Napster was ill-managed as much as it was illicit

By Joseph Menn
August 1, 2013

A documentary that opened recently in major U.S. cities on the brief but intense life of Napster should reinvigorate debate about why such a revolutionary technology has never again reached the mainstream, even if the movie gives too pat an answer.

Backed by music video channel VH1 and appropriately available online, “Downloaded” reunites former teen founders Shawn Fanning and Sean Parker in a bid to educate those too young to remember 1999.

The film is a valuable one. Fanning sold the rights to his fascinating but little-understood story for what became this project a decade ago and hasn’t told much of his experience since. Parker became a billionaire thanks to his Napster-influenced early role at Facebook and continues to obsess about music: He is now an active director and investor at streaming service Spotify.

Directed by Alex Winter, best known as Bill from Bill & Ted’s Excellent Adventure, Downloaded gets a lot of the details right — Napster’s origins in an online hacking group frequented by budding criminals, the exuberance and technical challenge of scaling to serve 40 million users, and the famed but private startup’s takeover by lawyers.

More importantly, it captures the energy of the vital few months when technology became cool for teenagers, when a poor kid from outside Boston used some of the basic principles of the Internet to deliver seemingly all recorded music to everyone for free.

“This was one of the great moments in human history,” John Perry Barlow, Grateful Deal lyricist and cofounder of the Electronic Frontier Foundation, recalls on camera.

Napster’s proved the power of peer-to-peer communication, in which scattered computers handle the storage and transmission of data files. That approach has since been embraced internally by established companies, saving billions of dollars in storage and server costs.

But there were tremendous political implications as well, what Barlow calls a profound shift from vertical to “horizontal authority.” The movie lets Napster stake a claim as a spiritual parent of WikiLeaks and the Twitter- and Facebook-aided rebellions of the Arab Spring.

It also raises the question of why so much development of radical technology is happening underground, Facebook notwithstanding — why many peer-to-peer networking efforts and offshoots have returned to their rebellious roots in places like the hacking collective Anonymous, while copyright enforcement has become increasingly criminal, as was the case with the late Aaron Swartz. Swartz, 26, was facing 13 felony counts, mainly under an aggressive interpretation of the Computer Fraud and Abuse Act, for downloading academic articles to make them available free, without Napster’s profit motive.

All that is too much for a Napster-focused documentary to process thoroughly by itself. The answers have to do with technology and with politics as well as finance.

But even in trying to explain what happened just to Napster, Downloaded comes up short. It sticks to business, generally making the populist case that the hidebound and greedy record industry overreacted with litigation that forced Napster into liquidation in 2002.

In Napster’s wake came Gnutella and other pirate-friendly services that were impossible to shut down, the movie’s argument goes, so the labels should have cut a deal with Napster when it had the chance. The implication is that established industry is the natural enemy of innovation, and that the old-timers won the Napster battle while losing the broader war.

It’s a resonant thesis and reflects what most media wrote at the time: In the epic fight of the upstarts against the dinosaurs, the dinosaurs were too dim to see that technology would win.

Except that’s not actually what happened, as I documented in my 2003 book All the Rave: The Rise and Fall of Shawn Fanning’s Napster.

Despite what millions of true believers thought, Fanning the coder genius and Parker the business visionary planned to sell out to the labels all along, and to Winter’s credit that’s in the movie.

They might have succeeded, but Fanning and Parker were never in charge. Fanning’s businessman uncle John Fanning, barely mentioned in the movie, kept 70 percent of the company at inception.

John’s confrontational style and history of unpaid debts dissuaded multiple investors who could have set Napster on a straighter path, I learned. (He declined to speak to me for the book or more recently.)

Later, secret settlement talks in the record labels’ fatal lawsuit against Napster didn’t collapse because of record label obstinacy, notwithstanding a claim in Downloaded that Napster did everything but “cartwheels” to get a deal. Napster director John Hummer, whose venture firm kept John Fanning involved and put more than $13 million into the company, demanded that the labels buy the unlawful, revenue-deprived Napster for an astounding $2 billion, Universal Music’s parent company CEO Edgar Bronfman told me. (Hummer this week recalled claiming that Napster would be worth “more than a billion dollars” post-settlement.)

Fanning and Parker are the sort of smart, innovative people technology needs to flourish, and I don’t blame them for the kamikaze mission that their creation became. I’ll blame the labels some. But mainly I blame the professionals: the investors and the managers and lawyers Napster brought aboard.

Those were the ones who were supposed to understand the industry and the law and to provide adult supervision, in this case literally. Instead, blinded by the sort of greed commonplace in the phenomenal dot-com bubble, they got reckless.

That money-lust ended up helping the music industry and Hollywood make the case that a prosecutorial and Congressional crackdown on copyright violators was needed.

And ever since then, most Silicon Valley venture firms — never as revolutionary as they would like people to believe — have been too nervous to invest in anything nearly as wild as Napster.

The movie doesn’t say so, but the peer-to-peer movement Napster kicked off might have been better served if it had never turned to professional capitalists in the first place.

PHOTO: Flanked by Napster attorney Jonathan Schiller (L) and CEO Hank Barry, Napster founder Shawn Fanning, 20, talks at a press conference in San Francisco February 12, 2001, a short time after a ruling by the Ninth Circuit Court of Appeals which said that Napster, the on-line music down-loading service, must prevent subscribers from sharing copywrite material. Napster has promised to appeal the ruling.

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