The Aftermath Of Napster: Letting Incumbents Veto Innovation Slows Down Innovation Drastically

from the hard-to-count-what-we've-lost dept

Last fall, law professor Michael Carrier came out with a really wonderful paper, called Copyright and Innovation: The Untold Story. He interviewed dozens of people involved in the internet world and the music world, to look at what the impact was of the legal case against Napster, leading to the shutdown of the original service (the name and a few related assets were later sold off to another company). The stories (again, coming from a variety of different perspectives) helps fill in a key part of the story that many of us have heard, but which has never really been written about: what an astounding chill that episode cast over the innovation space when it came to music. Entrepreneurs and investors realized that they, too, were likely to get sued, and focused their efforts elsewhere. The record labels, on the other hand, got the wrong idea, and became totally convinced that a legal strategy was the way to stem the tide of innovation.

The Wisconsin Law Review, which published Carrier’s paper, asked a few people to write responses to Carrier’s paper, and they recently published the different responses, including one from a lawyer at the RIAA, one from another law professor… and one from me. This post will be about my paper — and I’ll talk about the other papers in a later post. My piece is entitled When You Let Incumbents Veto Innovation, You Get Less Innovation. It builds on Carrier’s piece, to note that the stories he heard fit quite well with a number of other stories that we’ve seen over the past fifteen years, and the way in which the industry has repeatedly fought innovation via lawsuits.

You can read the whole paper at the link above (or, if you prefer there’s a pdf version). I talk about the nature of innovation — and how it involves an awful lot of trial and error to get it right. The more trials, the faster what works becomes clear, and the faster improvement you get. But the industry’s early success against Napster made that nearly impossible, and massively slowed down innovation in the sector. Yes, a few players kept trying, but it developed much more slowly than other internet-related industries. And you can see why directly in the Carrier paper, where entrepreneurs point out that it’s just not worth doing something in the music space, because if you want to actually do what the technology enables, the kinds of things that are cool and useful and which consumers would really like… you’ll get sued.

Take that away and you get less trial and error, and slower innovation (and less interesting innovation). Look where we are today, fifteen years later. We’ve basically reinvented radio and put it online. We’re barely getting past that stage. You can read the whole paper for more on that, but I did want to highlight one key section in the paper: which is how the content industry always completely downplays the importance of the technology and services. Any time there’s a successful new service — whether it’s iTunes or Netflix or Spotify or Pandora or YouTube — you’ll find stories about the incumbents trying to denigrate and mock it, or even outright kill it. They talk about how those services are “nothing without our content,” and they get angry if any of those services make any money.

This is ridiculous. Yes, the content is important, but if it was just the content, then those services never would have become successful in the first place. The reason those services are successful was because they actually innovated and provided convenience, access, ease of use and other nice features that were missing before. Too many copyright maximalists simply can’t bring themselves to admit that you need both the content and the services working together. When you trash those services, and attack them or try to saddle them with ridiculously high fees, you break down what works, and you actually drive more people to infringing alternatives. Here’s a snippet from my discussion on this point (with footnotes removed):

Throughout all of this, a unique pattern emerged. The labels would always massively overvalue their own content, while simultaneously undervaluing the various innovative services. Phrases along the lines, “without our music, they’d be nothing” were heard frequently in arguing why it was all about the content. The truth, however, is that it was the combination of the two that were important. Yes, the services needed the music to work, but so too did the labels need these new services to adapt to a changing marketplace. This should have been obvious from the fact that people would flock to these new services, yet failed to show up to the record labels’ own attempts to innovate or provide something new. However, as soon as any service showed any kind of promise, even if “licensed,” the labels would seek to kill the golden goose by claiming that the rates were unfair, and the innovators were making money unfairly off the backs of the copyright holders (by which they meant the labels, not the musicians, of course).

Take, for example, the brief heyday of music video games like Guitar Hero and Rock Band. For a year or two, the recording industry fell head over heels in love with these games, because people were playing them quite a bit, and they were (briefly) willing to pay a slight premium to get access to music from well-known bands and musicians. Rather than build on that, the industry did two things: it focused all of its attention on those kinds of games, absolutely flooding the market and making people get sick of the game genre, and demanded much higher royalties.

