Napster Sees a Little Light,
But It's Still Probably a Train
By JASON FRY and KRISTIN HUSSEY
WSJ.COM
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If anybody had any doubts that Napster is the technology soap opera of the year, this week's highly conditional deal between the renegade music-sharing service and European media giant Bertelsmann AG should put those doubts to rest.
The agreement that the two will try and create a legal version of Napster had to be greeted jubilantly by Hank Barry and company, but it isn't exactly a reprieve from the hanging Napster still faces. On the same score, the news came as a hopeful sign that the recording industry isn't entirely a dinosaur preserve -- but it doesn't necessarily follow that the major labels understand what makes Napster so successful.
First things first: Bertelsmann agreed to call off the legal dogs only after Napster develops a for-pay version of its service that puts copyright holders' concerns to rest. That's a pretty big task -- perhaps one that can't be accomplished without wrecking the keys to Napster's success. Furthermore, Bertelsmann is only one of five major labels arrayed against Napster in court; given the rancor felt toward the service, Bertelsmann's Thomas Middelhoff has inherited a diplomatic crisis that would make Madeleine Albright blanch.
Bertelsmann is no stranger to the Web: The story of how Mr. Middelhoff met America Online Inc.'s Steve Case and came away an Internet convert is fairly well-known. Bertelsmann and AOL were allies in the Internet-access business until AOL tied the knot with one of Bertelsmann's rivals, Time Warner Inc. But by then Bertelsmann had decided that having a big stake in the Net-access game wasn't as important as ensuring Bertelsmann could take advantage of an explosion in digital distribution that will one day affect far more than music files. (Among Bertelsmann's properties are record label BMG Entertainment, publisher Random House, book clubs and a stable of e-commerce companies, including CDnow Inc. and a hefty stake in Barnes & Noble.com Inc.)
Mr. Middelhoff has also avoided the trap of seeing Napster users as simple thieves instead of as disgruntled customers. Comments he made at a conference this summer are worth repeating: "Are they all criminals? Let's be honest. Despite all the reservations, Napster is cool, an exceptional music brand with the following characteristics: high quality, free delivery of music, easy to use, a global selection from the repertoire of all labels, fast service and independent program choice. Which of us can match that?"
Mr. Middelhoff, quite clearly, gets it. But even if he manages to convince the other labels to give up their anti-Napster jihad, it's all too easy to imagine the labels "fixing" Napster to allay their concerns -- only to find that those fixes broke the service.
How much users pay -- or don't pay -- has commanded the lion's share of the attention in talking about the Napster case, and the same has held true in discussing Napster's deal with Bertelsmann. (The figure that's being thrown around for the label-friendly Napster is $5 a month.) But while figuring out a price point for Napster is obviously important, there are equally crucial keys to Napster's success that the major labels may miss in obsessing over getting their cash.
First of all, the labels will have to truly join together. The major labels think they're all-important, but few consumers know or care which label their favorite artist records for. And they won't learn. That's why all of the labels' current digital-download experiments are doomed in their present form -- they force surfers to sort music by label. This corporate solipsism is a tough mindset for big companies to escape under any circumstances; it's a lot tougher when those companies are desperately worried about their own rights and their own futures.
Second, the labels will have to give an digital download of a song the same status as a CD or a tape. In an early draft of the agreement between Napster and Bertelsmann -- a draft that may have been superseded -- one approach discussed was giving downloads a built-in expiration date and ensuring that they can't be transferred (to a CD-ROM, for instance). This is treating digital customers like second-class citizens, and it's a recipe for disaster. The labels have to accept that provided they've been paid, format doesn't matter and a song is a song is a song.
That brings up another potentially devastating problem for the labels: channel conflict. The record labels' current digital-download efforts are all awful, in part because the selection is so paltry. One big reason for this is the labels are worried about channel conflict between their Net outposts and retailers. Their reasoning is that by putting out a couple of obscure songs per artist, instead of an entire CD, retailers won't be threatened. They aren't -- but the price to pay is that customers aren't interested.
The beauty of Napster is that customers choose what's available -- and there are millions of them. The Internet is big enough that some other Napster user has probably posted not only the latest hits, but also an MP3 of your favorite R.E.M. B-side, the random L.A. Guns song that plays when Mike Piazza trudges to the plate or "Knock Three Times," a song you love but are too embarrassed to buy at Tower Records. But how do you let users post the material and still defend copyrights? If the labels rework Napster, they'll want to control what songs are available -- and they'll come under considerable pressure to keep the selection more enticing at traditional retailers. If they do that, they'll turn Napster into a Soviet online record store with no customers.
Mr. Middelhoff, one suspects, understands these things. But his understanding them isn't enough -- he'll have to get the key people at all of the other labels to understand them too. Napster's prospects are undeniably better than they were a week ago, but only a Pollyanna would say that the service can now see light at the end of a very dark tunnel. And even if there is a glimmer of light, only a Pollyanna would promise that it isn't a train. |
