Music Business

5 Reasons The Major Labels Didn’t Really Blow It With Napster

UnnamedPundits are fond of saying that the major labels blew it by suing Napster instead of doing a deal with them. It's as though they're obligated to repeat it as a mantra; they didn't get it, they were asleep, how could they have missed such a golden opportunity, yadda yadda. Shift through all the reverential twaddle, and you'd think Napster walked into the major labels offering trays of gold and were rebuffed. 


Guest Post by Jim McDermott on

These pundits weren't there when Napster was going down, so to a degree they can be excused for not understanding all the complexities that were in play at the time. But increasingly, I've noticed a trend amongst former colleagues, people who worked at majors during the dawn of Napster and saw the rise of file sharing, people who should know better, saying we blew it with Napster too. Could be they've read so many articles spouting this opinion that they've adopted it themselves. Or maybe they say it because they don't want to seem, you know, unhip.

Whatever the reason, it's bullshit. The major labels were right not to compromise with Napster. I was VP of Electronic Music Distribution at Sony Music at the time, dealing with these issues day to day. Understandably, some people may think, what does it matter if the majors were right or not? They lost. But I think its important to understand the various facets and history of these events, if only to provide perspective for issues the industry is still dealing with today.  So, at the risk of being unhip, here are Five Reasons Why The Major Labels Didn't Blow It With Napster. 

1) The Economics Sucked: Here we are in 2015; Spotify, Pandora and other streaming services are struggling to become profitable. Artists complain how little they're being paid, and consumers seem unwilling to pay more than $9.99 a month. It's clear that selling music profitably, even all you can eat access that's totally portable and personalized via widespread adoption of mobile devices, is difficult. 

Five+Reasons+Why+The+Major+Labels+Didn't+Blow+It+With+NapsterNow let's look at things from the perspective of a major label in 2000. CD sales have contracted a bit, marketing costs are rising, but the music business has bounced back from economic challenges many times. The music business in all facets is cyclical. CD sales generate over 13 billion dollars in 2000; via an ecosystem that, despite flaws, is working fairly well. Artists are getting signed, records made, distributed, marketed, put on the radio, and sold. There is not only a perception that music has value, it is the reality. Then along comes Napster. Napster's play is that their distribution network has par or greater value than the content, and that a nominal monthly fee ($10-20) is what the consumer would tolerate. This fee would be split between Napster and the labels.

Now, Napster didn't approach labels to get licenses before they launched, they just put their software out there. Major labels were not in the habit of giving anyone licenses for unlimited replication and distribution of their masters, which is what Napster enabled, again, without consent by the rights holders. If you could even put a number on what such a license might be valued at by a major label in 2000, it would certainly be in the billions of dollars (because remember, 13 billion dollars worth of CDs, a tangible, countable product, were being sold annually at that time.) 

So here are these Napster guys, sitting across from you in a meeting, saying "let's make a deal, we'll give you ten bucks a month per user, and hey, if you don't do a deal with us, we'll keep doing this anyway, because (smirk smirk), "fair use" enables us to do so." Honestly, why would anyone do a deal under these circumstances? You're got 13 billion dollars in revenue on one hand, and a couple of computer schmucks (that's how some people referred to the Napster folks) politely extorting you for maybe ten bucks a month on the other. NO WAY was that going to be a deal that happened in 2000; it's not even a deal that makes sense today.

2) LOTS of Experimentation Was Happening: There's a perception that the music industry did nothing but sue people during the Napster years, and that it wasn't until Steve Jobs pushed the majors to license iTunes that anything got done. This is not correct, I know so because I was there and involved. The Madison Project was an experiment some of the majors did with Roadrunner cable in San Diego to test the viability of consumers buying, downloading and burning their own CDs. And this 1999 year end review in Billboard Magazine details a bunch of other projects and digital licensing deals that were happening at the time. At Sony Music, we were working with Liquid Audio, A2B, RioPort, Microsoft, Real Networks, Intertrust, Launch, and many others. In 1999/2000, Apple wasn't really a player in digital music. It barely made sense to talk to them because they had no audience for music; the only presence Apple had at this time was when startup guys bought their pretty Powerbooks into meetings. Nobody was waiting for Apple to come along and save digital music (they had to buy SoundJam MP first anyway). Everyone was learning, but we had a responsibility to minimize mistakes while we learned. Rushing into a deal with Napster would have rendered all other efforts to develop a legitimate digital music marketplace stillborn – and frankly, it would have made the future success of the iTunes Music store literally impossible. Had a deal been done with Napster, iTunes would have looked radically different, if it existed at all.

