South-Western College Publishing - Economics  

Policy Debate: Should Napster and similar MP3 distribution mechanisms be banned?


 

Issues and Background

In the new e-commerce economy, hyper speed and continuous change are the rule. The result is that the purchase and ownership of CDs, or for that matter, any other fixed product, makes less and less sense. Why would anyone want to acquire or hold on to anything when everything is immediately accessible and updatable in vast commercial networks, right at the time where you need it and is cheaper to access that material than to buy it? Thatís why Napster is such a success. It provides instant access to music at near zero cost.
Jeremy Rifkin, "Napster heralds new business model," August 28, 2000, MSNBC
I don't have a problem with any artist voluntarily distributing his or her songs through any means the artist elects-- at no cost to the consumer, if that's what the artist wants. But just like a carpenter who crafts a table gets to decide whether to keep it, sell it or give it away , shouldn't we have the same options? My band authored the music which is Napster's lifeblood. We should decide what happens to it, not Napster -- a company with no rights in our recordings, which never invested a penny in Metallica's music or had anything to do with its creation. The choice has been taken away from us.
~Lars Ulrich, July 11, 2000 statement before the Senate Judiciary Committee

For decades, individuals have made tape recordings of live musical performances or musical performances sold on records, tapes, or CDs. These recordings were often copied and traded with friends and other collectors. Taped copies, however, were of a lower quality than the original. Subsequent copies suffered further quality loss. This reduced the possibility for widespread tape copying of music files as an alternative to purchasing music from recording companies. The introduction of the MP3 recording format, however, made it possible to encode and compress musical recordings into a compact file that can be played back at near-CD quality. Due to the digital nature of this recording, each copy of the MP3 file is identical to the original file. These files are small enough that they can be quickly downloaded from the internet, even by those using modem connections. The development of MP3 players that can store hundreds of songs has also encouraged the widespread use of this storage format.

In January 1999, Shawn Fanning, a freshman at Northeastern University, introduced the Napster program and service. Napster allowed users to swap music files (stored in MP3 format) with other users of this service. The Napster company provided the software that locates and downloads MP3 files and maintained a central directory containing the addresses of computers that held specific MP3 files. MP3 files, though, were not stored at the Napster site. Those who downloaded files automatically were listed as servers for these files (unless they moved these files to other directories or shut down the Napster server). The peer-to-peer networking capability of Napster represented a substantial innovation in file distribution. A substantial share of the music traded through Napster (and related services), though, involved illegal transfers of copyrighted music. This resulted in some serious concerns in the music industry.

In the summer of 2000, the Recording Industry of America initiated a lawsuit against Napster, claiming that Napster was involved in copyright violation. In July 2000, a lower court judge ordered Napster to cease operation until it could block copyrighted material. This decision was stayed, pending review by a federal appeals court. The appeals court upheld the lower court's decision in February 2001. Napster continued operations while attempting to filter copyrighted material, but was not able to block all copyrighted material. While Napster claimed a 99% success rate in blocking copyrighted material, it was shut down on July 11 by the court until it was able to demonstrate a 100% compliance with the court order. Napster has now moved to a paid membership system and has continued its efforts to reach agreements with recording companies.

While Napster no longer serves as a peer-to-peer music distribution service, several alternative services and software programs have appeared that provide equivalent functionality. Gnutella, a program written by employees of AOL, makes possible the widespread distribution of files (including program and video files as well as MP3s) without central coordination. A wide variety of downloadable Gnutella clients are available that have taken over much of the MP3 downloading activity. OpenNap, an open-source software project, provides a free alternative to the Napster server (although, this system also relies on central servers that would be vulnerable to lawsuits). Freenet, a recent innovation, is a service that attempts to make it impossible to trace those who either upload or download materials to their network. BitTorrent is another alternative peer-to-peer system that allows for rapid file transfers without a central server. An interesting feature of BitTorrent is that it uses a distributed system of filesharing in which an increase in the number of users raises file transmission speeds (since each downloader also serves as an uploader of the portions of the files that have already been received).

Advocates of peer-to-peer file distribution systems argue that services of this sort allow new musicians to distribute music to a wide audience at virtually no cost. Some argue that the existing system of music distribution provides the recording companies with a monopoly control over the distribution of a given artist's music. This, it is suggested, results in high prices and profits for these companies, but only limited rewards to most musicians. It is also claimed that it is very difficult for new artists to break into the market under the existing system.

Opponents of peer-to-peer file distribution systems argue that copyright protection is necessary to encourage innovation and risk-taking by artists and recording companies. They argue that the high price of CDs is needed to cover the losses associated with recordings that are not successful.

