volume 4
april 2001

The Napster episode

A new version of the same old song

by Timothy J. Dowd [*]

In January 2001 some three billion song copies found their way through the peer-to-peer network of Napster. It was a final spurt, as the system had to stop the distribution of commercial recordings on charges of copyright infringement. Some say it is a situation without historical precedences. It is, however, not the first time the recording industry has confronted new media, grappling with copyright issues and the divining of new business models. Consequently, Timothy J. Dowd argues, past episodes provide a purchase on the Napster episode and its possible resolution.

Introduction. While there are many signs of the recording industry's struggle with the Internet, the Napster episode arguably provides the best example. Napster is a website that, until recently, offered its users free access to musical recordings. It did so with a computer program that links the hard drives belonging to the community of Napster users. The program, in turn, allowed users to search for and download without payment digital files of music found on their peers' computers. Many downloaded files contained songs copied from commercial recordings — copies made without the permission of the songs' composers, publishers, performers, and record firms. It is not surprising, then, that the Recording Industry Association of America (RIAA) and others filed suit against the website in December 1999, alleging that Napster facilitated copyright infringement. The allegation received support in February 2001, when a court ordered Napster to prevent its users from trading copyrighted music.

The Napster episode has generated much discussion. Some claim it is unparalleled in the history of the recording industry, implying that the past tells us little about the present episode. In contrast, I argue that it is the most recent episode in which the recording industry has confronted new media, thereby grappling with copyright issues and the divining of new business models. Consequently, past episodes provide a purchase on the Napster episode and its possible resolution. I fully develop this argument elsewhere; in the present piece, I motivate it by briefly describing an earlier episode and alluding to lessons it offers.

The recording industry and radio. The recording industry had existed for nearly three decades when it encountered the rise of commercial radio in the 1920s. The earliest radio stations broadcast the pre-recorded music of record firms, and most did so without compensating record firms. Some thought this practice would benefit both industries; it provided cheap programming for the infant radio industry and free promotion for the booming recording industry. The fortunes of both industries soon diverged, however. The total number of record firms in operation steadily declined, while the number of radio stations swelled. The frailty of record firms was matched by their declining output, with the total value of production plummeting from $105.6 million in 1921 to $5.5 million in 1933. Concurrently, radio mostly enjoyed growth; its annual advertising earnings went from less than $5 million to $57 million.

Recording industry personnel eventually concluded that their firms suffer when stations broadcast pre-recorded music. Their conclusion rested on what would later prove to be a flawed assumption: consumers will not buy records when they could hear them "for free" on radio. Their conclusion also rested on an accurate evaluation of U.S. copyright law. When broadcasting pre-recorded music, radio stations must pay royalties to the composers, lyricists, and publishers of the music, but they need not pay royalties to record firms. In other words, radio stations can generate income by repeatedly playing hit records and, aside from the initial purchase price, they need not compensate record firms.

Given this conclusion, the recording industry developed a business model that featured two elements. First, record firms sought to prohibit broadcast of their pre-recorded product by stamping inscriptions on recordings (for example, "Not Licensed for Radio Broadcast"). They received validation from the courts; three rulings required that stations cease broadcasting records with prohibitive inscriptions. Second, record firms proposed that stations broadcast live performances by recording artists, thus offering material that did not duplicate the pre-recorded products of record firms. Powerful actors in government and broadcasting concurred with this proposal. Both CBS and NBC, for example, had long emphasized live shows and were receptive to the entreaties of record firms. Indeed, both networks discouraged their stations from broadcasting the products of record firms.

The record industry's successful adoption of the "anti-airplay" model corresponded with its economic recovery in the mid- to late-1930s. The model not only skirted what recording personnel viewed as a failing of copyright law (that is, radio's ability to broadcast recordings without paying royalties to record firms), it also encouraged a symbiotic relationship between the recording and radio industries. "While the impact of radio in broadcasting in its earliest years disturbed the sale of phonograph records," noted one report, "appreciation of recordings has been further stimulated by broadcasting."

