Napster case study


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Napster HBS case study from my MIS class as part of my MBA.

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Napster case study

  1. 1. Online Music Distribution in a Post-Napster World Group 1 Yuri Yoshida Tara Smith Hirokazu Yabuuchi Patrick Joiner Patrick Floody
  2. 2. What was Napster? • Napster was developed to help locate music online and to share files mp3 file mp3 file locations query mp3 files mp3 files mp3 file request Napster user A Napster user B
  3. 3. Background • Napster History – Jun 1999 beta version released to 30 people – End of 1999 approximately 1 million users – By mid-2000 33% of universities were banning student use – Fall 2000 estimated 32 million users – Feb 2001 about 80 million users 90 80 70 60 80000000 32000000 50 Millions 40 1000000 of users 30 20 30 10 0 June ‘99 Jan ‘00 Jan ‘01
  4. 4. Industry Claims • Napster and similar services are illegal – Flagrantly disregarded the rights of the artists and labels to fair compensation • Illegal downloads were thought to cause a decline in sales – Music CD sales were going down while burners and blank CD sales were going up • 2001 top ten album sales were down 33% from previous year
  5. 5. Countermeasures of recording industry • Copy protection – Unable to listen to CDs on PCs – Caused PCs to crash, requiring steep repair costs • Online subscription services – MusicNet (AOL Time Warner, EMI, and Bertelsmann) – pressplay (Vivendi Universal, Sony venture) Burning files Music Limited Issue of on CD limited expired selection price
  6. 6. Legal Actions • Dec 1999 RIAA filed suit for copyright violation – Napster’s defense was AHRA and that it did not actually store or control the music files • Jul 2001 US District Court issued an injunction to close Napster until higher court ruling
  7. 7. Online subscription services competing with free services • New model: Morpheus, KaZaA – Difference from Napster: • Pure peer to peer • Open-source model • Any file could be swapped • These services penetrated into market rapidly – Morpheus downloaded 89.3 million times in January 2002 – KaZaA downloaded 64 million times – In comparison, MusicNet had only 40,000 subscribers in its first six month
  8. 8. Results • The recording industry accepted online distribution of music and attempted to replicate the success of Napster • The decision to take the case to court was appropriate considering the copyright laws and necessity • In the end it was the record companies (and artists) that prevailed but they could not come up with a model to compete effectively with peer-to-peer
  9. 9. Lessons to be learned • When faced by a threat to their business models, the recording industry companies joined together to fight • Once the threat had been reduced, they split up and each tried to become the new leader • The recording companies should have joined together with a technology partner instead of creating their own services?
  10. 10. Discussion • How did Napster change the world? • Is it possible or desirable to go back to a pre-Napster world? • Many changes have happened since Napster. Does iTunes prove there is a post-Napster online music sales opportunity?