A file-trading ship of fools

Don't scapegoat greedy record execs for Napster's failure, says Joseph Menn in "All the Rave: The Rise and Fall of Shawn Fanning's Napster." The inept bunglers who ran the company have only themselves to blame.

Published April 21, 2003 7:30PM (EDT)

Joseph Menn's "All the Rave: The Rise and Fall of Shawn Fanning's Napster" begins with an epigraph from "Hamlet." The lines are from Act III, Scene ii, a point in the play where Hamlet suspects, but is not yet sure, that his uncle, Claudius, has killed his father. Hamlet needs a second opinion. "Observe mine uncle," he tells his friend Horatio. "Give him heedful note, for I mine eyes will rivet to his face, and after we will both our judgments join in censure of his seeming." It's an elegant way of saying, more or less, "Keep an eye on the old man and let me know if you, too, think he's a rotten creep."

The music world might be very different today had Shawn Fanning ever been so blunt about his uncle, John. Napster was a brilliant bit of technology, and it inspired a host of compelling legal and economic questions, but the early story of Napster, missed by the hundreds of journalists who covered the company, is a classic tale of intra-familial duplicity.

As Menn tells it, Shawn Fanning, the 19-year-old who created Napster in a fit of Red Bull soda-fueled coding, was a sweet, smart kid who loved music and computers. But it was Shawn's uncle, John Fanning -- a struggling businessman who loved only money, power, and himself -- who took early control of the company, and was responsible for many of its big mistakes. Menn suggests that Shawn never quite appreciated, as Hamlet did, his uncle's chicanery. While everyone else involved in Napster saw through the uncle, Shawn himself seemed always to be in thrall to John Fanning -- and that may have been the company's undoing.

While it has its moments of low farce, "All the Rave" unspools like an Internet-age tragedy, a story of technological inspiration that, very quickly, morphs into a mess from which no good end can come. Menn, a reporter at the Los Angeles Times, has exhaustively researched every aspect of the Napster saga, and the book reads like a definitive account. The attention to detail is nearly overwhelming; Menn tends to get mired in the dull complexities and lesser characters of this tale, often to the detriment of the quick pace of his larger story. Menn also rarely pulls his nose out of the muck of the story long enough to indulge in any broader analysis. He does not ask, for instance, whether Napster changed music, or musicians. He doesn't even wonder why millions of people felt it was OK to steal music.

Instead, Menn delivers an in-depth chronological recounting of Napster's woes, which is still something quite useful for anyone who wants to make sense of the tumultuous days when Hollywood and the Net first collided. Napster was the hottest news story of the infant millennium, a haze of headlines telling of increasingly high-stakes litigation and joyous last-minute reprieves -- headlines to stories we probably never read because we were too busy queuing up songs to download before the service went dark.

Napster was the fastest-growing Internet service in an era where fast was all that counted; at one point, it was expanding by as much as 35 percent every day. But as everyone said at the time, Napster was more than a killer app: it was the beginning of a revolution. Like only the Web browser and instant messaging before it, here was an Internet application that hit you at a primal level, instantly transforming anyone who used it from a passive settler for sub-par radio pop into a music hedonist, someone with the power, suddenly, to choose.

It's not so surprising, then, that few of us much bothered with what was happening inside the Napster corporation during the frenzy. Compared to the revolution the software had sparked, those details would seem, inevitably, a bit beside the point. Who was running the company? Were they qualified to do so? How had they decided to launch a firm on such a shaky legal foundation? And who on earth was funding this idea? Perhaps interesting stuff, but nothing like the question, so prevalent at the time, of whether they -- those curmudgeons at the recording industry -- would ever manage to revoke our full access to the Beatles catalog.

Menn revels in the insider goings-on, however, and he reveals what seems, now, an obvious point. It was mismanagement at Napster, as much as it was the litigiousness of the recording industry, that led to the death of the service. Napster was run by a ship of fools, Menn says, a collection of investors, executives and attorneys who never really determined what they wanted to do with the company. At the head of this crew was John Fanning, who helped his nephew set up the company only on the condition that the uncle get 70 percent of the shares in the firm. There were other questionable characters brought in by Fanning, people who had been "well familiar with angry investors, the courts, and the cops long before Napster's landmark fight with the record industry," Menn writes. Together, this early group sealed Napster's fate. To the extent that there was a business model, it was based on an unreasonably optimistic legal outlook and a strategy of dealing with the recording industry that "comes close to the dictionary definition of extortion -- using threats to extract money."