The viewpoint seemed to be that there could be almost no benefits for the innovators. Nearly all of the benefits had to accrue to the labels, or it would be seen as a problem. In fact, the one exception that got through was iTunes, and that was quickly seen as a “problem” by the labels, even as it was dragging them, kicking and screaming, into the marketplace for digital music. The view is one of an extreme zero-sum world, where if someone else is benefiting, it must mean that the labels were losing out. They didn’t even hide this view of the world. Doug Morris, then head of Universal Music (now head of Sony Music) explained to a Wired reporter that investing in new innovations that weren’t paying money upfront meant that “someone, somewhere is taking advantage of you.” As laid out in the article, Morris was uninterested in technology, and didn’t even know how to hire a competent technology person, so his focus was on making sure everyone paid up immediately. Anyone making money in the music world without first paying a massive cut were dubbed “thieves.”

I find this tragic. If the entertainment industry had recognized early on that the tech industry wasn’t an enemy, but a provider of wonderful new tools and services that helped to expand their market, we’d be much further along. Getting these things right takes time and experimentation, but the legacy players refuse to accept that. They want a perfect solution that fully replaces their old business 100% (or more) without any disruption — and they want to accrue all of the benefits, without any going to the actual innovators. That, of course, doesn’t help anyone, least of all the actual content creators.

There’s so much innovation and opportunity available in the music space — it’s just sad that we’ve only made baby steps since Napster, when we should be leaps and bounds further along.

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Comments on “The Aftermath Of Napster: Letting Incumbents Veto Innovation Slows Down Innovation Drastically”

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out_of_the_blue says:

Innovation to Mike means grifters who didn't produce getting the money.

SO, college boy, come up with a system where those do the work get the money, and fat slugs like Kim Dotcom don’t become millionaires off other people’s work. — But you aren’t concerned about common law ownership and common morality, are you?

Take a loopy tour of! You always end up same place!
Where Mike “supports copyright” — except when he supports piracy.

Anonymous Coward says:

Re: Innovation to Mike means grifters who didn't produce getting the money.

“SO, college boy, come up with a system where those do the work get the money, and fat slugs like Kim Dotcom don’t become millionaires off other people’s work.”

Ok, I go this.

So, first you get a flamethrower and head to the RIAA offices…

Anonymous Coward says:

Re: Re: Innovation to Mike means grifters who didn't produce getting the money.

Oh, smack, I forgot: common morality. Right. Right. Sorry.

Let’s try again:

So, first you get an environmentally friendly flamethrower* and head to the RIAA offices…

* It burns hydrogen. 0% CO2 emissions! Now you can murder with an unprecedented peace of mind.

dwoodhea (profile) says:

Re: Re: Re: Innovation to Mike means grifters who didn't produce getting the money.

Oh, smack, I forgot: common morality. Right. Right. Sorry.

Let’s try again:

So, first you get an environmentally friendly flamethrower* and head to the RIAA offices…

* It burns hydrogen. 0% CO2 emissions! Now you can murder with an unprecedented peace of mind.

So where does the hydrogen come from, smartass?

By the way, I don’t know if I’m responding to a sensible comment or an idiot. I just get really angry about the ‘hydrogen is CO2 free’ crap. Where does your hydrogen come from without energy input?

S. T. Stone says:

Re: Innovation to Mike means grifters who didn't produce getting the money.

Dotcom doesn?t make money on the content.

Dotcom makes money on the service.

That some people can use his service to easily share infringing works means next-to-nothing. The MPAA and RIAA could just as easily work with Dotcom to find ways to legalize the sharing and make it possible for artists to get paid via MEGA. They just don?t want to because they see such a compromise as ?getting fucked up the ass without lube?.

The MPAA and RIAA give more of a damn about the content (and making as much money as possible off of it as quickly as possible) than about providing a quality service to consumers that delivers said content to consumers in a timely, convenient, and affordable fashion. Hell, if the MPAA cared about providing a quality service, it?d put movies out in theaters, on DVD/BD, on Netflix, and on cable/satellite VOD services on the same day.

