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the notorious mp3

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Hey! Today’s episode is a deep dive into one of the most influential platforms in the history of music, Napster. The file sharing platform earned more media attention than it ever deserved, and got a lot of lawyers paid in the process.

I’m joined by friend of the pod, Tati Cirisano from MIDiA Research. We dive deep into the company, its founders, and how it shaped the next few decades. You can listen to the full episode here. Here are a few highlights from our chat.

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napster's impact on music

Napster never had a business model. The only revenue that Shawn Fanning and Sean Parker’s company made from 1999 to 2001 was from t-shirt sales. The peer-to-peer mp3 file-sharing platform had no defensibility. Once Napster shut its doors, several copycats took its spot with even less of a business (and even more viruses!)

But even if Napster charged the $15 per month that many of its users claimed they were willing to pay and had the music industry’s blessing, it likely would have failed.

The late 90s were the peak of the dot-com bubble. The era is known for epic failures like Webvan and Pets.com, but Napster suffered, too. Despite the rising interest rates and global recession, these companies were ahead of their time.

Remember how long it took to download a song on Napster? Now, imagine buying groceries online in 1999. Broadband access and mobile connectivity were years away. The target consumer was still on a dial-up internet connection, and AOL was still sending them endless CDs for 30 free hours of a free trial.

Napster inspired a revolution, but the real impact was still on its way.

bigger factors that led to the industry’s decline

The decline of CD sales was inevitable, even without Napster.

A large portion of those peak CDs were reissued albums. People bought CDs of what they already owned in cassette and vinyl. But there’s only one chance to reissue a classic as “the first time ever on compact disc!” The industry ran out of albums to reissue as CDs, and the biggest retailers started to push back on price.

Napster peaked at 80 million registered users, but how many were active? Even if most of them were, it pales compared to the nearly 1 billion CDs shipped in 2000 in the U.S. alone.

By 2003, Apple launched the iPod and iTunes. Steve Jobs’ company had put a business model around Napster’s concept and even hired a few Napster workers to the team. As broadband expansion continued and Apple’s products expanded to Windows computers, the company benefitted from the adoption curve.

As a well-known label head told me a few months ago, “We let Apple bounce back thanks to music, and we should have had a stake in it.”

As Apple thrived, Napster’s copycats benefitted from faster downloads. It was easier than ever to download an mp3, legally or illegally. The fragmentation of the full album CD was inevitable.

The permission vs forgiveness conundrum

Founders are taught to move fast and break things. Founders are taught to ask for forgiveness, not permission. Ever since Napster, the music industry has had its guard up about new companies that may use its back catalog without a licensing agreement.

But I’ve spoken to startups that tried to go about things correctly. They tried to get early buy-in and support from the industry’s powers that be. However, the startup founders claim that industry leaders pushed them aside because the startup was small enough to be ignored. Unless the record label had a stake in the company, it was a no-go.

This dynamic incentivizes startups to get big enough, make moves, and ask for forgiveness after said moves are made. It’s unhealthy for business development, but that’s where we are today. Let’s hope that AI music developments can improve on this trend!

Before we close this memo, let’s end with a relevant quote from Newbury Comics CEO Mike Dreese June 2000 in a Washington Post interview:

This sentiment captures a lot of the thoughts across the industry. But when TikTok and DSPs algorithms have more power than ever, and pop stars have a tougher time than ever breaking out, the technology becomes more and more important every day.

If you liked these highlights, you’ll love the rest of the episode:

– Napster’s influence on social media and Web 2.0
– how artists picked sides on the Napster debate (lookin' at you, Lars Ulrich)
– Napster’s role today as a web3 company

​Listen to the episode here.

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money moves

• MTV: 40 years of music videos, reality TV, and Ridiculousness
• Spotify’s struggles in music streaming​
• MTV's multibillion-dollar miss (from Zack Greenburg!)
• good thread on Spotify’s podcasting strategy​

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coming soon

Kakul Srivastava (CEO of Splice): We talked about music's overlooked opportunities, the state of music tech, AI, and more.

End of summer roundup: I'll share my thoughts on six important topics that aren't quite enough for an individual episode, but perfect to breakdown in this episode.

If you're based in the U.S., enjoy the long weekend!

Dan