Napster's Effect on the Industry

Feb. 13 -- Napster may have suffered a setback, but there’s no stopping the company’s effect on the music industry, experts say.

A federal appeals court ruled Monday that the wildly popular online music swap shop must stop dealing in most copyrighted music, pending a trial. But with Aimster, Gnutella, Rapster, BearShare and any number of other “peer-to-peer” music-trading networks out there, Napster’s just the tip of the iceberg, analysts say. (Click here for an explanation of peer-to-peer.)

The coming revolution won’t kill the music industry, they say. But it will cause publishers to think of new ways to make money, possibly give a new role to fan clubs and music-based communities, and cause a long, hard look at how we view copyright.

“There are going to be these thousands of parallel distribution universes,” says Rob Batchelder, an analyst with the Gartner Group. “The genie’s out of the bottle. The music business has to rearchitect itself.”

It Could Ad Up

Imagine a world where music companies don’t make their money from CDs. Instead, the big pop stars make money from concerts, T-shirts, merchandising deals and advertising. Smaller bands would make money from paid fan clubs, merchandise, ticket deals and opportunities to interact with the artists, Batchelder says.

“If they were smart, they’d be building a community for every act … and then having directories to those communities and marketing through those,” he says.

That marketing could include advertising, says Dan O’Brien, an entertainment and media analyst at Forrester Research. Newspaper and magazine prices are already subsidized by advertisers, he points out. Why not music?

Even Napster has ventured into this space a bit: In January an ad for the Dave Matthews Band single greeted Napster users logging onto the service. Promoting the band’s unreleased single “Everyday,” which isn’t due out until Feb. 27, Napster provided a link directly to the band’s Web site for a sneak peek of the tune and an opportunity to preorder the entire album.

Napster has yet to enter into the advertising space full thrust, but all that might change with its recent deals with German music publisher Bertelsmann, which owns BMG music, and indie label Edel. The companies are currently trying to put in place a subscription-based solution. For a small monthly fee, users would get access to a library of songs. But Napster and its new allies are having trouble convincing other big labels to join their music pool, most notably the four big labels — Universal, Warner Bros., EMI and Sony Music — still suing Napster. BMG says it will drop its part of the suit once a viable for-pay service is in place.