As appeared in U.S.News and World Report, March 6, 2000

Napster is rocking the music industry

The popular Web site has powerful enemies


Shawn Fanning let his closely cropped coiffure grow a bit shaggy, so his friends started calling him "nappy." That evolved into a new nickname, "Napster," which became the Internet handle he used in chat rooms. After sharing tips on guitar playing, Fanning told two cyberpals about a revolutionary software program he was working on. Encouraged by his new friends, he wrote the program and the idea attracted a sizable cash donation from a family friend. So he quit college, moved from Harwich, Mass., to Silicon Valley, and started a company together with his two buddies.

That was seven months ago. Today, 19-year-old Fanning and his company, Napster, have become the Internet's latest one-hit wonder. Hundreds of thousands of college students and music fans have downloaded the firm's free software, which allows users to swap MP3 songs, the Net's most popular digital music format. Napster, whose latest software will be released this week, has seen its user base grow by as much as 25 percent a day. "We see ourselves as the MTV of the Internet," says Napster CEO Eileen Richardson, a 38-year-old former venture capitalist. But Napster has made some powerful enemies in its brief existence. Musicians and record companies accuse it of creating an online den of thieves. Last December, the Recording Industry Association of America (RIAA), representing 18 record labels, sued Napster for copyright violations, seeking to shut it down and collect more than $ 100 million in damages. Hip-hop mogul Sean "Puffy" Combs says Napster abuses his artists. And in the past two months, at least 50 universities have blocked students from accessing Napster, saying it strains campus computer systems.

All the outrage is a result of Napster's unique design, which fosters music sharing but also hogs bandwidth. The company doesn't own or sell any music. Its software merely acts as a digital matchmaker, allowing people to trade MP3 songs. Napster peeks into a user's hard drive and publishes a list of all the songs it finds there onto a central database. To locate a tune, a user enters the name of an artist or a song to see if anyone else on the network has it. If so, they can download it at the push of a button. In this way, Napster has created the Net's largest music library.

Copycats. Before Napster, popular music in MP3 format was incredibly difficult to locate on the Internet. That's because the only legal MP3 songs have been released by small, largely unknown acts. The big record companies refuse to release the good stuff in MP3, fearing that unlawful copies will depress album sales. So any MP3s by hit artists on the Internet are available only because someone copied a store-bought CD onto the Internet for trading. The recording industry has fought against this practice, suing bootleggers and insisting that Internet service providers and universities terminate the account of anyone who uploads pirated songs.

But users can find hit songs all over Napster. Even Madonna's new remake of "American Pie" had already been on Napster for weeks before it was officially released, courtesy of someone who uploaded a copy of an advance-promotion CD. While it's legal for music owners to rerecord their CDs for personal use on other music formats, like cassettes, minidisks, or even MP3s, giving those copies to others is piracy.

But is Napster responsible for its users' behavior? That's the question at the crux of the RIAA's lawsuit, which will be a groundbreaking case in Internet copyright law. Napster posts a warning that copying and distributing unauthorized MP3 files may violate U.S. law. But the company says it isn't liable if people use Napster unlawfully, just as VCRs aren't illegal, even though they're sometimes used to copy rented movies. "We can't be responsible for our users," says Richardson. "All we're doing is being an index for a certain kind of file format." But the RIAA insists that Napster aids and abets copying. "This is not a passive role," says Hilary Rosen, president of the RIAA.

While battling in the courts, Napster is also trying to retool its software to prevent colleges and universities from banning the program. Students with time on their hands, high-speed Internet connections, and network storage supplied by the colleges have been the most rabid music traders. But when Napster is running on multiple PCs, it clogs a campus network as worldwide users download thousands of songs at once.

Along with fending off the courts and the schools, Napster also has to confront the usual challenge facing Internet start-ups: translating popularity into profits. So far, the site has not added advertising or figured out a way to sell goods. But turning Napster into a moneymaking site may be the best way to secure its future, let alone pay the legal bills.

Copyright 2000, U.S. News & World Report. All rights reserved.

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