RIAA and Napster: A study in failed strategic thinking.
The recent injunction shutting down Napster has been hailed by the RIAA as a strategic victory for copyright holders everywhere and a victory of the major label system over the Internet. RIAA Senior Executive Vice President Cary Sherman
stated "the decision will pave the way for the future of online music." A truer statement has never been uttered, however, not in the way Mr. Sherman thinks. By forcing a federal injunction to close Napster, the RIAA has insured that music will remain freely downloadable and that the current definition of copyrights that sustains the current label system will eventually be eroded and replaced with something altogether different. By closing Napster, the RIAA has insured that their attempt to control the way music is distributed on the Internet will fail.
How is this possible? Given that they are on the eve of their greatest victory yet in asserting their control of copyright, it seems nonsensical. The RIAA could learn a lesson from the war on drugs and basic economics. Where a demand exists, a supply will arise to fill it. Clearly Napster tapped into the demand for digitally available music. Being the market leader initially, network effects were beginning to kick to insure Napster was going remain the leader for finding digital music online. (The much touted 78 million users by the end of the civil trial and the real reason for the injunction.)
Unfortunately for RIAA shutting down Napster is not going to change demand for the ability to digitally download music. Where
before that demand was focused on Napster due to the ease of finding the right music selection (Napster had the greatest number of users, thus the greatest selection of downloads which in turn reinforced their lead in users.
Ain't network effects grand?
Demand will now be forced into other outlets. Since the RIAA and the music industry as a whole has not agreed on a standard for secure download, nor have they made any replacement service for Napster available, this demand will undoubtedly flow into
GNUtella, which is a close cousin to Napster with some key differences. This creates some serious problems for the RIAA.
GNUtella is fair use.
Without a centralized server to facilitate search, Gnutella truly is one to one sharing of files. It's harder to find what you want but nonetheless, it still can be found. It really is sharing a copy with a friend. Never mind that it is a perfect digital copy of the original or so close that the listener cannot tell the difference. This sort of sharing falls under the traditional definition of "fair use" and I would hazard a guess that any court cases the RIAA brings to challenge that will fail.
GNUtella is anonymous.
No more centralized servers. No more registration forms. No customer
database and absolutely no centralized control. It would have been in the best interests of the RIAA for Napster to be the most successful music sharing service. With 78 million projected users, Napster would have had a near monopoly on music sharing. It would have been far easier to then develop a licensing system with those users, gathered in a central place. By shutting down Napster without a ready replacement, they insure that music sharing will be driven "underground" in the GNUtella network.
With music sharing now distributed with a true peer to peer client(which will undoubtedly improve over time as an open source product)the RIAA has lost the ability to influence the way music is delivered on the Internet. Since there is no central company in charge of GNUtella, lawsuits will be difficult, if not next to impossible to serve.
Why did the RIAA do this then? The file sharing peer to peer technologies represent a technological dislocation. As such they replace previous structures suddenly and out of nowhere. The structure they are replacing is the traditional music distribution network, which was governed largely by the distribution of CDs. Since the RIAA has a vested interest in the current distribution network (and indeed record labels made far more with CD sales than they ever did with vinyl sales),they are unable to cannibalize their current business model for the next - namely digital delivery. Napster as a venture capitalist backed start-up represented a "target" for them to sue. Unfortunately for them the elimination of Napster will significantly speed the growth anonymous decentralized file sharing systems.
What will be the final upshot of this transition? Since my crystal ball is in the shop, I won't hazard many guesses, but one thing is for certain. The RIAA and the labels they represent lost a lot more than they won. They lost any hope for control of digital downloads of music or any centralized body controlling digital downloads.
They won the battle but lost the war, clearly failing to understand the strategic effects of eliminating the largest of the centralized file sharing systems.
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