New Napster to Play by Music Industry’s Rules

Having launched one revolution in the music industry, Napster comes back to life this week in a bid to foment a counterrevolution: persuading people who download songs free to start paying again.

Like the original, the new version of Napster being launched Thursday by Roxio Corp. offers music fans a way to build their collections that’s very different from buying CDs. This time, it’s an industry-authorized mix of music rentals and pay-as-you-go downloads.

But the competition is much fiercer now than it was in 1999, when 18-year-old Shawn Fanning unleashed the pioneering Napster file-sharing service. Roxio not only faces a growing number of rivals licensed by the record labels but also a slew of free file-sharing networks that attract an estimated 63 million people in the U.S. alone.

Meanwhile, advocates of file sharing are pushing ways to legitimize networks that allow users to swap tens of millions of songs a day from computers all over the world.

One such plan, expected to be unveiled Wednesday, would automatically bill file sharers for their downloads and compensate the industry for its music. Backers say the plan would generate $900 million a month for the music industry within three years, boosting revenues for labels, artists and music publishers.

The proposal has been endorsed by the company behind Kazaa, the most popular file-sharing network. But to succeed, it must be embraced by the recording industry, as well as rival file-sharing companies, Internet service providers and users.

Analyst Michael McGuire of GartnerG2, a technology research firm, said all the changes in the online music business have made this a great time for risk-taking music distributors -- but not necessarily for record companies, which have watched CD sales plummet in recent years.

“If you’re still trying to protect what amounts to a 100-year-old business model,” McGuire said, “things must look pretty bleak right now” because music fans have voted en masse in favor of free file sharing. The issue, he said, is “how do you get them back in the corral?”

The major record labels shut down the original Napster in 2001 with a federal court injunction that barred its users from violating copyrights. Roxio, which bought the Napster name and technology at a bankruptcy auction last year, is reviving the brand just as a host of major competitors are jumping into the field with the labels’ blessing.

Those businesses include online music stores that charge about $1 for each downloadable song and subscription services that charge about $10 a month to hear or rent an unlimited number of tracks. Roxio’s Napster will offer both a store and a subscription service, as will soon-to-be-launched alternatives from RealNetworks Inc. and AOL Time Warner Inc.’s America Online.

Although they mimic the traditional way of buying music, the stores offer one significant improvement for music fans: Customers can buy individual songs, not just full CDs or singles chosen by the record label. But there are downsides too. Not every artist or song is available, and the tracks are wrapped in electronic locks that limit their ability to be copied or transferred.

Subscription services are a more radical departure from conventional music buying. They offer an unlimited amount of music for a flat monthly fee, but most require that the music be played on a computer. And they typically cut off access to those songs if a customer cancels a subscription.

The technology behind Roxio’s Napster was built around an overhauled version of Pressplay, the online music service that Vivendi Universal’s Universal Music Group and Sony Corp.’s Sony Music Entertainment sold to Roxio in May. Subscribers of the new Napster would pay $10 a month to play an unlimited number of songs from an Internet jukebox or download “tethered” versions to be played when they’re not online. It would cost about $1 to move a tethered song to a portable device or burn it onto a CD.

By this time next year, Napster executives hope to enhance the service by allowing subscribers to move an unlimited number of songs onto selected portable devices and take them wherever they go. But that depends on Microsoft Corp. delivering the necessary technology.

The concept of tethered songs is so alien to music buyers that some online services don’t offer them. For example, RealNetworks’ Rhapsody service has no downloadable songs, just music that subscribers play from an online jukebox.

File-sharing advocates say the most direct approach is to give file sharers an easy way to pay for music on the networks they already use.

The plan being revealed Wednesday, from Distributed Computing Industry Assn., a trade group for peer-to-peer file-sharing networks, will offer a two-step method for the music industry to collect for works shared online.

First, the labels would offer song files wrapped in electronic locks to enforce payment and deter piracy. Then, they would work with Internet service providers to track and bill for every song downloaded. Whoever owned the copyrights to a song would be able to register and collect if the track was shared online.

The group projected that revenue would grow from $200,000 in the first month to $900 million by the 30th month, assuming that the labels charged 50 cents per song and that downloading did not drop sharply when fees were imposed. By contrast, a plan floated by the now-defunct Napster Inc. in 2001 would have paid the record companies and music publishers $200 million per year.

The association’s plan faces significant hurdles. It wouldn’t work unless all the file-sharing networks and their users participated -- a potentially huge challenge, given the outlaw spirit of the file-sharing world. Similarly, to ensure that the music industry and Internet providers participated and set fair prices, it may require the kind of government regulation that entertainment and technology companies have long resisted.

Still, the plan is backed by Sharman Networks Ltd., the firm that distributes the Kazaa software, and its partner, Woodland Hills-based Altnet, even though it would eliminate the free -- and often illegal -- downloading that drew many users to file sharing in the first place.

“This new business model offers great hope for the entertainment industry, and we look forward to discussing it with the record labels, DCIA members and others,” said Sharman Chief Executive Nikki Hemming. “It’s clear that selling music directly to consumers within the [peer-to-peer] marketplace is the most logical solution for curbing copyright infringement online.”

Analyst Phil Leigh of Inside Digital Media, an independent consulting firm, said the proposal reminded him of a famous cartoonist who drew elaborate contraptions to accomplish simple tasks. “In principle, it might be workable, but it’s going to end up being a Rube Goldberg kind of thing,” he said.

Chief Executive Eric Garland of Big Champagne, a firm that monitors file-sharing traffic, added that Internet service providers weren’t equipped to monitor all their customers’ downloads. Nor would they necessarily want to. As one record company executive noted, Internet providers care only about the amount of traffic they handle, not what it is.

Marty Lafferty, chief executive of the Distributed Computing Industry Assn., said the point of the plan was to provide a starting point for discussions. “This is the first specific business model with robust details and assumptions, timelines with milestones and thoughtful consideration of all the technologies and parties that need to be involved,” he said.

Other file-sharing advocates are exploring ways to enable people to continue downloading without having to pay directly for the activity, while compensating copyright holders. Proposals by Neil W. Netanel, a law professor at the University of Texas, and Harvard Law School professor William Fisher III would create a multibillion-dollar royalties fund by taxing Internet services and digital devices.

The major record companies have strongly opposed such ideas as these, mainly because they generate a fixed amount of money that doesn’t grow even if people download more music.

Sean Ryan, vice president of RealNetworks’ RealOne Music division, said the idea of requiring copyright holders to authorize the same activity that they blame for billions of dollars in lost sales was both unrealistic and strangely familiar.

Referring to the now-defunct file-sharing pioneers, he said, “This is the same type of argument that Napster essentially used two or three years ago: ‘We will make the pain high enough that they’ll have to negotiate with us.’ ”