The Napster Controversy



Themes: Ethics in Business
Period : 2000
Organization : Recording Industry Association of America
Pub Date : 2002
Countries : India
Industry : Media, Entertainment & Information

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Case Code : BECG007
Case Length : 07 Pages
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The Napster Controversy | Case Study

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Background Note

Napster was developed by two students of Northeastern University, (Boston), Shawn Fanning (Fanning) and Sean Parker (Parker). One of Fanning's friends had been searching in vain for digital music on the Internet. Fanning, who had an interest in computer programming, decided to help him by writing an Internet-based file-sharing program. Once the program was developed, Fanning and Parker began collecting funds from their friends and families to set up Napster2 as a start-up.

Napster was formally launched in May 1999. The popularity of the service took even the promoters by surprise. Students from school and college campuses across US soon emerged as the biggest subscribers of Napster. Officials at these campuses reported Internet usage to have gone up by as much as 75% because of Napster. They reported an explosion in network traffic, which eased dramatically when access to Napster was removed.

Soon, over 200 universities banned all Napster-related traffic on their networks. Napster's growing user base soon caught the attention of the RIAA, which immediately initiated a high-profile media campaign against it. The December 1999 RIAA suit against Napster proved to be just the beginning of the latter's troubles.

This was followed by a host of lawsuits being filed against Napster by record companies, artistes and music distributors. In February 2000, Napster offered to pay RIAA a $ 1 billion compensation package to put an end to the legal problems.

RIAA however declined the offer, in part because the payments were contingent on users paying to use the Napster system. If the users did not sign up for the proposed pay-service, the record companies would not receive any money. In October 2000, Napster entered into an agreement with the German media and publishing major Bertelsmann, by which the latter gave Napster a $ 60 million loan. The deal took everyone by surprise, as Bertelsmann was one of the RIAA companies suing Napster over the copyright issue.

Though Napster claimed it had not 'sold out' to RIAA, reports of the company having succumbed to RIAA pressures kept surfacing. By November 2000, Napster and Bertelsmann revealed plans to launch a paid version of Napster's services in the near future. Napster faced another setback in March 2001, when a website filed a complaint against it for copyright infringement and unfair competition. Napster had for long claimed that filtering out music owned by from its database was not possible.

After Napster stated in court that it would attempt to filter music files by artist name and song title in February, 2001, filed the complaint claiming that the former had the technical capability of filtering specific content all along, but was not willing to implement it. Though Napster was able to get an injunction against the court's order to stop its operations in July 2001, the website had not resumed operations even by October 2001. Meanwhile, the legal battle between the RIAA and Napster continued. The Napster case was scheduled for its next hearing in October 2001.

The Arguments

Napster supporters claimed that the recording industry was over-pricing its products and that file sharing was the only legitimate way to get music cheaper. RIAA argued that if customers felt the merchandise was over-priced, they were free to decide against buying it. RIAA supporters cited the case of global diamond prices, which were being artificially inflated because they were controlled by an international cartel. They countered that by Napster's logic, it would be ethically right for a person to steal diamonds.

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2] The name Napster used to be Fanning's nickname in high school.