Who killed Napster? Certainly the record labels were glad to stamp it out. But with executives like the ones running Napster, who needed enemies?

The idea for Napster was hatched late in 1998, after Shawn's college roommate told him that it was very difficult to find MP3 tracks online. At the time, Shawn was a "gray-hat hacker" of small acclaim; he belonged to the w00w00 IRC group, where hackers met to discuss their exploits. ("Napster" was Shawn's nickname on the w00w00 group.) In those days, searching for MP3s on the Web was a fool's errand, because many times when a link to a song came up, it turned out that the person who'd been offering that file was no longer online.

Like many others at the time, Shawn set out to build a better MP3 search engine, and he had one great insight -- "presence awareness." This is the tech term for a system that knows when each person connects or disconnects from the group; an instant messaging system, for instance, has presence awareness, while the Web does not. If he could build a file-trading system that knew the status of users, Shawn theorized, there would be a "real-time index" of the files that were available for downloading at any moment. More than that, he devised what Menn calls "an elegant sociological element" to the Napster system -- "it both gave and took away." Anyone wanting to search for MP3s would make his own files available to others. "Like magic, the more people who were seeking music, the more music would become available."

Menn draws his story of Napster's birth from interviews with Shawn, Jordan Ritter, the system's "founding developer," and many others on the w00w00 group, but the question of what sparked Shawn's insight remains unsettled. For all his quotes in the book, the young developer is remarkably circumspect about how he thought up Napster. Perhaps it's modesty, or perhaps he really can't remember anymore, but the most detail we get in "All the Rave" regarding the moment the muse visited Shawn is one scene of a late-night session of furious coding.

Actually, the scene is not about the coding itself; it's about what Shawn was drinking while he was coding, and, in order to show just what sort of person this leader of the revolution was, it deserves to be quoted at length:

"We didn't have any money, and we didn't have Coke left, and I was literally trying to finish this," Shawn says. "And I looked at the Red Bull, and I'm like, 'It has caffeine in it!' I literally went through most of a case that time, and I was up two or three days ... The strange thing about Red Bull is that it has this really weird ability, and it's not just the caffeine, to keep you really sharp and focused, even though you've been up for two or three days. Usually [on caffeine], you get hazy and you're wired but you're tired, mentally not functioning. But [on Red Bull] you can focus, and you can think logically and clearly. You get tired, but usually it just gets you tired to the point where you're not likely to get distracted. You're just kind of a zombie, but you can focus and think, and it helped to do massive amounts of programming where I had thought of the design before, and I just had to do the programming ... By the end of it, I called the cops because there was a car across the street the second night and I thought it was going to do something bad. I remember calling the cops, and they said something about it not being in their jurisdiction, call somebody else. And then I realized I was kind of going crazy."

Shawn was raised by his single mother Coleen, and John Fanning, her brother, had always taken a great interest in Shawn's life. During Napster's peak, John Fanning was often called Napster's "co-founder" in the press, but Menn makes it clear that the uncle had little to do with the nephew's creation. John Fanning's role in Shawn's life was as a generous benefactor: he bought Shawn his first computer, and he gave Shawn a BMW Z3 (though he eventually stopped paying for the car, and it was repossessed). Shawn spent most of his time coding Napster at his uncle's house in Hull, Mass., because his college dorm "was not conducive to work."

It's hard to see how his uncle's house could have been a more professional place than the dorms. The house was the center of operations for John Fanning's Internet firm Chess.net, but rather than see to the business, John Fanning "loved playing games, and he developed a serious habit with a computer video game called StarCraft," Menn writes. John loved to play against Shawn, and "even when Shawn's hacking hobby was starting to look like a serious business, Fanning wanted to play. More than once, when Shawn's friends and collaborators needed him to work, he told them he couldn't: His uncle wanted him to keep playing StarCraft. If he didn't keep playing with him, Shawn told them, Fanning wouldn't give him money for dinner."