3) The Responsibility to Artists & Stakeholders: Ahh, that word, responsibilityNapster was never burdened by that word. They couldn't even promise they'd be able to say what tracks and which artists were downloaded on their service, because for one, the consumers were creating the metadata associated with those tracks when they uploaded them. Napster didn't have to concern themselves with  getting publishing clearances from all the songwriters of a given track, or mechanical rights fees, or locating the film for the album artwork, or making sure the digital masters they uploaded had no artifacts – they didn't care, and neither did the users of Napster, because it was all free. A label has a responsibility to the artists and their art, the rights holders, and yeah, to the retailers who are selling legitimate music products. We couldn't wake up one day and say, OK Napster, you've got a GREAT idea, screw all those agreements, all that legacy and stewardship!

Invariably, people point out that labels exploited artists for years, and use that as some rationalization for file sharing. But all it really means is that Napster made it easy for the fans to screw the artists too, and a few entrepreneurs got really rich instead of label guys. You can't support Napster by claiming some moral high ground.

4) The Genie Was Never Going To Get Back In The Bottle: It is wildly naive to think that doing a deal with Napster would have somehow contained file sharing. All you need to do is look at the decade following Napster's demise and see that it was replaced by a never ending variety of peer-to-peer players, including services like Limewire and The Pirate Bay. Signing a deal with Napster, which would have turned it into a paid peer-to-peer service, would have instantly created a market for competing free (or ad-based) services. People get very philosophical about what Napster did to the marketplace, and the opportunities it created. But all it really proved was that all the music you can download for free with no consequences had great appeal. Once people got charged a fee, or got sued, they'd go elsewhere for their free music. Napster was never going to be an answer to anything, just the first in a long line of questions we're still pondering today.

5) Legal Precedents Had To Be Established: I heard it in meetings many times – "we can't do any deal with Napster until the court case is resolved and we have legal precedent on file sharing." In the early 2000's in the USA, majors were either licensing content to digital music services, or developing their own. If it was found that file sharing was "fair use", as Napster argued, then the digital music marketplace would be dead overnight. Napster was available from June 1999 until July 2001 when it was ordered closed, just two years. But that was a very long period of "foundational erosion" for anyone trying to build a legitimate download marketplace to endure. It cannot be overstated how important it was to assert legally that the majors owned the digital distribution rights of their masters, and that file sharing was not "fair use". That had to happen before any compromise could be considered.

Outside of America, the digital download marketplace was evolving a little bit slower; internet media consumption was limited due to bandwidth constraints, and some markets were more enthusiastic about mobile. It wasn't certain that existing artist contracts included rights for digital downloads and streaming in all territories; in 2000, we had a whiteboard of tracks cleared for download sale in the USA, and for months it was just 80 songs – and Sony Music had a catalog of millions of tracks. So it wasn't just about establishing legal precedent about fair use and file sharing, it was about labels proactively confirming their rights by actively exploiting/licensing them. This took time, which became compressed because of Napster's arrival. 

 OK, here's a bonus 6th reason :-) Just Because You Lose, It Doesn't Mean You Did The Wrong Thing Fighting The Battle. Sometimes in life, you fight battles that end up being futile. Nobody wins all the time. But that doesn't mean that fighting wasn't the right thing to do just because you lost. In a December 2014 video piece from the New York Times, one of the original developers who worked on Napster recalls thinking, "If this piece of code works, this is going to be huge. And I had a moment there where I asked myself, is this morally correct? Technology's advancing, this is going to happen anyway." And of course, they launched Napster and it became huge. So you've got premeditation, prior knowledge of wrongdoing, an understanding that this would hurt someone – but they did it anyway.

There's an old adage, and it applies all too often in the growth of giant digital media players: if you're going to steal, steal big. Boost a $1000's worth CDs and get caught, you could do four years in jail. Bootleg CD and record plants routinely got raided in the physical product days, product confiscated and arrests made. But Napster facilitated the theft of billions of dollars of intellectual property, and nobody really got punished. Well, certainly not the douchebags who created and ran Napster – quite a few music fans who used the service and got caught file sharing got hefty fines.

Obviously file sharing didn't go away when Napster was shut down, and a segment of people still get music, movies and software this way. But file sharing didn't end up being predominant way music gets consumed. The legal download business blossomed for a time, and now streaming is where things are happening – with licensing fees potentially headed upwards. So perhaps we didn't "lose" the battle after all.

