The Real Reason Napster Failed Spectacularly

Key Points

• Napster was a music peer-to-peer file-sharing computer service created in 1999.
• Napster hit a record number of 80 million registered users in under two years.
• Napster ultimately failed due to complications with piracy and copywriting laws.

From the early 90s till the dot-com boom, Napster was among the most debated controversies on the web. The platform allowed users to download and enjoy millions of free MP3 files easily. Of course, the music industry quickly pounced on the P2P network. They exhausted all their resources to ensure Napster failed once and for all.

But were they successful in the end? What methods did the music industry rely on to ensure Napster failed? Who came out on top, Napster or the music industry? Or was it more of a lose-lose scenario in the end? All of these questions are well worth asking. We’ll answer each one of them as we go through history to outline the real reason Napster failed spectacularly.

The Significance of Napster

Looking at the success of Spotify and countless other music streaming sites, it’s hard to imagine digital music was somewhat unavailable. Let’s go back to 1999, just before the Internet became a buzz. Pandora hadn’t been founded, iTunes was still two years away, and Spotify was nearly seven years off. If you wanted to listen to music on the computer, you had to upload your CDs to your desktop. Napster changed that for good.

Investors had poured millions into the CD market throughout the 1990s. While they were undoubtedly popular, they were also expensive. Coming in at more than $15 — closer to $30 when adjusted for inflation — not everyone could afford to buy an album from artists. After all, most two only care to listen to a song or two off the album and not every track.

Napster allowed downloading a song or two from the latest and greatest Top 40 star’s new album. Users could also browse back catalogs dating decades into the past. Napster users uploaded rarities, obscurities, and even previously unreleased music to the site, giving millions access to music they couldn’t otherwise afford. Personal music libraries were no longer an investment. They were a free and public good for a brief, glorious moment in time.

Napster’s Reception from Critics

Napster’s critical reception was evenly split between those optimistic about the service and those passionately against it. Both arguments were perfectly valid. On the “against” end of the debate, the argument revolved almost entirely around the legality of the act of P2P file sharing. Many major artists, executives, and music stores claimed that file sharing ate away at their profits. By freely exchanging music that otherwise would have been purchased at a music shop or from an authorized online retailer, Napster users were taking away from what was rightfully owed to the music industry.

Proponents made just as convincing a case. Artists could earn fans by allowing users to browse their tracks for free. It’s the same logic behind supporting Spotify and the like. By effectively sampling an artist’s catalog, you stand to benefit from their purchases of merch, concert tickets, and so on. Without the ability to try music on for size, those artists and execs would be missing out on those potential fans.

Both critical arguments hold weight. True, Napster streams were eating into profits that would have gone to the artists, labels, and stores. However, this argument failed to account for the fact that free downloads on Napster were creating fans that couldn’t purchase the music legally. Those who saw the good in both sides made the smartest critical position. Yes, Napster violated copyright laws, but it also created troves of new fans.

Napster Specs

Napster: The Complete History

On June 1st, 1999, the music industry and the entertainment industry at large were changed forever. This was the day Napster — a meager peer-to-peer (or P2P) file-sharing site was officially launched. To some, this is also the birthdate of the music industry’s greatest threat ever faced. While file-sharing sites were nothing new in the summer of 1999, Napster was one of the first to cater to the P2P experience, and especially to audio files.

Users quickly came to rely on Fanning and Parker’s site to exchange their music files freely and easily. With a user-friendly interface and a massive library of new releases alongside older songs, Napster was an almost instantaneous success story. As soon as word got around, Fanning and Parker’s site became the number one destination for P2P audio files. Napster effectively changed how people accessed and listened to music. Users could access music for free. In a pre-Spotify world, this was revolutionary.

While initially only accessible on Windows computers, Napster users soon created a fan-made version of the service for Macs. Napster quickly saw the success of the Macintosh client and purchased it outright in 2000, renaming it from Macster to Napster for the Mac. With this move, Napster could reach its fullest potential. Given the sheer speed of its growth, it didn’t take long for Napster to reach its peak. While good for Napster users, this popularity proved fatal for Napster itself.

Early Signs of Imminent Failure

One of the first major hurdles Napster faced was the university system. Napster was available via Macs and PCs, and began nearing its peak of 80 million registered users. For context, Spotify didn’t hit this many paid users until 2018, a dozen years after its initial founding. Napster hit this number in under two years, a truly remarkable feat. Millions of users flocked the site daily, with 60% of universities’ external network traffic transferring MP3 file via Napster.

