It was 1999, just two years after Brandenburg’s MP3 audio file format unintentionally became a free-for-all. Frustrated with the difficulties of browsing for music on the Internet, and finding different MP3s he can download using web search engines, Shawn Fanning got an idea to build a software which would use a peer-to-peer, or P2P protocol, and which would consolidate the browsing of the users’ music files collections and downloading, on the centralized server. Other words, using a client software and the internet connection, the users would be able to see the music files on each other’s hard drives and download them as they like, to their own hard drives. The centralized server would therefore contain no music files, only the users’ information and the files’ text information. It would enable the users to search and download the files using the P2P protocol, not store the files on the server. He named his new platform – Napster - his Internet Relay Chat nickname, which was, by the way, the nickname he got as a kid because of his haircut at the time. By the mid 1999, Fanning created the first version of Napster and gave it to a two-dozen or so people to try it out. Everyone loved it, and pretty quickly after that, thousands were beginning to download it and use it on regular basis. A promising start. So Fanning’s uncle, John Fanning, offered to assist Shawn with the business end of things, and incorporated the company, splitting it 70/30. 70 percent for the uncle, and 30 percent for Shawn. Nice uncle. We should all have an uncle like that. Provided, there was no money to split yet, but still. 70 percent. Just a bit distasteful, don’t you think? Anyway, and what was the business plan here? How was Napster going to make money? Well, there was no business plan. Shawn figured, if they would just work on improving and creating a good and powerful platform, it will happen in one way or the other. “If you build it, they will come” principle. Except that they didn’t really know who, and why, and when, and how will they make money when those “they” come. But since they needed to raise money and get some investors in, in order to grow, they needed a business plan to show some form of actual commerce happening using the platform that might make profits. So the first official business plan was to get 10 million users and eventually sell them concert tickets and music merchandise. And on that plan they got their first 250,000 dollars in exchange for 1.25 million shares. The game was on. By the fall of 1999, Napster had 150,000 registered users, and their number was multiplying at an unprecedented rate, already sharing millions of files. New investors joined in and brought additional 2 million dollars of new funds. The company was growing by leaps and bounds. They hired a CEO, software engineers, installed hundreds of servers handling the users’ traffic, rented offices in the Silicon Valley. So when the Recording Industry Association of America, RIAA, the body that represents the record labels in the United States, when they filed a lawsuit in December of 1999 against Napster, citing infringement of the music copyright, no one in the company panicked, or even worried, because of it. It was seen as a negotiation tactic by the labels to eventually get the best possible deal from Napster when the time for such deal comes. After all, it was the labels’ product being shared here, and they should be the most interested party out there, as they stood to gain big when this thing gets monetized somehow. In the past, Napster tried to get labels’ executive to make some kind of a deal, any deal, but no one in the labels’ world would touch it. And now this lawsuit. They must be ready to deal. Not really. It wasn’t an overture to negotiations. It was an overture to a kill. Labels were not amused or intrigued by what Napster was doing. They were furious at what was happening at the Napster dot com, all the files of their music being downloaded for free, and they saw it as a brazen and clear cut case of copyright infringement; not as any kind of business opportunity or possibility. Now to be fair, it is not like Napster was oblivious to the fact that copyright issue may be a problem. But their opinion, from the beginning, was that since there are no copyrighted files sitting on their servers, and since the files were being downloaded by their users directly from other users’ hard drives, the company was in the clear. Besides, even if their users were infringing on the music copyright, they figured there was that “safe harbor” provision in the Digital Millennium Copyright Act that would protect them, as the service provider, from the action of their users. We talked about that provision, remember? So they were confident that they were untouchable and kept concentrating on managing the growth and improving the platform. The Recording Industry Association lawsuit brought unexpected stardom to Napster and Shawn Fanning. Napster dot com was the talk of the media. Front pages of New York Times, L.A. Times, features on MTV, cable networks. The public opinion was divided, of course, which made for even better media piece. It went something like this: Napster is freeing music, liberating it from the chains of big bad labels that grew rich on the sweat of their artists. Napster is a folk hero who finally gave all the music lovers the freedom and the power they deserve. Long live