Anonymous Coward says:

Re: Innovation to Mike means grifters who didn't produce getting the money.

It’s not Mike’s responsibility to conceive and/or implement a working profit model to replace one that is no longer profitable. If it were easy to come up with a profitable business model, we’d all be rich now wouldn’t we? This is what is so laughable about the music industry screaming that they deserve to be profitable.

Leigh Beadon (profile) says:

Re: Innovation to Mike means grifters who didn't produce getting the money.

Wow, I didn’t realize that Dotcom didn’t do any work. In that case, I think I’m willing to profit off others too. So, what do I have to do here, blue? Close my eyes and wait for the cheques to arrive? It’s been nearly a full minute and I’m still not a millionaire… what’s going on?

Gwiz (profile) says:

Re: Re: Innovation to Mike means grifters who didn't produce getting the money.


Silly Canuck, I think you meant “checks”. 🙂

Anyways, Blue would still be on your case because you would then become one of the “rich folks”. Anyone who makes or has more money than Blue does is somehow getting “unearned income” and he’d want to tax you at rate of 150%.

Anonymous Coward says:

Re: Re: Innovation to Mike means grifters who didn't produce getting the money.

it’s funny what you call ‘innovation’ I thought the same thing, I asked “WHAT INNOVATION?” are you talking about?

Are you talking about ‘technological innovation’ ?

Then what did Napster or any other ‘internet pirate scheme’ contribute to ‘technology innovation’???

what ??

Yes, Dotcom didn’t do any work, your right, you honestly believe Dotcom is a great innovator ?

I think you have confused ‘innovation’ with ‘new scams’ but I will read your article, for completeness, but one day we all hope you can get a grasp on innovation and what it actually means.

Some of us can work out that Dotcom is not an innovator, and that if you think he is, you’re as stupid as he is, (or as big a criminal)!
Masnick you are willing, and keen to profit off other, you have said that many, many times and it’s all you do here !!!

Masnick you loose more and more credibility every day when you come out with your total bullshit, and your consistent display of ignorance in anything technology related.

just as you display an almost total ignorance of the patent system.

Oh well, at lease you are a source of amusement, if nothing else.

Anonymous Howard (profile) says:

Re: Innovation to Mike means grifters who didn't produce getting the money.

The same way taxi drivers “don’t do anything and live off shops, movie theaters, pubs and other “content providers””. Yeah, they’re grifters too.


I can’t fathom why are all your masters get butthurt when someone else makes profit utilizing their content..

Pragmatic says:

Re: Innovation to Mike means grifters who didn't produce getting the money.

SO, college boy, come up with a system where those do the work get the money, and fat slugs like Kim Dotcom don’t become millionaires off other people’s work. — But you aren’t concerned about common law ownership and common morality, are you?

Admitting that you’re ignorant, Cathy? Thanks, but we knew that already.

That epithet (look it up) “fat slugs” can equally be applied to the labels and copyright rents collection agencies, who often fail to pay the artists the full sums of money owed them.

I don’t suppose you’ve got a definition for “common law ownership” and “common law morality” that go beyond the confines of your malformed cranium.

“Ownership” is usually proven by legal documents. Look at what happens with artists in the music industry and innovators in other industries (including mine) and you’ll soon discover that the creator and innovator is not permitted to own what they have created due to contracts they have entered into with their employers. For musicians, it’s “work for hire.”

Do you really think it’s moral to rob the innovator and creator of a fair share of the profits from their work? You certainly seem to, as long as it’s a maximalist who is doing it. Meanwhile, we “commie pirates” do actually pay, often as a result of having accessed the items we wanted first. If we didn’t, the sky would not be rising, would it?

Anonymous Coward says:

‘you need both the content and the services working together’

how true, but as far as the labels are concerned, you also need some other ingredients. they are people with no brains that will pay outrageous prices for old content provided in outdated ways and you also need a bunch of politicians that can be bribed so easily that new innovators are killed before they can get their ideas out of the garage! also dont forget that the artists that are being talked about for releasing the content have to be prepared to get almost nothing for their endeavors while the labels get just a smidgen under 100%

Brett says:

Different Goals

This article is based on false assumptions! The RIAA is not interested in more innovation in the slightest, even if it does make them more money in the long term. They only care about short-term income and total control.

