How Napster changed the music industry

If customers were so content with the music industry, why did a significant proportion stop paying for music and start downloading it for free?

My first recollection of a service that offered free downloads was Napster, which was founded by Shawn Fanning, John Fanning, and Sean Parker in 1999. You may not know the name, Sean Parker, but you’ll probably be a fan of his work. He was one of a team that nurtured Facebook into an $8bn company and also helped get Spotify off the ground.

Napster started with three friends who had an idea to create a ‘peer-to-peer’ service, which basically means it lets you share files online. The Napster crew quickly realised that they were on to something and capitalised on a growing trend by focusing on music file downloads as their differentiator.

The concept was simple, to create a system that allowed users to easily search and then download popular music files for free. Alone, this wasn’t a particularly powerful or unique tool but coupled with the fact that an individual in London could share their entire mp3 music catalogue with someone in Mumbai at no cost to either person, it suddenly exploded into the largest online black market the world has ever seen.

As it gained popularity, more people and more files became connected simply creating demand and supply simultaneously.

Many in the music industry didn’t realise the importance of the Napster movement until it emerged how greatly it had affected global music sales. In recent years greater monitoring of illegal downloading has resulted in some quite shocking statistics:

  • In the decade since Napster emerged, music sales in the U.S. dropped 47 percent, from $14.6 billion to $7.7 billion.
  • From 2004 to 2009 alone, approximately 30 billion songs were illegally downloaded on file-sharing networks.
  • NPD Group reports that only 37 percent of music acquired by U.S. consumers in 2009 was paid for.

As the popularity of free downloads increased, the music industry responded by condemning this illegal behaviour, which ironically only served to draw more attention to the free online tools available.

Napster who held the monopoly had found competition of their own within this online black market. The emergence of sites such as Kazaa and eDonkey2000 proved that illegal file sharing wasn’t just some online back alley, it was organised crime with a pretty face and given that files were being shared by users and not directly, that pretty face was anonymous.

Much like the bootleggers during the prohibition years, everybody knows that the downloading of music for free is illegal, but, everybody is doing it. It is the population’s naughty little secret.

So when a ‘black market’ as large as music piracy emerges, it is often met with the tightening of laws and improvement of enforcement to ensure the protection of businesses. However, how do you track countless splinter cells who are not only faceless but can operate with the simplest of tools from anywhere in the world. No policing system is that good, they can merely shut down individual cells while hundreds more emerge in protest.

So why did we fall out of love with the music industry? There was a time when you would gladly part with your pocket money for a vinyl, cassette or CD and listen to it endlessly until your next purchase. Somehow the giants of the music industry lost their magic and are now fighting harder than ever to win back music sales.

So instead of declaring war on illegal download sites which appeared to only make things worse, what has the music industry been doing to win back customers:

  1. Free downloads: Ironically the problem also became the solution. In recent years, Radiohead, David Bowie and Nine Inch Nails have all released albums for free in an effort to gain publicity and revenue through add-ons such as merchandise or deluxe tracks which don’t come with the freebie.
  2. Free music streaming: Services such as Spotify, Pandora and Youtube all allow you to stream audio and/or video of vast and up to date music collections. The simple business model is to give you so much music that you discover and rediscover songs that you want to add to your collection. This model then allows you to purchase the music via services such as iTunes thus generating a new way for you to buy.
  3. Music and cinema: You might have noticed some big names from the music industry collaborating with film directors to compose soundtracks for blockbusters. This isn’t a new model but it is becoming popular and furthermore helps both industries grow revenues. Some examples include Daft Punk who produced an entire album for the Sci-Fi movie Tron Legacy and Jay-Z who collaborated with Baz Luhrmann on his remake of The Great Gatsby.

What does this mean for you? The lessons in this industry don’t just apply to big music labels, you can learn something too if you fall out of favour with your customers.

  1. Free services: If you need to get customers through the door, try finding elements of your service which you can afford to give for free and that is of value to your customer. The laws of reciprocation will tell you that if you give a customer something for free, they are more likely to reciprocate to a greater value, than the value of the free item.
  2. Innovate: So the conventional route that you have been using to get your product to your customer is no longer paying the bills. Why not try to find new and unusual ways of achieving your goals. Spend time understanding the behaviour of your customer and how this has changed since you last checked in. Just because the competition hasn’t changed their sales model, doesn’t mean you shouldn’t.
  3. Create partnerships: If there are synergies between two industries, why not find a partner that shares your vision and see if you can work together to achieve each other’s goals. It is a risky approach and you need to spend time making the relationship work, but if you can pull it off, you could get there twice as fast.
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