\Napster Case

. Introduction:

Amidst the hot debate about whether or not music should be free, there are ethical and moral considerations as well. MP3 music downloading has become the latest fad for computer owners. One computer site where users can download MP3 songs is Napster. The emergence of digital entertainment, whether an MP3, Liquid Audio book, or streaming video, has caused an inevitable shift in the entertainment market from a commodity base to a service base. One reason is that the digital medium eliminates acquisition cost for the consumer. A perfect copy of the original good is automatically created upon request. Using open platforms and formats, new companies in the entertainment sector have literally bypassed traditional production and distribution channels to reach the consumer. Napster is the perfect example of this new paradigm, turning every member’s computer into an audio server and distributing an individualized playlist. However, this trend seriously limits a content owner’s ability to restrict the supply of his/her intellectual property on a large scale and thus control it. In response, the music industry has resorted to litigation and restrictive usage rules on licensed or retailed digital products.

2. Analysis the Economics of the music recording business

The music industry continues to be characterized by commodity pricing. This is largely due to the fact that major label revenues are predominately derived from CD sales. As such, the focus of the industry’s online strategy has been to prevent CD sale cannibalization through control of online product supply and distribution. In the absence of this control, copyright owners would be unable to maintain pricing control. As a result, the industry has taken the lead in defining new rules for online digital distribution that would replicate conditions existing for off-line digital distribution.

 Copyright infringements (excluding the effect of Internet) - bootlegging, piracy and counterfeits - are costing the music industry approximately $5 billion per year

 sales in the music industry's five biggest markets (USA, Japan, Germany, UK and France) are growing slowly, if not stagnating

3. Analyze the company’s history, development, and growth.

James Breyer (venture capitalist): “Napster is truly revolutionary- and it will be a precursor of some of the most important web applications over the next several years.)”

3.1. History