Music critic Sasha Frere-Jones has referred to the plight of the music industry as the “canary in the economic coal mine,” citing it as “a small example of the enormous financial buckling that is now global.” If the music business was the canary, then the MP3 was its carbon monoxide, choking an industry that had built its empire on the clean, regulated air of analog music products. First, music went digital. Then the MP3 compression format shrunk those big music files into transportable size. After that, there was little hope of record companies making it out of the mine without some serious lung damage.
Napster arrived at a time when tightly controlled access to new music was still the norm. While online radio stations were starting to flourish, music lovers were becoming disillusioned with the homogenizing effects of terrestrial radio consolidation that was enabled by the 1996 Telecommunications Act. Their frustrations were made clear when the Federal Communications Commission reviewed these rules in 2003 and opened them up for public comment. The FCC received more than 15,000 letters, emails and other documents. This was one of the largest responses in FCC history, with most writing in to oppose further media consolidation. Before Napster, internet users had limited access to digital music through legitimate channels. After Napster’s software allowed fans to share their entire catalog of music files online, the music ecology radically changed.
The revolutionary file-sharing application created by college student Shawn Fanning officially launched in June of 1999. By November, the file-sharing network had grown so popular that it had attracted the first of many peer-to-peer-focused lawsuits from the RIAA. And by the time the Pew Internet Project fielded its initial survey on music file-sharing in July 2000, nearly one in four adult internet users said they had downloaded music files, and most of them (54%) had used the Napster network to do so.
The musical bacchanalia that consumers experienced at the height of Napster’s popularity prompted many industry observers to declare record labels obsolete long before sales figures had shown any serious decline. A New York Times article that ran during the summer of 2000 described the scenarios put forth by industry experts:
In the none-too-distant future, techno-visionaries declare, musicians will not need record labels. Instead, they will market and sell recordings directly to fans over the Internet. Even the labels that manage to hang on to their artists will find their sales eviscerated by piracy. With free music available on the Web via Napster and other song-trading services, only fools will pay for songs.
Yet, in 2009, there are plenty of fools among us, and the record labels are still hanging on to their broken strings. Granted, consumers aren’t spending as much on music as they used to. Record sales for the music industry continue to decline; the latest reports from Nielsen indicated that total album sales, including albums sold digitally, fell to 428.4 million units, down
8.5% 14% from 500.5 million in 2007.
And while digital album sales actually increased 32% during the same period—to a record 65.8 million units—they were still dwarfed by the 362.6 million physical units sold. Pew Internet Project data echoes these findings; the market for digital music is still in its infancy, and those who do continue to buy music still overwhelmingly choose CDs. According to our 2008 “Internet and Consumer Choice” report, just 13% of music buyers say their most recent music purchase was a digital download.
At the same time, unauthorized file-sharing venues are still firmly rooted in the online music world. In a recent Pew Internet Project survey, 15% of online adults admitted to downloading or sharing files using peer-to-peer or BitTorrent. Globally, estimates from file-sharing research firm Big Champagne place the P2P universe at more than 200 million computers with at least one peer-to-peer application installed, and operators of the popular Pirate Bay torrent tracker have identified more than 25 million "peers" who have used their site alone to exchange files.
And among that 13% of music consumers who do pay for downloads, there’s no doubt that the eight-year-old iTunes service continues to dominate the market. Yet, as robust as the iTunes catalog may be, there are still surprising holes in the store’s offerings. Popular artists such as AC/DC still do not have licensing deals with Apple, and many older albums from independent artists like Silver Sun have never made it to iTunes’ digital shelves. Music fans in search of these recordings are still more likely to find them on peer-to-peer networks, torrent trackers, and eBay.