Napster! How can you say that? What are you a communist? Those songs didn’t just appear by themselves on some song tree out there. It cost money, and time, and effort to make those things. Napster is a thief and a criminal. It robs the artists of their income and it steals bread from their mouth. Off with its head! Good drama, right? Media loved it. So much fun, and besides, now that everyone had an opinion about it, and so many people would tune in to see what’s up with the whole Napster thing, and who will win and who will lose, and so on, they could sell advertising for those shows for a little more money. See, fun and profitable. What’s not to love? But in the real world, it did create this almost generational rift. Most of the young people, college students, and so on, loved Napster, and vehemently sided with it. Even some music artists and bands supported it and defended it publically. Limp Bizkit, Chuck D, Courtney Love. And of course, some stood up against it. Eminem, Dr. Dre, and most famously Metallica, whose drummer Lars Urlich went as far as to personally, and very publically, deliver to the Napster’s offices a dozen boxes, filled with a print out of the names of over 300,000 Napster users that illegally shared Metallica’s songs. Overnight, Metallica went from the leader of the rebels, to the enemy of everything that the rebels stood for. Not the best publicity move to say the least. But, of course the media loved it. Couldn’t get enough of it. By the mid 2000, Napster’s user base grew to over 20 million. And tens of millions of dollars poured in by investors. But Napster also got a new CEO, a lawyer who was brought in as the new CEO, as the condition for all those millions in the investments. That lawsuit was not going away, and by now, everyone knew that it was a serious thing. So, a serious lawyer was needed at the helm of the company to handle it, and to assemble the legal team for the court fight of their lives. It became the company’s new focus. After all, if they lose the case, they lose everything. But Napster’s crew was optimistic. How can they lose given that they themselves did not keep, nor transferred any files? Plus, that Digital Millennium Copyright Act’s “safe harbor” provision was there protecting them, too. But, there was one thing. One little part, of one sentence, amongst all the thousands of emails that had to be turned over to the RIAA lawyers as part of the pre-trial procedure. One little part, of one sentence, in one of the internal Napster’s emails on the management level. The RIAA lawyers noticed it, and underlined it, and enlarged it, and framed it, and talked to it, and took good care of it, for it was their star witness. It was a sentence referring to the Napster users, ending with: “…since they are exchanging pirated music”. It was written by Sean Parker, Fanning’s second partner, after his uncle, to Fanning, way back when the company was just gaining its foothold. And why exactly is that small part of a sentence so important? Because it proves that the management knew all along that Napster is a platform for illegal downloading, that it was built to be so. And knowingly aiding in copyright infringement was illegal and punishable by law. It was one thing to build a networking platform for users to network and communicate and share files if they want to, and if some of those files happen to be illegal, there was that “safe harbor” provision for you as a network service. But it was a totally different thing to build the platform as a copyright infringing tool, to be aware of its main purpose, and still allow it to function, to manage its components, to cater to its users, and so on. That was expressly forbidden by law. No wonder the RIAA’s lawyers put their hope into it, as the final nail in the Napster’s coffin. In the late July of 2000, the trial began. On the first day, both sides presented their case to the judge. The judge went to her chambers. 30 minutes later she came back to the courtroom, and said that she was ready to rule. Both sides froze. She was ready to rule on such a complex, groundbreaking case after just thinking about it for 30 minutes? No questions, requests for clarifications, additional documents? No. The judge ruled for the record labels and against Napster, and ordered that Napster removes all the information about copyright protected files from their servers and stop aiding in the exchanging of such files. Well, that kind of meant shutting down Napster. So it was over, after all. Not yet. The Napster’s lawyers appealed the decision and the court’s injunction order, and in a few days, the court of appeals granted them their request for another trial. Napster dodged the bullet, and stayed opened. And the user base continued to grow, and billions of files continued to be exchanged and downloaded. Napster was now actively seeking investors whose funds would help with the lawsuit and ensure its continued operation. And in the fall of 2000, just three months after the first trial, they got the most unexpected one - Bertelsman company, the owner of the BMG record company, one of the major record labels at the time. Gave them a 60 million dollar loan in exchange for the major stake in the company, and became a Napster champion. In spite of its own record company being a part of the lawsuit against Napster. Well, can this get any better? A Spanish soap opera is a child’s play for this.
