Gartner Says Record Industry Will Severely Damage Itself By Getting What It Wishes For In Court Ruling Against Napster

7-Aug-00

The record industry has won the initial battle in its fight against Napster and the distribution of copyrighted material over the Internet, but it is losing in the war of downloading music on the Internet, according to Gartner Group, Inc. (NYSE: IT, ITB). A recent preliminary injunction against the online music service Napster ordered the company to shut down its servers that assist in duplicating copyrighted music. (However, an appeals court subsequently issued a stay on the ruling.) Gartner analysts said it would have been advantageous for the Recording Industry Association of America (RIAA) to have worked with Napster because other technologies will make it much more difficult for the RIAA to regulate. ""There is no doubt that users are illegally copying music, but the record companies should be careful about what they ask for,"" said Stephen Bradley, a Gartner fellow. ""Their shortsighted desire to shut down the popular Napster music site will make it nearly impossible for them to control the online trading of music. With Napster, there is a credible company with experienced management and a 20 million user captive audience in one manageable place. With Napster potentially shut down, the record companies have no one to negotiate with as distributed trading architectures like Gnutella have no management team, facilities or place of business."" The infrastructure that Napster had developed allowed users to go to the Napster server to find and link up with other MP3 users' hard drives to download digital music to their own computer. Unlike Napster, some of the other music trading services have a distributed architecture, allowing MP3 users to go directly to other users' PCs to download music without going through a central server. Without a central server connecting all of these users, the RIAA would have to go to individual users to halt them from downloading copyrighted music from the Internet. ""Does the recording industry really want to go after every person that uses the Internet to download music from someone else's computer? Aside from the sheer logistical issue, the record industry faces the real threat of alienating the very audience they are trying to sell to. Napster technology is all about the shift in power from the recording industry to the consumer,"" said Robert Labatt, Research Director for Gartner's e-Business Services. ""The smartest thing the RIAA could do right now would be to temporarily stay the injunction themselves. They have finally been given the huge hammer. Now they should hold on to it, but not use it, yet,"" Bradley said. ""The RIAA will never be in a better position than right now to drive meaningful negotiations. If they follow through with the injunction, the music downloading community will immediately move to far more anarchistic alternatives. The RIAA will have lost its leverage, but not its fundamental challenge."" In an associated matter, Labatt commented that the movie industry had better stay tuned to the issues with the music industry because they are next. New DivX technology allows consumers to record full-length movies on a single-standard CD-ROM. This drastically reduces the size and download times to trade movies. ""Already, movie trading communities are surfacing, and movie buffs are trading copyrighted materials - just like music sites a year ago,"" said Labatt. ""While it is true that the download times are long, the advent of faster and cheaper Internet connections and home theater buffs using PCs to play DVD and DivX movies means that movie executives must be proactive or risk following their music industry brethren down the same path."" 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