usage: a basic one, in which subscribers will have access to "the world of independent music," and a more expensive one, which will let subscribers have access to the content on MusicNet. To find music, company representatives say, subscribers will first search the low-level, file-trading service and then, in a separate action, the high-level, MusicNet service.

In theory, the two services will be fully integrated, with users able to search both at once, in a second phase that will be rolled out at the end of the year. Until then, Napster subscribers who want to play music from both sources in a single session will have to run two pieces of music software: for content from MusicNet, a version of RealPlayer; for Napster file-sharing content, Napster's own player or a player from any other company with the requisite plug-in. (The ownership of MusicNet, according to a Real Web page, is now "approximately 40 percent Real, 20 percent AOL Time Warner, 20 percent BMG and 20 percent EMI.")

Not only that, the two levels will have different methods of security: Napster's own technology, based on inserting specially developed software "keys" into ordinary MP3 files, and MusicNet's RealSystem iQ, which encrypts streams and downloads in several formats with software from SecureMedia, a San Francisco start-up. And the new Napster will also have two different methods of paying for rights -- its own proprietary system, which will directly compensate independent labels and artists, and through MusicNet. The daunting complexity of integrating two such different systems -- analogous to, but harder than, say, running Windows and Mac OS on the same computer -- may be why Barry twice referred to developing the new Napster as a "long-term process."

These difficulties aside, the announcement nonetheless came as a shot in the arm for the legally hounded Napster. On Wednesday, Net-music consulting firm Webnoize reported that in the wake of a court ruling ordering Napster to filter out major-label content, the number of songs traded on the service had fallen from 2.79 billion in February to 360 million in May -- a decline of 87 percent. Equally telling, the average number of files shared per user dropped over that same period from 220 to 21, as Napster's filters kicked in. And competition from truly decentralized, Gnutella-like systems -- BearShare and LimeWire are the two most prominent -- though still small, is increasing rapidly. According to LimeWire, the number of computers on Gnutella-like systems increased tenfold between February and May, from a daily peak of 5,000 to a daily peak of 50,000.

Yet, in an illustration of the arithmetical fact that a small percentage of a big number can still be a big number, Napster still has an enviable 6 million unique visitors every day, according to the company. And it is just barely possible that it may outstrip MusicNet and Duet by obtaining an agreement from the publishers before the major labels.

As has been widely reported, Napster is pursuing intense negotiations with the publishers, who may see a deal with the file-sharing service as a way to prove to the court of public opinion that they are not being obstructionists, as the labels have loudly charged. According to the terms of its deal with MusicNet, Napster cannot launch its version of MusicNet ahead of AOL and Real, the other two licensees. But this provision has an expiration date, and if by then Napster is the only party with a publishing deal, it could emerge as the sole candidate for the celestial jukebox -- a circumstance sure to enrage the major labels.

By Charles C. Mann

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