Regardless of the legal settlements of cases involving specific file distribution systems, the online distribution of music provides a low-cost alternative to the existing system of selling music on CDs and cassette tapes. Consumers who have been able to acquire virtually any music that they wish for free are likely to continue choosing this mechanism (as long as criminal penalties are unlikely...). The challenge that the recording industry faces is to develop a new business model that allows them to take advantage of the low-cost distribution mechanism provided by the internet while remaining profitable. The new Napster, Apple's ITunes music service, MusicMatch, and several other online music distribution systems are attempting to provide a legal alternative to peer-to-peer file sharing systems.

 

Primary Resources and Data

  • Napster
    http://www.napster.com/
    This is the home page of the new Napster. This system provides paid access to a catalog of over 2 million downloadable songs.

  • OpenNap: Open Source Napster Server
    http://opennap.sourceforge.net/
    OpenNap is a open source software project that provides an open source alternative to the Napster server. It differs from the Napster server in that it allows for the sharing of any media type and makes it possible for there to be a network of linked servers.

  • Gnutella.com
    http://www.gnutella.com/
    This web site provides information about the Gnutella program, an open source file sharing program that relies on peer-to-peer networking. A discussion board on Gnutella is available at this site.

  • Madster
    http://www.madster.com/
    Madster (formerly known as Aimster) is a peer-to-peer client that provides file sharing without any central server. The producers of this program changed the name as the result of a lawsuit by AOL Time Warner. Madster is currently involved in legal battles with groups that claim that it assists in copyright infringement. The service declared bankruptcy as a result of lawsuits involving the RIAA.

  • Limewire.com
    http://www.limewire.com/
    Limewire is a popular gnutella client that provides peer-to-peer file sharing capabilities. This site provides information about the commercial version of the Limewire client software package.

  • Limewire.org
    http://www.limewire.org/
    The open source version of Limewire is available for free downloads from this site. Information on the Limewire package is available here.

  • BearShare
    http://www.bearshare.com/
    BearShare is a another popular downloadable gnutella client that allows peer-to-peer file sharing.

  • The Freenet Project
    http://freenet.sourceforge.net/
    The Freenet project, developed by Ian Clarke, is a peer-to-peer network that is designed to allow for the uncensored distribution of information. Freenet is completely decentralized. This means that it cannot be shut down as easily as Napster or other centralized services. It also means that material posted to Freenet cannot be forcibly removed as long as freenet servers remain available somewhere on the internet. Materials may be uploaded and downloaded to Freenet servers in an anonymous manner. This web site provides an extensive collection of material concerning the Freenet Project.

  • iMesh
    http://www.imesh.com/
    IMesh provides another file sharing system that relies on a central server in a manner similar to Napster.

  • Morpheus
    http://www.morpheus.com/
    Morpheus provides a peer-to-peer networking capability similar to gnutella. Morpheus provides search and download capability for a wide variety of file types.

  • Kazaa
    http://www.kazaa.com
    Kazaa provides an alternative peer-to-peer client that connects to the same network that is used by the Morpheus client.

  • BitTorrent
    http://www.bittorrent.com/
    BitTorrent.com provides the BitTorrent peer-to-peer client, but has also negotiated arrangements to commercially (and legally) distribute a growing variety of music, video, and software files.

  • Damien Cave, "The Mojo Solution"
    http://www.salon.com/tech/view/2000/10/09/mojo_nation/index.html
    This October 9, 2000 article contains a description of another file distribution service that includes a elaborate system of payments to those who provide upload or computing services and charges for downloads. The prices for these services change with supply and demand conditions.

  • Recording Industry Association of America, "Legal Cases"
    http://www.riaa.com/news/filings/default.asp
    This Recording Industry Association of America (RIAA) website contains links to online documents from several copyright infriengment cases. Court transcripts provide detailed arguments presented by both sides in these cases. Of particular interest are those related to the Napster case. (The Adobe Acrobat viewer plugin is required to view these documents. You may download this viewer by clicking here.)

  • Kathy Bowrey, "Intellectual property, peer to peer and resistance to regulation"
    http://www.austlii.edu.au/au/other/CyberLRes/2001/5/
    In this May 2001 study, Kathy Bowrey provides a useful discussion of the legal issues associated with peer to peer file sharing systems.