Napster really only proved that many people love free music, and if you enable them to steal something without feeling like they're doing anything wrong, they'll do it without qualms. These facts are nothing to build a business on, or get nostalgic about. No matter how hip it may be to do so. 

If you made it this far – thanks for reading!

Jim McDermott

(note, these are just my opinions.)


Share on:


  1. I agree that the major labels did not blow it by not doing a deal with Napster. they did blow it big time by ignoring a very obvious consumer trend. the big lure of napster for consumers was not that it was free. Rather, consumers loved being able to get just the individual songs they wanted in digital form without having to buy a $15 CD full of songs they didn’t want. I would ask Mr. McDermott one simple question…In 2000, when people were downloading songs from napster, did the major labels have a paid service in place that had as much content, and was as easy to use as Napster? Mr. McDermott, you know the answer to that question is a resounding “no”, and that’s where you guys blew it. Unless you guys had an equally robust service in place, where the only difference from napster is that it wasn’t free, then asserting that people simply wanted everything for free is ridiculous.

  2. Bob I guess I didn’t cover that point too specifically in the piece, thanks for catching it.But generally, I did mention that the labels themselves did not have total clarity on the usage rights for digital in 2000 (paragraph 5 covers this a bit).
    We could’t just slice up people’s albums and sell all tracks as singles in 2000. We needed clearances, and in many cases we needed to discuss with the artists. Believe it or not, many artists didn’t want their albums cut up and cherry picked.
    Just because file sharing came along, didn’t mean we could suddenly ignore contractual obligations, the wishes of the artists, and yes, the commercial aspects of selling CDs vs 99 cent singles. There would be no common sense in suddenly doing so.
    As the piece mentions, there was a 13 billion dollar market at stake. It’s easy now to look back and say “well, wasn’t it obvious to just make all the tracks for sale for .99 cents?” In 2000, just how much things would become disintermediated was not that clear for any media industry. It took a while but we got there.

  3. Thank you so much, Mr. McDermott, for addressing my comment. Your point is very well taken. I truly do appreciate someone with inside knowledge such as yourself taking the time to explain the obstacles you guys were up against at the time. This is, of course, not your fault, but it’s a genuine shame that the future ended up moving a lot faster than you guys could because of the immense weight of the legal baggage you had to drag behind you. Sadly, things like contracts and licensing agreements don’t mean anything to a person who just wants to hear his favorite song; so when the labels couldn’t accommodate this new form of consumer demand, people found someone who could. then, to make matters worse, labels further alienated potential consumers by suing them — creating an “us versus them” relationship that, in many people’s minds, still hasn’t been completely repaired. All of this said, your piece, and especially your response to my comment, has been very eye-opening for me. it’s very easy for us to accuse the labels of simply keeping their heads in the sand about digital distribution. What your piece has done is show us that things are not as black and white as they seem, and i thank you for that.

  4. Artists complain about how little they’re getting paid — AFTER the label sucks out it’s piggy slice.
    I’m an independent songwriter/artist. I release my own stuff directly. I get between a half cent and a little over a cent per stream. If I had got fooled into a sucker contract with a typical label, though, I’d be making a tenth to a fifth of that. And that WOULD tick me off.
    Now, a good label that believes in you as an artist may be able to promote and advertise you to a new level of sales that will justify their big cut. But the days of big label layouts and real artist development are largely behind us.

  5. Correction: it’s=its [sigh]
    As long as I’m taking up space again, let me say I agree with the central premise, as well, but I do think Bob above has some very solid points.

  6. Love it or hate it, it was a symbol of the internet being free on a very large scale.
    Where people stealing, yes. Did most of them care, no.
    As you mentioned, people go to the concept that artists who signed deals that they did not read or understand where “robbed” for decades.
    But less people refer to the feeling of the consumer being “robbed” in general. Bob mentioned the buying of an entire CD when you only want one song, but I distinctly remember feeling like the REAL reason why SO many people were “OK” with digital piracy is because they were sick of being fed BS about inflation of ALL products in general, not just music.
    Any opportunity to stick it to the man was a good one.
    As an artist myself, believe me I would love to hop in my time machine and get fat while the getting was good.
    Not an option. We assimilate, adjust, and move forward.
    I do appreciate you sharing your inside perspective here, and agree that all things are much more clear in hindsight.
    As a result, the quality of music overall has suffered. No majors have the time or budget for true artist development and creative risks are taken rarely if at all.
    It was a battle of the few against the many, but in the end, did anyone really win?

