After 19 months of lawsuits, motions and appeals, the major record labels and music publishers finally have the Napster Inc. online song-sharing network where they want it: out of service.
Napster raced to appeals court Thursday to try to relaunch its service, whose new anti-piracy filters were deemed too weak by a federal judge. Under an order issued Wednesday, Napster can't reactivate its downloading service until U.S. District Judge Marilyn Hall Patel in San Francisco is satisfied with its efforts to halt piracy.
The order, which came 10 days after Napster voluntarily suspended its service, keeps the company in painful limbo while its customers flee to other services.
"This is a crushing blow to this business," Steven M. Cohen, a lawyer for Napster, told Patel at the hearing.
The Redwood City, Calif.-based company filed an emergency request with the U.S. 9th Circuit Court of Appeals on Thursday, arguing that an indefinite shutdown would cost Napster its competitiveness and its customer base. The court is expected to rule within a few days.
The void left by Napster may exacerbate the labels' problem with online piracy, some analysts said. Several other unauthorized sources of free music on the Web have boomed in recent months, and the shutdown will only accelerate that trend, said analyst Phil Leigh of the Raymond James & Associates investment firm.
That's because the labels and publishers have been slow to provide legitimate alternatives to Napster. Although a number of would-be online subscription services exist, none have won all the licenses they need from the music industry.
One alternative--Microsoft Corp.'s MSN Music--got a significant boost Thursday when it announced a deal with Pressplay, the online music distribution service for Universal Music Group and Sony Music. But Pressplay won't be ready to supply music to the MSN Music site until late this summer at the earliest.
Even some advocates for the labels want to see Napster back up and running--but only as a service that protects copyrights. A transformed Napster could serve as the labels' Exhibit A in legal battles with other file-sharing services, said Russell J. Frackman, an attorney for the labels.
If the appeals court doesn't intervene, it's not clear how long it will take Napster to satisfy Patel. Frackman said the most foolproof approach would be to allow users to share only the songs authorized by the labels and publishers, an approach that Napster flatly rejects.
The company still hopes to launch a membership-based service this summer backed by labels and publishers, who would collect a share of the membership fees as royalties. Napster's interim chief executive, Hank Barry, said the shutdown shouldn't make it harder for Napster to attract paying customers for its new version.
"I think there's a lot of goodwill for Napster even in the circumstances we're in right now," Barry said.
The company's song-swapping system helps users find and copy songs from each other's computers. The service was slapped with a copyright-infringement lawsuit in December 1999, and Patel ordered Napster in March to block users from making unauthorized copies of any works identified by the major labels and music publishers.
After Napster and its opponents quibbled over how to carry out the order, Patel appointed a consultant, A.J. Nichols of Woodside, to determine what was technically possible. Meanwhile, Napster gradually built up filters to stop users from searching for and downloading copyrighted songs.
The filters slashed the amount of songs available for sharing, and that lack of content sent users packing, said analyst Lee Black of research firm Webnoize. The exodus picked up speed July 1 when Napster cut off all downloads after detecting a problem with its latest filtering software.
Nichols told Patel at a closed hearing Wednesday that Napster hadn't yet perfected the filtering, particularly when it came to matching song files in users' collections to the 950,000 songs that the labels and publishers have identified for blocking. Although Cohen contended that Napster's filters were missing fewer than 1% of those songs, Patel said, "I expect you to get down to zero, as close thereto as . . . humanly possible."
She instructed Napster to take the additional steps recommended by Nichols. "He will tell me when he thinks you have gotten to that [acceptable] point," Patel said.
Patel also instructed warring sides to resume settlement talks, aided by a federal mediator. Coincidentally, Napster announced Thursday that it had settled the lawsuits brought against it by the rock band Metallica and rapper-producer Dr. Dre.
Terms of the settlements were not disclosed, but Howard King, a lawyer for the artists, said Napster will be paying his clients. The settlements also call for certain tracks by Metallica and Dre to be available through Napster once it can track usage and pay royalties, King said.
A major factor in Napster's appeal, at least before it started filtering out songs, was the breadth of music available on the service. A handful of online companies have won licenses from several labels and publishers for on-demand music services, but none has the licenses needed to match what Napster once offered--or what the other unauthorized services on the Web still do.
A case in point is MSN Music, whose new deal with Pressplay gives it access only to about half of the most popular songs. That's because at this point, Pressplay's only deals with major labels are with Sony and Universal.
MSN's deal with Pressplay is not exclusive and Jeremy Hinman, director of MSN Music, said the company "will work to broaden the catalog in the way that makes the most sense." But Andy Schuon, president and chief executive of Pressplay, said his company won't allow its service to be commingled with any other music-distribution service.
Major labels have divided into two major camps, with EMI, Warner Music Group and BMG joining forces with RealNetworks to form Pressplay's main rival, MusicNet.