Case Study

Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce
Part 1

Can the Music Industry Change Its Tune? Would you pay $15.99 for a CD of your favorite recording artist if you could get it for free on the Web? This question has shaken the music industry to its foundations. A tremendous number of Internet users have taken advantage of online file-sharing services where they can download digitized music files from other users free of charge. The first such service to be widely used was Napster. Its Web site provided software and services that enabled users to locate any of the one billion digitized MP3 music files on the computers of other online Napster members and copy them onto their own computers for free. Napster’s own computers did not store any music files, but instead acted as a matchmaker. To obtain a specific music file, one would sign on to the Napster Web site and type in the name of the desired song. Napster’s central title index would display the connected computers with that specific song. Napster then established a direct connection between the requesting computer and the one storing the desired music file. The user’s Napster software then would download that file onto his or her computer. Users could play the song on their computers and copy it onto CDs. If they stored it on their computers, others could copy it from them. Napster quickly became so popular that when it was shut down in 2001, it had more than 80 million users worldwide. Napster users could legally copy and trade uncopyrighted material, but reproducing copyrighted files without permission is illegal because the recipient does not compensate the owner for their use. In December 1999, the Recording Industry Association of America (RIAA), representing the five major music recording companies (Universal Music, Sony Music, Warner Music, BMG, and EMI), which together were responsible for 80 percent of recorded music, sued Napster for violating copyright laws. A U.S. court... [continues]

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