[silk] Yet Another Napster Story, WAS: [Re: More from Bill Joy]

["Udhay Shankar N" <udhay@xxxxxxxxx>]

Thaths said:

> Inventions / discoveries have consequences that
> people never imagined of.  The printing press indirectly contributed to
> the Protestant Reformation, for example.  This is the very nature of
> change.

A point made most eloquently by Cringely below. I had decided not to send 
any more Napster articles along to silk-list, but the novel slant here and 
the thread convergence was too sweet to pass up.

Udhay

http://www.pbs.org/cringely/pulpit/pulpit20010208.html
 
FEBRUARY 8, 2001        
 
 In Defense of the Free Ride
How the Best Price for Napster Downloads Might Actually Be Free

By Robert X. Cringely



When I visit New York City, I like to ride the subway. It is the fastest 
way to get around town and stay out of the weather at the same time. The 
New York City subway system is a remarkable engineering achievement, but 
there is one aspect of it that I can't understand -- why they charge people 
money to ride it. 

If, like me, you had literally grown up covering city council meetings for 
bad newspapers, you'd know that just about every transit agency in America 
claims that ticket sales cover only 10 to 15 percent of the actual cost of 
providing their service. The rest of the money apparently comes from 
government and from annoying transit ads. And if you bothered to wade 
through those transit committee budget reports, you'd make the startling 
discovery that the cost of creating and selling transit tickets followed by 
carrying the money here and there also costs 10 to 15 percent of the actual 
cost of providing the service. So if we eliminated the money infrastructure 
from our transit systems, they would run faster and simpler than they do 
today, nobody would have to buy a ticket, and it would all still cost the 
same. 

Why, knowing this, do they still charge to ride the subway? Part of the 
reason is that Federal transit money is often configured as matching funds, 
and the Feds like to match against ticket revenue. No revenue (no tickets), 
no Federal matching funds. Now that's a silly reason. Another reason is a 
Puritan work ethic that says people just ought to pay to ride the train, 
darn it. Of course, there are transit unions that don't want their members 
to lose their jobs. And finally, there is the argument that making the 
subway free would lead to its overcrowding with rowdy folks generally going 
nowhere. Having lost MY work ethic way back in the Summer of Love, I find 
all these arguments bogus. If people are already paying for the service 
through their taxes, then they are paying for the service, not freeloading. 
And the freeloaders can think of many places more comfortable than the 
subway. 

So I think all transit should be free. Poor people could get to work and 
back, kids could get home easier in the dark, there might be less driving 
and more fuel efficiency. And the very fact that it would be easier to get 
to work might make more people inclined to go there, leading to greater 
economic development. This isn't socialism, it's trickle-down transit. 

But the reason I bring it up at all is Napster. 

Here's my thinking. Last quarter was the worst Christmas quarter ever in 
terms of year-on-year PC sales growth. PC sales didn't grow, at least not 
in the U.S. -- they actually got smaller in what is normally the biggest 
sales quarter of the year. This is bad news for manufacturers and 
retailers, but it could have been even worse. Those $400 MSN and Compuserve 
and AOL system rebates have helped sell at least an extra three to four 
million units over the last year, according to PC Data, which keeps track 
of such things. That's three to four million PCs that might never have been 
born. And with this week's announcement that the Microsoft rebates are 
about to end, well, it could be more bad news for PC sales. 

About the only bright spot in the Christmas quarter for PC sales was the 
incredible popularity of standalone CD-R drives, blank CD-R disks, and even 
whole new computers that came CD-R-ready. People have been so madly 
downloading and storing MP3 music files and burning their own CDs that 
Napster recorded in November more than 1.7 BILLION song downloads. There 
would have been even more, but the Napster servers maxed-out at around 
800,000 simultaneous users and 1.7 billion downloads per month. With at 
least 20 million U.S. users -- most of whom didn't have a CD-burner before 
last year -- Napster has been an incredible success. 

In fact, I think most people -- even most PC industry people -- don't 
understand the true impact of the Napster music-sharing business. In 
November, there was an AVERAGE of more than 800,000 Napster users on-line 
at any given moment. What other entertainment media average 800,000 users 
on a 24 hour-per-day basis? None of the TV networks can claim that kind of 
round-the clock loyalty. And remember TV viewing was the previous top brain-
rotting activity for average Americans. No more. 

So Napster, barely a year old, has had the kind of impact on consumer 
behavior that it took TV at least a decade to achieve. And the economic 
impact of Napster is profound, too. In what was otherwise a disastrous 
Christmas quarter, sales of external CD burners, internal CD-R and CD-RW 
drives, both types of media, and new computers bought specifically because 
they had CD-writing capability, came to more than $20 billion in the U.S. 
alone. 

So Napster, which cost almost nothing to create and is embroiled in 
cascading court cases from disgruntled record companies, kept the Christmas 
quarter from being even worse. 

The Napster phenomenon is bigger than most people realize, probably because 
the press chooses to dwell almost entirely on the piracy aspects of the 
business. Studies have not clearly shown that downloading MP3 files leads 
to fewer purchases of commercial music CDs. On the contrary, some studies 
have shown that MP3 downloaders buy MORE CDs as a result of their 
Napstering. And we do know that these users bought more than $20 billion in 
Napster-related hardware and software last quarter. That is more money 
spent on hardware and software for saving and playing music than Americans 
paid during the same time for recorded music, itself -- a LOT more money. 

This is an enormous and vital point. The PC industry is built on killer 
apps -- applications so compelling that users will buy entire computer 
systems just to run them. Napster is clearly the killer app for this 
decade, but so far the industry seems to pretend it isn't. Compaq and Dell 
and IBM and Gateway HP and Apple and the other big companies should be 
doing whatever they can to encourage Napster use, but they don't. Napster 
is such a big killer app that the PROFITS on the sale of Napster-related or 
inspired PC hardware and software were more than the SALES of the very 
music industry Napster feeds on. 

And that brings us back to the New York City subway. The arguments for 
making the subway free apply equally well to Napster or Napster-like 
services. Napster itself is about to make the risky jump from free to paid 
service. They think enough people will pay $5 per month for the right to 
use Napster that it will become a profitable business. I'm sure it will. 
But a profitable business and a killer app are different things. I fear 
that Napster, having established market dominance, is about to throw that 
dominance away. And that means something else -- Gnutella, maybe -- will 
replace Napster, and the beat goes on. 

But it would be better not to replace Napster. It works and people are 
happy with it. Even better, since the downloads are logged by Napster 
servers, it is possible to use those logs to pay royalties, something that 
can't be done with Gnutella. 

The cassette tape and VCR businesses faced this exact problem and 
eventually came up with invisible programs to pay the music, TV, and film 
industries a small royalty on each blank tape. The same thing should happen 
for CD-Rs and RWs INSTANTLY. Add a few cents to the cost of every blank 
disk, throw in a few dollars for every CD burner, and suddenly you have $1 
billion or so to pay to artists, writers, and publishers in the exact 
proportions specified by the Napster servers. That $1 billion is 
approximately equal to the entire profits of the recording industry, and it 
is $1 billion they aren't getting now. 

I say do it and get the PC industry growing again. It's cheap, it's 
painless, it's practically a free ride.