Napster Shut Down

It’s offi­cial: it’s cur­tain for Nap­ster for now. The judge in a law­suit filed the Record­ing Indus­try Asso­ci­a­tion of Amer­ica ordered the ser­vice to shut its doors by mid­night this Friday.

The genie is out of the bottle

Yet, I can’t help but believe that the shut­down of Nap­ster will not do much in terms of lim­it­ing dis­tri­b­u­tion of online music. Peo­ple will now move to alter­na­tive ser­vices like Gnutella and Freenet. In other words, it’s time for the record­ing indus­try to face the music.

Shawn Fawn­ing and his crew did, in the words of the judge,

cre­ate a monster

but I seri­ously believe that if the goal of the RIAA is to stop wide­spread dis­tri­b­u­tion of dig­i­tal music, this law­suit is a moot point.

Back in March, I talked about Gnutella, a Napster-like client/server appli­ca­tions that escaped from AOL’s vaults. Since then, Gnutella use has increased, largely due to the fact that Nap­ster was being sued and that Gnutella has no con­trol­ling author­ity. Since no one is offi­cially in charge of Gnutella, no one can be sued. And since the ser­vice can’t be sued, it’s a much tougher one to deal with as far as the record­ing indus­try is concerned.

With the shut­down of Nap­ster, I believe that peo­ple will look for alter­na­tives. After all, 20 mil­lion peo­ple have got­ten hooked on the chance of get­ting free music, why would they imme­di­ately stop? And Nap­ster, the phe­nom­e­non, will live on, as more Napster-like tools start pro­lif­er­at­ing around the net.

So what should the music indus­try do? Should it go out and try to shut down every sin­gle such ser­vice that pops up? I seri­ously doubt that such an effort would suc­ceed. What I believe they should do is look at ways to use those tools for pro­mo­tional uses and try to cre­ate a new rev­enue scheme for online music.

New rev­enue mod­els for online music

Sub­scrip­tion: One of the most pop­u­lar model being floated around in terms of mak­ing money from online music is the con­cept of subscription-based all you can eat mod­els. Emu­sic is a pio­neer in that space, now offer­ing a monthly $19.99 sub­scrip­tion giv­ing users access to 125,000 MP3 tracks. I believe this model is cor­rect but I am still hav­ing a hard time with the price. The basic ques­tion is one of price. Why would peo­ple pay as much for music as they do for con­nec­tiv­ity? I believe that this model will work only if the price is low­ered to around $10 per month.

How­ever, I’d like to offer a cou­ple of dif­fer­ent models.

Music as premium

: In the United States, there are two kinds of cable TV ser­vice: basic and pre­mium. The basic set allows you to have access to a large num­ber of advertising-supported TV sta­tions. The pre­mium chan­nels are avail­able for about $10 each and are offered with­out any adver­tis­ing. They usu­ally offer movies and spe­cial pro­gram­ming not avail­able any­where else. I believe that an ISP could look at a sim­i­lar model. Pay $19.99 for basic access and, for an extra dol­lar amount, $5 to $10 maybe, get access to a music col­lec­tion. There might be some incen­tive for par­tic­u­larly new music sets. Or com­pa­nies could offer cer­tain songs for free, as a promo, and give access to the full album or col­lec­tion for a few more dol­lars. That way, the music indus­try gets some rev­enues from the dis­tri­b­u­tion of dig­i­tal music and everyone’s happy.

Dig­i­tal Jukebox

: This is a lit­tle more com­pli­cated tech­ni­cally as it requires some kind of micro­pay­ment mech­a­nism. Basi­cally, think of it as Nap­ster with a pay sys­tem. Songs would be avail­able in a model sim­i­lar to Nap­ster but, for each song, a price would be attached. This price would have to be equiv­a­lent or lower than the price the user would pay for a CD, and the user would receive a bill at the end of the month for the total amount of dol­lars they have to remit. Access to the ser­vice would still be free but some of the songs would cost money. As a result, the music com­pa­nies would see the rev­enues they think they are los­ing and post some of the pro­mo­tional mate­r­ial for free. How­ever, the prob­lem with that par­tic­u­lar approach is that it does not cover replays. As a result, a user may down­load a par­tic­u­lar song for � cent and not have to pay any­thing extra. A pos­si­ble solu­tion to this issue would be to take the cost of a CD, sub­tract the pro­duc­tion costs, divide the remain­ing num­ber by the num­ber of tracks on the CD (let’s assume that, on aver­age, the pro­duc­tion costs for a CD, its case and its cover is around $3. If that CD sells for $12 and has 10 tracks on it, each track would cost 90 cents) How­ever, in order to make this truly attrac­tive, this would still be con­sid­ered a high price. Drop it by a fac­tor of 10 or more and it may start becom­ing low enough for peo­ple to con­sider it.

Pay-per-minute model

: This would be some­what sim­i­lar to phone ser­vice. Users would pay for min­utes of air­time on a ser­vice. How­ever, the price would have to be low enough to make it tempt­ing for the users. Some­thing along the lines of a por­tion of a cent might be reasonable.

Advertising-based model

: This would essen­tially have the music label dis­trib­ute the music around the net but tack a front and a back book­end adver­tis­ing mes­sage. They would charge adver­tis­ers a pre­mium, as the mes­sage would be played every time a song is run. Even though I am sug­gest­ing this, I’m still dubi­ous as to its effec­tive­ness, as users might find a way around it.

I don’t believe that any of these are the sole answer but I am putting them out as as sug­ges­tions. If evolved prop­erly, they could be the begin­ning of a new way to sell music.