  • Pew Internet and American Life, "Downloading Free Music: Internet Music Lovers Don't Think It's Stealing"
    http://www.pewinternet.org/reports/toc.asp?Report=23
    This September 28, 2000 Pew Internet and American Life report indicates that 78% of the individuals who download music and save it on their computers do not consider it to be stealing. The data suggests that half of all music downloaders buy copies of the music that they download at least some of the time. This study also suggests that approximately 11 million Americans (a majority of music downloaders) have used Napster. The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Recording Industry Association of America
    http://www.riaa.com/
    The web site of the Recording Industry Association of America contains information and statements about their lawsuits against Napster and other file-sharing systems. They argue that peer-to-peer file sharing systems are involved in massive copyright infringement.

  • Eytan Adar and Bernando A. Huberman, "Free Riding on Gnutella"
    http://www.firstmonday.dk/issues/issue5_10/adar/index.html
    Eytan Adar and Bernando Huberman investigate traffic on Gnutella in this October 2, 2000 online article appearing in First Monday. They find that most users of Gnutella are free riders who download files but provide none in return. Adar and Huberman note that the incentive to free ride is larger as the size of the network grows. They suggest that such a system may collapse on its own, regardless of copyright enforcement activity. (This article also contains links to a variety of related articles and web sites in its bibliography.)

  • CNet News.Com, "Online music-traders consider Napster alternatives"
    http://news.cnet.com/news/0-1005-200-2924973.html
    This October 3, 2000 online article provides an assessment of the possibilities for replacements to Napster if the Court of Appeals shuts Napster down. It is noted that Gnutella and OpenNap rely, in practice, on a limited number of servers that provide most of the content. These sites would be vulnerable to lawsuits and could be shut down. It is suggested that while Freenet would be less vulnerable to lawsuits, it is not currently a service that is likely to appeal to many users.

  • Digital Millennium Copyright Act
    http://www.loc.gov/copyright/legislation/dmca.pdf
    This website contains a detailed summary of the Digital Millennium Copyright Act. The Digital \ Millennium Copyright Act updates U.S. copyright law to take into account the existence of the internet. The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.

  • Copyright Law of the United States of America
    http://lcweb.loc.gov/copyright/title17/
    This site contains the complete text of U.S. copyright laws.

  • United States Copyright Office
    http://lcweb.loc.gov/copyright/
    The web site of the United States Copyright Office contains information about copyright law, a FAQ, and a variety of reports and studies that may be viewed online. Of particular interest is an amicus curiae filing in the Napster lawsuit.

  • William Fisher, "MP3"
    http://eon.law.harvard.edu/property00/MP3/main.html
    These online materials on MP3 were used in support of a portion of William Fisher's online course on "Intellectual Property in Cyberspace." This material provides a good introduction to some of the issues associated with trade in MP3s. An extensive collection of links to relevant resources is provided throughout the text of this document. The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.

  • Apple, "ITunes"
    http://www.apple.com/itunes/
    This website provides information about the paid music download service provided by Apple.

  • MusicMatch
    http://www.musicmatch.com/
    This website provides information about the paid music download service provided by MusicMatch.

 

Different Perspectives in the Debate

  • Electronic Frontier Foundation
    http://www.eff.org/
    The Electronic Frontier Foundation supports digital free expression and online privacy and is opposed to government regulation of the internet. This site contains a collection of articles and studies related to intellectual property rights. A collection of links to other related sites is also provided.

  • Berkman Center for Internet & Society, "The Future of Intellectual Property on the Internet"
    http://cyber.law.harvard.edu/futureofip/archive.asp
    This web site contains a RealVideo version of the October 1, 2000 debate between Jack Valenti (the head of the Motion Picture Association of America) and Lawrence Lessig (a cyberlaw expert) concerning intellectual property on the internet. (Viewing this debate requires that you install the free RealPlayer plugin for your browser.) This website also contains a list of links to related resources on the internet.

  • Aaron Pava, "Who Said What at Music Hearing"
    http://www.zdnet.com/zdnn/stories/news/0,4586,2602292,00.html
    This July 12, 2000 ZDNet Music article examines the arguments concerning Napster and similar services. The primary focus of the article is on the issues raised by those testifying before a Senate fact-finding committee during the summer of 2000. This site also contains transcripts of the testimony of those who appeared before the committee. Their comments provides a good overview of the relevant issues.

  • Lars Ulrich, "Statement before the Senate Judiciary Committee"
    http://judiciary.senate.gov/testimony.cfm?id=195&wit_id=252
    In this July 11, 2000 statement, Lars Ulrich of Metallica expresses the reasons behind his band's opposition to Napster. He argues that Napster harms artists by depriving them of a reward for their creative effort. Ulrich suggests that downloading copyrighted music files is a form of theft.

  • Kevin Hurley, "The Internet's Invisible Hand"
    http://www.americanoutlook.org/index.cfm?fuseaction=article_detail&id=1209
    Kevin Hurley discusses the effect of Napster and similar systems in this Summer 2000 online article in American Outlook Magazine. He argues that technological innovations will force recording companies to lower prices and to work with internet-based companies to explore alternative distribution mechanisms.

