What happened to Napster?

Napster was a pioneering peer-to-peer music sharing service founded by Shawn Fanning, John Fanning, and Sean Parker in 1999. The platform reached peak popularity in February 2001 with over 80 million users sharing cassette tapes, vinyl records, rare albums, bootleg recordings, and the latest hits in mp3 form. After a protracted court battle, the court ruled in favor of the RIAA which forced Napster to shut down its network late in 2001. This represented a great lesson for later players, like Apple, who took advantage of it to build a successful platform like iTunes.

Background

Napster was a pioneering peer-to-peer music sharing service founded by Shawn Fanning, John Fanning, and Sean Parker in 1999.

Although similar services already existed, Napster combined an intuitive software application with a core focus on music files. For the first time, a full history of recorded music was available online to everyone instantly. 

The platform reached peak popularity in February 2001 with over 80 million users sharing cassette tapes, vinyl records, rare albums, bootleg recordings, and the latest hits in mp3 form.

However, it wasn’t long before Napster caught the attention of music artists and the recording industry for copyright infringement. Not only were songs shared for free, in some cases they were being shared before their official release date.

Let’s take a look at the events that precipitated the eventual demise of Napster.

Metallica and Dr. Dre litigation

Upon learning that their music was being freely distributed by Napster, Metallica and Dr. Dre were two of the first artists to launch legal action against the company.

Metallica co-founder Lars Ulrich famously delivered thirteen boxes of documents to Napster headquarters with a list of 335,000 users suspected of sharing music without permission. The band took Napster to court for distributing an alternative mix of the song I Disappear – which had never been formally released. 

Charges laid against the company included copyright infringement, racketeering, and unlawful use of digital audio interface devices.

Recording Industry Association of America litigation

Just months after Napster reached 80 million users, the Recording Industry Association of America (RIAA) sued the company for facilitating the illegal transfer of copyrighted music.

After a protracted court battle, the court ruled in favor of the RIAA which forced Napster to shut down its network late in 2001.

Monetization plans and legal costs

During these court proceedings, Napster hatched a somewhat belated plan to monetize its service. The company sought to establish 2% of its user base as paying customers with the remainder on a freemium model.

While this model would later be adopted by companies such as Spotify, rolling legal action against Napster hindered its ability to grow and quickly depleted its resources. The company agreed to pay damages in the tens of millions of dollars to artists in September 2001 in addition to mounting legal fees.

In May 2002, the company could not pay its staff and filed for bankruptcy the following month. 

Through a series of acquisitions, Napster is now owned by streaming company Rhapsody International. Rhapsody has managed to build Napster into a viable company, but the Napster brand is remains a shadow of its former self.

Key takeaways:

  • Napster was a peer-to-peer music-sharing software application. It was the first such platform to provide free access to the full history of recorded music online.
  • Napster quickly attracted the attention of music artists, with Metallica instigating court proceedings against the company for copyright infringement and the distribution of unreleased music.
  • Napster was forced to shut down after the Recording Industry Association of America won a court injunction. Mounting legal fees and compensation costs led to the company filing for bankruptcy in 2002.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"