It’s difficult enough to get other entities on board with your plan when your goals are aligned; it’s impossible when your goals are different.

Zippy Doo Dah says:

Morris & Sony

Sony, the same company that tried to root-kit our computers when we played one of their CD’s… Yeah, about that. I will NEVER purchase another thing from Sony (though in the past had Sony TV’s, tape and cassette recorders, mini-disc and DVD/CD players, CD’s and DVD’s), but I will “steal” (illegally download) anything of theirs that strikes my fancy, at least until they publicly apologize for the root-kit fiasco and change their attitudes about DRM-encumbered media (especially BluRay) and all the rest of that crap! Sorry Sony, but you have lost literally thousands of dollars in revenue from myself personally, not to mention all the other people in my circles who agree with me about your egregious anti-consumer behavior… 🙁

madasahatter (profile) says:


The consistent mistake the “content” industry makes is that they are only ones competing for our attention. Most people have a variety interests, hobbies, and responsibilities competing for their time. So for them to compete they most meet the consumer where the consumer is or risk being ignored in favor of other alternatives. If iTunes, Amazon, and YouTube are the best way to reach some consumers you had better be there or they will never notice you are missing.

art guerrilla (profile) says:

Re: Stupidity

re: madasahatter…

yeppers times two:

1. do NOT go to much in the way of movies anymore because a lot of them are crap (secret-agent-assassin-hitmen-gets-righteous-revenge movies), the theaters are loud, sticky, and crappy, and with cellphone tards, etc the experience is crappy; i’d rather be in my shop…

2. buy virtually ZERO music (okay, i break down and buy a $5 cd or two in the bargain bins), any that i collect, is either freebies, or from the inertnet archive: i despise the MAFIAA so much, i will not contribute a penny to their extortion racket, if i can avoid it…

3. just about to the point of convincing SWMBO to cut the cord; in fact, i’m so annoyed at the idiotic games Big Media play, that i’d sooner throw the teevee out the window…

now, some of my habits of decreasing Big Media consumption are due to the fact i have plenty of other chores and hobbies to waste time on, if i’m so inclined…
but a LOT of my personal decision to disdain Big Media is due TOTALLY to their greedy, grasping, inhumane treatment of EVERYONE…
fuck the MAFIAA sideways with a pineapple…

art guerrilla
aka ann archy

Anonymous Coward says:

Leaving aside the matter about technology for a minute, the content industry most definitely overvalues it’s content. This is especially true of music.

From about 1987 until about 1991-92 I bought, on average, about 100 albums a year (first on cassette, later on CD). Most of them were, of course, from the major labels. There weren’t really a lot of alternatives or easy access to non-major label music. I actually strongly supported the industries effort to shut Napster down at the time. Unfortunately, about that time, I had to stop buying music for a few years due to financial constraints ( I already had in excess of 1,500 albums, so I wasn’t hurting for music that bad)

However, I did actively observe the emerging arguments for and against sharing online, as well as the emergence of artists openly admitting the were often getting raw deals from the labels that claimed to represent them. As I weighed the various arguments, it began to become clear that the music industry points were very much loaded with rhetoric, lies and intentional deception. My inability to buy music soon became a boycott instead.

However over the next few years I began to see the emergence of technologies and outlets that bypassed the need for the labels as gatekeepers, and showed just how much music was available besides what the labels forced us to consume. So I began purchasing music again, almost all of which was equal or in many cases superior (at least in my opinion) to anything the major labels were putting out, often going to great length to insure the music I bought wasn’t on an RIAA label.

In a very short period of time, I was back to buying, on average, about 100 albums a year (except this time the RIAA wasn’t seeing any of my money), most of it from eMusic. However, again due to financial constraints, I had to stop purchasing music for about a year, and had to let my eMusic membership go. That was about a month or two before they signed the deal with Sony, and later with other. When I was again able to afford an eMusic subscription, it was extremely difficult to find “alternative” music, because the major labels (as they have done with every other service – like MySpace) had plastered their crap all over the front, and forced most of the truly independent materials down where it was exceedingly difficult to find. It wasn’t worth my time to renew at that point.