  7. I’m puzzled by the frequent complaint that in the pre-download age it was necessary to buy a whole album just to get one or two tracks that you really wanted. Haven’t these people heard of singles? At least until the early 2000s it was the standard practice for the most commercially attractive songs on an album (usually two, sometimes three) to be released on separate CDs, usually with some ‘bonus’ material such as outtakes or remixes. Of course, the price of a CD single was more than the price of the album divided by the number of tracks, so it was not economical to buy singles if you expected to buy the album anyway, but that is not the point at issue. The point is that, contrary to the usual complaint, it was not necessary to buy an album to get a few ‘hit’ songs. The only legitimate area of complaint would be where an album had a few outstanding songs that were not issued as singles, while the remaining non-single tracks were of much lower quality (mere filler material). I dare say such cases existed, but I doubt that they were common, and I would be interested to hear of examples.

  8. re: buying just a single instead of the whole album.
    This issue has more to do with the supply chain involved than anything else. Say that there are 10 major markets in the music industry supply chain (of course, this would be pre-digital distro where each label would have their own market area lists and pressing plants around the country) and you have a song that was *not* on the list of singles being pushed from the artist’s new release.
    Radio jocks in two of your ten markets are getting more requests to play it (and these numbers are tracked) so it becomes a decision to see if adding another round of singles to the supply chain can be feasible.
    The masters would have to be shipped to the regional pressing plants, the product boxed and shipped… we are still talking about a real physical product here. If they were lucky and *everything* fell in place, the single would be available for local fans to purchase – even those not in the first two market areas.
    If the decision were against releasing the song as a single, then the fans would only have the option of buying the full album to get their own copy to listen to.
    The inherent issue is (was) the width of the supply chain. It was not infinite in how many singles could be added to existing production. Only so many hours in a day for the pressing plants to make the 45’s the fans wanted and the trucking companies to deliver to the record stores.
    So, stark economic reality played a big part yet in the end, it was not the labels deciding to *only* offer the album and the consumers be damned. If they could have “squeezed more blood from the turnip” as is now possible with purely digital catalogs, they certainly would have done so.

  9. FWIW -My example above was focused only on vinyl 45’s but the same logistic issues were in place with CD’s… AND the same supply chain bottlenecks existed. These delivery delays still happen today – see the unexpected delayed shipping times for the iPhone 6 and 6 Plus when they were released last fall.

  10. Jim, you nailed Bottom line, though, Napster had no intention of paying.
    Here’s an excerpt from my CelebrityAccess profile of Ted Cohen who was approached to head Napster.
    TED: The labels should have figured out a way to engage with Napster. But, at the same time Napster, really did not want to engage in a meaningful way. They wanted to stall. They had this strategy or theory called, “The Congressman’s Daughter.” If the congressman’s daughter was using Napster at home, and she showed it to dad, who was a congressman or a senator, he’d go, “Wow this is really cool. Do they have Frank Sinatra?” And copyright law would suddenly be– not irrelevant–but dated, and would get changed.
    LL: So they had no real intention of Napster being a legal music service.
    TED: They were sending me emails during this time asking if I would take the CEO job. They gave me shares in Napster for consulting. A retainer. I went up for one meeting, and in the conference room there was a white board with all of these talking points.” If the press calls, and asks, ‘Do you realize that this is illegal?’ Tell them, ‘We didn’t think so.’” And,” If they ask if we are trying to work with the labels, assure them, ‘Yes, absolutely, we are.’” It was all how to deflect any question. I said, “This is all a big stall, isn’t it?” They said, “We think we can win in court, and we think that we can win in the court of public opinion. There will be such pressure.”

  11. Just wanted to circle back and thank everyone for the thoughtful comments. I kind of hope that history will look at the overall trend of disruption to a wide range of industries over the last 15 years and be a bit more forgiving to the major labels. Look at what’s happening in Paris with Uber…..very few industries have reacted to disruptive innovation with perfection and grace. Record companies were among the first to have their core business threatened by the internet, and especially file sharing. I know we saw the web as a huge opportunity, we were excited by it and experimenting. But we ran out of time and had to react under duress. The record companies were/are no angels, and certainly some artists were expoited and ripped off. But the tech industry has taken exponentially more from artists than the labels ever could, and it started with Napster.

Comments are closed.