Sean Parker, one of Napster's founders, tells Menn, "I'm sure if he hadn't played StarCraft, he wouldn't have gotten fed ... John Fanning has a way of being really stubborn."

"Shawn is like a battered wife," another Napster official says. The boy could never tell his uncle to leave him alone.

Menn uncovers, for the first time, the mismanagement that plagued John Fanning's previous businesses, a trend that followed him to Napster. When Fanning's first business, Cambridge Automation, a computer reselling firm, hit hard times -- which was almost immediately after he purchased it -- Fanning kept it alive by "trying to strike new deals with creditors," which he did in a most unconventional style. "When some big businesses demanded their money, Fanning would call up and sound outraged, insisting on speaking with superior after superior until the creditor gave up and offered new terms." Fanning was fond of lawsuits, too. While he ran Chess.net, he filed what Menn calls a "ridiculous" suit against Sleator Games, one of Chess.net's main competitors -- Fanning charged that Sleator had barred him from advertising on the Sleator site, costing his business $248,000. The suit dragged on until Fanning's lawyers were allowed to quit the case, charging that he owed them $94,000 in legal fees.

With his 70 percent share of his nephew's company, Fanning put together a team at Napster that may have been unrivalled, in all of the Internet boom, in its inability to run businesses successfully -- and that's saying quite a lot for the late 1990s. Yosi Amram, the company's first major investor, had previously founded a news-retrieval company called Individual, but he was forced out from the firm after he began to make a series of expensive acquisitions "unrelated to our core business," one executive at the firm tells Menn. A director at the company accuses Amram of punching him upon being fired, though Amram defends his actions by saying that the person simply "puffed his chest out, and I pushed back." Amram's behavior was so erratic that people at Individual often wondered whether he was on drugs (he denies it) or had suddenly suffered "some kind of self-destructive break."

Another eccentric character running Napster was Bill Bales, the company's first chief of business development, who had founded the online video press release firm ON24. Bales was a cunning glad-hander who had a tendency to be "aggressively flirtatious with female colleagues." Alona Cherkassky, at the time a 22-year-old reporter at ON24, tells Menn that one day Bales told her how nice she looked, then "he mouthed the words 'I want to fuck you,'" a transgression that got him fired. (Bales claims he was guilty only of telling Cherkassky an off-color joke.) In 1992, Bales was charged with driving under the influence -- he had a .16 blood-alcohol content -- and then he failed to appear in court and at a first-offender education program on numerous occasions. One of his former girlfriends also accuses him of abusing alcohol and, in a sworn statement to the police, says that Bales "slapped, bit and restrained her" and "threatened her with a kitchen knife," Menn writes. He was eventually fired from Napster when several engineers said they would quit if Bales wasn't let go.

Perhaps the sanest high-level person at Napster was Eileen Richardson, the company's first CEO. Richardson was a veteran venture capitalist whose biggest success was Interwoven, a Web content-management company that helped turn her VC firm's $3 million investment into $300 million. (Though Richardson, too, had problems at that company; she was asked to step down from the board after it was discovered that she was dating one of the firm's employees.) Richardson agreed to run Napster mainly because she liked the product. She was an "intense music fan," with a "warm, engaging personality," Menn writes. John Fanning, too, liked her: "She's hot!" he told a Napster employee.

The most stunning thing about any of these characters, though, is not in the various missteps of their past but the thing they had in common during their time at Napster: everyone at the company ignored any suggestion that the product they were pushing ran afoul of federal copyright laws, and that it would certainly raise the ire of the recording industry. Early in Napster's life, the venture firm Draper Atlantic, which had expressed some interest in buying into Napster, did a round of "due diligence" on the company's model -- and Jason Grosfield, a hedge-fund investor, uncovered serious legal liabilities, finding that Napster could be ruled illegal under all existing copyright precedents.

Napster's executives ignored that assessment. John Fanning commissioned his own study of the system, and his attorney, Seth Greenstein of the firm McDermott, Will & Emory, delivered a rosier outlook. Greenstein wrote that because there's no way to tell whether an MP3 file is a legitimate copy or not, Napster could always plead ignorance regarding the files on its system. But Greenstein also allowed that the combination of new technologies and new copyright laws made for the "grayest of the gray areas in the law," and that there was a 98 percent chance that Napster would get sued. The directors of the company shrugged that off. Richardson made no attempts to contact the recording industry, and when the industry tried to get in touch with Napster after the system started experiencing huge growth rates late in 1999, employees stalled them.