These days I find a great deal of stuff through Youtube (or sometimes promoted here):
Dan Bull
Nice Peter (Epic Rap Battles)
Lindsey Stirling
Among a long list of other that are infinitely better than what the labels force upon us (Justin Beiber).

I’ve long ago stopped paying attention to the RIAA’s pathetic and often easily disprovable crap, I’ve stopped buying their music, and I’ve long since lost any respect for copyright (although there are other organizations/individuals that have “helped” them in that regard).

Anonymous Coward says:

So putting newspaper adds on the ‘internet’ is innovation according to Masnick !!!!

So ‘craigslist’ as your first example is ‘innovation’.

So Masnick, you would be able to explain what ‘innovative’ step is made by such things as Craigslist ?

You also say innovation can best be judged in retrospect, that is generally NOT the case, innovation is normally able to stand on it’s own merits.

But if you really believe putting ‘for sale’ adds on the internet the same as Newpapers have been doing for a hundred years is innovation that is sad.

you are also equating innovation is immediate profits.

innovation has little to do with immediate profits, and has far more to do with actual advancements.

Most people would not consider Newspaper classified adds on the internet as innovative at all. I would seem very reasonable and natural that, that should occur.

Just like it’s not innovative to run a web page (like Techdirt) it is simply another way to have your own Newspaper or magazine or trade journal.

but you think “but it’s ON THE NET” that it’s automatically INNOVATION.. .. bullshit..

* Founder and CEO, Floor64; Founder & Editor in Chief of Techdirt.

you promoted yourself, it’s nice to be able to give yourself titles.. you get to blow wind up your own ass..

OK, Mr “Editor in Chief Masnick”

It’s a shame you could not be more innovative in the selection of your title(s).

You had to steal a title from the NEWSPAPER industry !!!..

Anonymous Coward says:

Re: Re:

You know, here’s the funny thing. Putting “Internet” on things has never been considered incredibly innovative. In fact, it’s asinine and inhibiting when companies try to patent boring analogue things on the Internet.

But here, instead of criticising said companies, you and your little copyright-maximalist man-crush forces you to wail on Masnick all the time, every time.

Does fair use in Australia make your dick sad, darryl?

MD says:

Failure to Launch

When I was a mere college student I amassed a collection of several hundred 45’s (Where the heck did I get all that money?? Plus SF paperbacks!) Sadly I sold those soon after. I bought several hundred albums over the next decade. When CD’s came along – I have about 500 CD’s in my collection. The RIAA minions reaped the benefit of me re-buying all those golden oldies all over again.

When I wanted more convenient music, MP3 showed the way. Sadly, that music was not available for sale. Napster made it available. You can’t say that was not innovation; in the era of slow internet, it was possible to download any music including some songs I had only heard of before. Stuff not yet made available on CD could be downloaded. If the RIAA members had set up a sales system to rival this, they would have gotten my money.

They didn’t and they didn’t.

The record labels mistook people rebuying their vinyl collection for an ongoing sales volume and were surprised when sales crashed. Lately, the movie companies mistook people buying their favourite backlog of classic movies for ongoing DVD sales volume. Bluray does not offer enough of a leap over DVD to justify rebuying many movies; and again, who really needs Meet the Fokkers or Modern Family Season 2 to be in hi-def anyway?

So the major entertainment companies are frittering away the opportunity to make some money by making their catalog conveniently available. Recently, classic old TV series were the new DVD moneymaker. Hint- there’s a HUGE market for that backlog of material in the catalogs, if the price is right. Nobody’s going to pay a dollar an episode for a 40 year old show; but the might pay $6.99 for a season, or $16.99 for all 7 seasons, for some shows. Make the product available online and watch pure profit roll in – or assume people are stupid and waste money, or assume they will give it away to everyone else when it’s available for cheap – and make no money.

zato (profile) says:

“There’s so much innovation and opportunity available in the music space — it’s just sad that we’ve only made baby steps since Napster, when we should be leaps and bounds further along.”

Like everything at the top level of power and control in America, control of Music is power. Power in media, radio, TV, Film. Those who have it, have no interest in spreading it around.

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