  • Berkman Center for Internet & Society and Electronic Frontier Foundation, "Signal or Noise? The Future of Music on the Net"
    http://cyber.law.harvard.edu/events/netmusic_agenda.html
    This web site contains information about a conference on internet music sponsored by the Berkman Center for Internet & Society and the Electronic Frontier Foundation. RealVideo presentations are available. (You must have the RealPlayer plugin installed in your browser to view these presentations. You may obtain the free plugin by clicking here.) Of particular interest is the Briefing Book contained on this site. This Briefing Book contains a collection of interesting briefing materials and position papers.

  • John Perry Barlow, "Napster.com and the Death of the Music Industry"
    http://www.philzone.com/hotline/napster.html
    John Perry Barlow, Grateful Dead Lyricist and co-founder of the Electronic Frontier Foundation, presents his views on the impact of Napster in this online posting. Barlow argues that the internet provides a low-cost distribution framework for music that is currently being obstructed by legal barriers imposed by copyright laws. He argues that shared music files had increased the demand for musical performances and musical releases issued by the Grateful Dead. Barlow suggests that many musicians are discovering that "the best way to make money from music is to give it away." He argues that eventually Napster and similar distribution mechanisms will lead to the downfall of the recording industry. He suggests that this industry will not be missed since: "For over a century, it has exploited both musicians and audiences." Barlow notes that humans "were providing for the material needs of musicians for tens of thousands of years before copyright law" and expects that this will continue in some form even with the existence of Napster and similar mechanisms.

  • Esther Dyson, "Intellectual Value"
    http://www.wired.com/wired/archive/3.07/dyson.html
    In this July 1995 article, Esther Dyson suggests that the economics of content will change dramatically as a result of the internet. She argues that the ability to freely copy information will drive the price of content close to zero. Dyson argues that in this new environment, individuals will receive compensation from packaging content and providing services and not from the content itself.

  • Andy Oram, "Gnutella and Freenet Represent True Technological Innovation"
    http://www.oreillynet.com/lpt/a/208, and
    Andy Oram, "The Value of Gnutella and Freenet"
    http://legalminds.lp.findlaw.com/list/cyber-rights/msg01235.html
    In these two articles, both released on May 12, 2000, Andy Oram examines the innovations associated with Gnutella and Freenet. In particular, he argues that the main contribution of Gnutella is the ability to conduct distributed searches using a variety of search tools that are most appropriate to the individual sites. He suggests that both Freenet and Gnutella offer the advantage of making data on any one machine available to the whole network of users. Freenet offers the advantage of being more easily scaled as the number of users increases.

  • Scott Rosenberg, "Napster -- friend or foe?"
    http://dir.salon.com/tech/col/rose/2000/03/30/napster/index.html
    Scott Rosenberg examines the possible impact of Napster in this March 30, 2000 article appearing in Salon. He believes that, in the long run, Napster (or similar services) will lead to the collapse of the music industry as we now know it. Rosenberg believes that eventually artists will deliver their music directly to fans once an appropriate micropayments system is developed that allows small payments to be made with low overhead costs.

  • Courtney Love, "Speech on the Music Industry"
    http://archive.salon.com/tech/feature/2000/06/14/love/
    In this speech, Courtney Love argues that musical artists receive a very small compensation from their creative efforts. She suggests that major label recording artist contracts are a form of piracy in which the studios receive the benefit of the artists work. Love suggests that new internet technologies offer the promise of a low-cost distribution mechanism, but need to develop a method of compensating artists for their efforts.

  • Report of Dr. Ingram Olkin
    http://www.riaa.com/news/filings/pdf/napster/olkin.pdf
    Ingram Olkin investigates the proportion of copyrighted material that is downloaded by Napster users in this June 12, 2000 report. He finds that the vast majority of songs were copyrighted. (This study was commissioned by the Recording Institute Association of America.) (The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Report of Michael Fine
    http://www.riaa.com/news/filings/pdf/napster/fine.pdf
    In this report, commissioned by the Recording Institute Association of America, Michael Fine presents evidence suggesting that album sales have suffered for music stores located near college campuses in which a large proportion of students have access to high-speed internet connections. It is suggested that Napster and similar packages are responsible for this effect. (The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Hilary May Black, "Pricing Recorded Music in an Online World"
    http://www.gtlaw.com.au/gt/site/articleIDs/...&template=domGT
    Hilary May Black, of the Gilbert and Tobin law firm, investigates the effect of the internet on the pricing of recorded music in this July 14, 2000 online article. It is argued that a mechanism must be developed that allows for music providers to protect value in recorded music. Black suggests that a new business model needs to be developed for this industry.