In November 1999, the Recording Industry Association of America filed suit against Napster. "We made several attempts over the last few weeks to communicate," a RIAA spokeswoman said at the time. "Our urgent requests for a meeting were not taken seriously. We really had no other option but to file litigation."

For all their pronouncements during the copyright case that Napster had a variety of legitimate, "noninfringing" uses, it's clear from "All the Rave" that everyone at the company believed that Napster's best use, and perhaps its only real use, was to trade copyrighted popular songs. When attorneys for the recording industry inspected the employees' personal computers as part of the lawsuit, they found hard drives littered with stolen songs. Worse, industry attorneys had full access to the company's internal e-mail messages, and they found employees discussing piracy on Napster in a most casual manner. "Users will understand that they are improving their experience by providing information about their tastes without linking that information to a name or address or other sensitive data that might endanger them (especially since they are exchanging pirated music)," wrote Sean Parker, a Napster co-founder, in a message that turned out to be extremely damaging to Napster's chances at prevailing in court.

The company's first business plan, which was discovered during the lawsuit but had not been made public before Menn's account, called for bullying record labels into accepting Napster. "We use the hook of our existing approach to grow our user base, and then use this user base coupled with advanced technology to leverage the record companies into a deal. The fact that we grow to 4 or 5 million simultaneous users with millions of songs (through the inherently viral nature of the Napster concept) can hardly be ignored by Sony or EMI." In the event, such tremendous growth was not ignored by the labels; they used the huge numbers to bolster their claim that Napster was nothing more than a technology to enable theft on an unprecedented scale, an argument that the courts agreed with.

Even after the company was sued and began saying that it would like to transform itself into some sort of legitimate, subscription-based service, employees at the company still hung on to the notion that they were spearheading "a revolution," not a mere business. While it's become common to blame the recording industry for its hard line on copyright issues and its paroxysms of litigation, Napster, buoyed as it was by its tens of millions of fans, was every bit as inflexible; it's hard to see how anyone at the RIAA might ever have trusted anyone at Napster in negotiations. Only until they were forced to do so by a court did Napster's directors begin thinking seriously about building a legitimate system, and by that time it was too late. Music fans considered it their right to get free music online, and free rivals to Napster took its place.

The story of Napster has to be seen, in the end, as a tragedy of wasted potential. Here was a system that improved everything about the way we listened to music, but nobody it touched was better off for it. The recording industry suffered losses not only to piracy but also to its image; in order to defeat Napster and the dozens of clones it spawned, the industry had to make enemies of its customers. The industry certainly didn't have to behave the way it chose to, but given its experience with Napster, one can't blame them; in fact, one of the best things about Menn's book is that, compared to the file-trading executives, it makes the music industry look reasonable. Music fans are not well-served by the current state of things, either. Had Napster come up with a compromise system in time, fans might today enjoy a host of subscription file-trading systems online; today, however, the industry, having seen its worst nightmare in Napster, gives us only the most bare-bones systems. And fans, after experiencing the thrill of Napster, now must use a host of ad-clogged second-rate systems, a scenario that leaves them personally liable for copyright claims.

By the end of "All the Rave" a reader is left wondering what might have been. Had Napster been run by Shawn Fanning or Jordan Ritter -- the two at the firm who seemed the least greedy, the most in touch with the fans who loved the system -- instead of John Fanning, perhaps things would have been different. Had Shawn dropped his uncle from the start, as everyone around him had urged him to do, perhaps the company would have found better management, people who might, in time, have seen the folly of their ways. Would the record industry have still sued? Probably; but a less contentious firm might have made out better in the end.

Napster may have sparked a revolution, but the revolution was cut short. We saw the future, and then we were denied it. Now we need another Shawn Fanning.

By Farhad Manjoo

Farhad Manjoo is a Salon staff writer and the author of True Enough: Learning to Live in a Post-Fact Society.

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