Two factors undermined the anti-airplay model in the early 1940s. First, the New York Supreme Court ruled that once radio stations purchased a record, they were free to broadcast it - even when it bore a "Not Licensed for Broadcast" inscription. Displeased with this ruling, the dominant record firms pursued plans for obtaining fees from stations that broadcast pre-recorded music. Second, a new record firm broke ranks and introduced a "pro-airplay" business model. Capitol Records (est. 1942) executives believed that broadcasting recordings would stimulate rather than harm sales. In search of airplay, Capitol routinely promoted its recordings at radio stations, and it became the first record firm that routinely delivered free recordings to disk jockeys. With a dramatic increase in record sales, Capitol quickly rose to dominance in the record industry. Unable to ignore Capitol's successful "pro-airplay" model, other dominant record firms begrudgingly ceased their quest for attaining fees from radio stations. In fact, in search of symbiosis, they likewise courted disk jockeys with free recordings. "The past few years have seen the emergence of the radio disk jockey as one of the most important factors in record sales," gushed one company document. "The record manufacturers are happier than they have ever been."

Since the mid-1940s, when the "radio episode" was resolved, Capitol's "pro-airplay" model has prevailed with ambivalence. On the one hand, recording industry personnel concede that the broadcasting of pre-recorded music can be a great boon to the sales of recordings. On the other hand, they still chafe at current copyright law. In fact, for five decades, the recording industry has lobbied for changes in copyright law, so that record firms may receive royalties from radio stations. They have been mostly unsuccessful in their attempts. One success occurred in 1998, when the Digital Millennium Copyright Act required that web broadcasters (but not radio stations) pay licensing fees to record firms. The actual amount of such fees has yet to be resolved, however

Lessons for the Napster episode. History offers a number of lessons for the Napster episode, of which I mention two. First, it provides a perspective frequently absent from current discussion. Many journalistic accounts, for example, portray the Napster episode as merely a struggle between the "Goliaths" of the recording industry and the "Davids" of the dot.coms. To be sure, Napster lacks the resources of multinational record firms like Bertelsmann. Nevertheless, this episode entails more than large corporations bringing their collective power to bear on a fledgling website; it also entails the recording industry's longstanding concern with copyright and compensation. When the recording industry sought to prohibit the broadcasting of pre-recorded music, it was clearly weaker than the radio industry. When it subsequently confronted new media, the recording industry sometimes proceeded from a dominant position, and sometimes it did not. It just so happens that the recording industry occupies a clear position of power in the present episode.

The radio episode also suggests that the Napster episode will not be resolved until the recording industry develops a viable business model. Recording industry personnel frequently tout the symbiosis that could occur between record firms and websites like Napster. In fact, Bertelsmann executives are so enamored with the idea that they dropped their suit against Napster and may loan the website up to $50 million. No record firm, however, has demonstrated how downloaded music files can stimulate sales of pre-recorded music, nor has one shown how websites may provide an alternative or complement to traditional retail sites. The development of a business model is no small task, for as the radio episode shows, models that are based on contradictory assumptions can both be successful. Moreover, a successful model can become obsolete in the face of legal and competitive challenges.

If copyright issues are eventually defined as the recording industry wishes, it still must address a host of issues that include the extensive catalog of digital music files that it has yet to create and the system for compensating record firms for downloaded music. If copyright issues are defined as Napster wishes, then the recording industry must ponder, once again, the pros and cons of "free" music. While the specifics of the eventual business model may be unique to the Napster episode, the process whereby the industry adapts to new media is common. That is, the Napster episode is but the newest version of the same old song.

This essay appeared originally in: The Academic Exchange, April/May 2001, 6-7. Timothy J. Dowd is Assistant Professor at the Department of Sociology, Emory University (Atlanta) and editor of "Explorations in the Sociology of Music," a special issue that is forthcoming in Poetics, Journal of Empirical Research on Literature, the Media and the Arts. E-mail: tdowd@emory.edu.