Colleges began blocking Napster, but copyright infringement wasn’t even an issue. Their priority was freeing up all that network traffic. This was one of the first instances of pushback against Napster. Unfortunately for founders Fanning and Parker, it wasn’t the last. 2000 also saw more than a dozen record labels suing the P2P service. In their opinion, Napster facilitated unprecedented levels of copyright infringement and outright theft online.

Individual artists took it upon themselves to file suit against Napster, as well. Most famously, Metallica — whose yet-to-be-released single “I Disappear” had blown up on Napster and began receiving airtime on radio stations nationwide. Dr. Dre, Madonna, and others followed Metallica’s lead. By 2001, Napster had several lawsuits against them. For a site that operated free of charge, there was simply no way Napster could have settled them all. The writing was on the wall. Napster’s wheels were coming off, and it was only a matter of time before they crashed.

The Eventual Demise of Napster

The Recording Industry Association of America was the first to file a suit against Napster in December of 1999, and in the end, they were the final nail in the P2P service’s coffin. While the highly publicized trial brought millions more to the service, the court eventually ruled in RIAA’s favor. In March of 2001, Napster was ordered to stop all exchange of copyrighted material on its P2P network.

In a last-minute attempt to keep Napster around, Fanning and Parker created software that would block 99.4% of illegal exchanges on the site. This simply wasn’t good enough for the courts. They wanted 100%, and Napster just couldn’t provide that kind of guarantee. Napster shut down its entire service in July of 2001, just over two years after its initial debut. They were ordered to pay $26 million as a settlement to the music industry, forcing them to create a paid version of Napster. It wasn’t nearly as successful, dropping from 80 million users at Napster’s peak to around 25 million.

Sadly for Fanning, Parker, and the millions of Napster loyalists, it just wasn’t enough to turn things around. Napster was expected to sell to a German media conglomerate for $85 million. This would give Napster the cash to pay off the music industry and recoup its losses. However, the sale was blocked. Napster – bankrupt, broke and bled dry – had no choice but to liquidate in September of 2002. While third-party clones of the P2P network came and went for years after, Napster proper was no more.

Why Napster Failed

Napster’s failure can be pinned to the very thing that made it so popular in the first place. And that’s facilitating peer-to-peer sharing of copyrighted material. Much like the countless pirating sites that have appeared and disappeared, there’s no conceivable way Napster would have been able to remain a P2P network without getting legal tussles. When Napster failed, nobody questioned why it happened. The primary concern was this: How could it happen again?

At the bankruptcy auction in 2002, American media company Roxio bought Napster’s name and trademarks. They attempted to re-release the service as a paid one, allowing users to stream music legally for a subscription fee. From 2003 to 2011, this second iteration of Napster operated more or less without difficulty. However, the rising popularity of Spotify and the increasing attention paid to streaming rights spelled more trouble. Napster failed again, eventually being sold to Rhapsody — one of Napster’s biggest competitors a decade earlier.

Rhapsody rebranded as Napster in 2016. Since then, it has changed hands several times, moving from Rhapsody International to MelodyVR to current owner Hivemind & Algorand. While Napster has yet to fail for the third time, it wouldn’t be surprising to see it bite the dust once again at some point in the future. In our streaming climate, it’s hard enough for Spotify and the like to stay afloat. Napster 3.0 — which just went through another fresh rebranding in June of 2022 — is still in operation. Given how many times Napster failed, it remains to be seen if the third time truly is the charm.

Why Did Spotify Succeed?

Where Napster failed, Spotify succeeded. How did this happen? Both became known for a massive music libraries, allowing users to choose between a subscription model and a free, ad-based version. Not to mention, they were subjected to scorn by the bigwigs in the music industry. Why, then, did one fall short while the other continued to succeed? It all comes down to a few factors. First and foremost, the legality. Spotify has never offered P2P file sharing, while Napster initially relied on this before trying to move away from it.

Beyond this, Spotify leverages data collection to provide users with unique listening experiences. From specially curated playlists to the ability to follow along with friends to the annual Spotify Wrapped, Spotify’s user experience is constantly changing and evolving to predict the songs users want to listen. Napster had far fewer bells and whistles, not just because of the time period it came out of. The network wasn’t trying to curate playlists or anything fancy like that. It merely wanted to facilitate file sharing.

Spotify pays its artists per stream, while Napster never bothered with royalties until after the lawsuits. Spotify also never uploads music that verified artists don’t know about. In short, the legal blows dealt to Napster eventually proved to be too much. With its alluring user interface, innovative features, and paid and ad-based model, Spotify has never had to worry about user experience or legal issues. That’s why Napster failed, and Spotify continues to succeed.

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