  • Robert Menta, "Big Music's Best Tool Against Napster - DVD"
    http://www.mp3newswire.net/stories/2000/dvd.html
    In this October 6, 2000 article, Robert Menta argues that the introduction of high quality DVD music recordings may be the recording industry's best chance to overcome Napster and similar MP3 distribution mechanisms. Since these DVDs provide substantially higher sound quality, competition from lower quality MP3 recordings will have less impact on their sales (at least until higher quality compressed digital recordings become available).

  • Bram Cohen, "Incentives Build Robustness in BitTorrent"
    http://www.bittorrent.org/bittorrentecon.pdf
    Bram Cohen, in this May 22, 2003 article, argues that BitTorrent offers advantages for peer-to-peer file sharing that are not available under alternative systems. He notes that this system shifts much of the cost of downloads to the downloader. This occurs to a greater extent as the number of downloaders increases. Cohen argues that the software is designed to work to achieve a state of Pareto efficiency in file transfers since peers interact in transferring pieces of a file if both can gain from the transaction. The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Douglas Clement, "Was Napster Right? "
    http://minneapolisfed.org/pubs/region/02-09/napster.cfm
    In this September 2002 Region article, Douglas Clement examines arguments raised by Boldrin and Levine against current copyright law. This article provides a very nice discussion of the economic rationale for current copyright and patent law as well as a discussion of the Boldrin and Levine argument. This argument suggests that there are substantial incentives to innovate in the absence of copyright protection. Clement provides a nice summary of the arguments for and against the Boldrin and Levine thesis.

  • Michele Boldrin and David K. Levine, "Perfectly Competitive Innovation"
    http://minneapolisfed.org/research/sr/sr303.pdf
    Michele Boldrin and David K. Levine provide an argument for the abolition of copyright and patent law in this March 2002 Federal Reserve Bank of Minneapolis working paper. They argue that technological innovation will occur without copyright or patent protection as a result of the "first-mover" advantage received by innovators. Boldrin and Levine suggest that competitive markets will be more efficient in encouraging innovation than will monopolies created through copyright and patent law. It is argued that providing the innovator with monopoly control of the uses of an innovation "reduces the incentive for further innovation." (The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Stuart E. Schechter, Rachel A. Greenstadt, and Michael D. Smith, "Trusted Computing, Peer-To-Peer Distribution, and the Economics of Pirated Entertainment"
    http://www.eecs.harvard.edu/~stuart/papers/eis03.pdf
    Stuart E. Schechter, Rachel A. Greenstadt, and Michael D. Smith examine the effect of "trusted computing" systems and peer-to-peer distribution in this May 29, 2003 research paper. They observe that the development of low-cost peer-to-peer distribution networks has dramatically lowered the cost of distributing pirated materials. The recording industry has responded by legal actions designed to raise barriers to copying content. These methods are primarily based on data encryption and the distribution of keys to platforms that are "trusted" by the media vendor. Schechter, Greenstadt, and Smith note, though, that this system breaks down when the media is played in a format that may be viewed or heard by the final recipient (since such material may always be captured). They also note that the same system of file encryption and trusted computing can be used by pirates to distribute pirated materials with less risk of detection. (The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Athens University of Economics and Business - Network Economics and Services Group, "Peer-to-Peer Economics"
    http://nes.aueb.gr/p2p.html
    The Network Economics and Services Group of Athens University of Economics and Business discusses the requirements for the development of an efficient peer-to-peer distribution system. This page summarizes their research agenda and provides links to studies that they have conducted on this topic.

  • Panayotis Antoniadis, "Economic Modelling and Incentive Mechanisms for Efficient Resource Provision in Peer-to-Peer Systems"
    http://nes.aueb.gr/publications/2006.antoniadis_thesis.english.pdf
    Panayotis Antoniadis provides a very detailed discussion of the economic issues associated with the construction of an optimal peer-to-peer distribution system in his March 2006 Ph.D. dissertation. This is modelled as a system in which there is private provision of a public good (since files distributed over such networks are nonrival in consumption). One of the issues addressed in this study is the creation of an incentive system to address the free-rider problem inherent in the provision of public goods. (The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Rufus Pollock, "P2P, Online File-Sharing, and the Music Industry"
    http://www.thefactz.org/economics/p2p_summary.html
    This website, created by Rufus Pollock, provides a summary and critique of several recent studies of the effect of file-sharing networks on the music industry and on social welfare.

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