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The Napster Cooption Business Model

Posted By Barry Ritholtz On September 17, 2003 @ 11:19 am In Current Affairs,Media,Music,Web/Tech | Comments Disabled

As promised [1], here is one of my entries for The Great Recording Industry Business Model Contest [2].

I’ve given this a lot of long hard thought. I have a model for the future of music (its still being tweaked), but to me the more fascinating model is the one a pouting and recalcitrant industry let slip away 4 years ago: the “missed opportunity/cooption” model. The industry’s failure to adopt this model led to the present strategy, ignominiously centered upon suing 12 year girls and 71 year old grandmothers.

Here’s the “missed opportunity” model:

The industry had a golden opportunity to establish the “cooption model,” working with Napster [3] as a centralized downloading center. This involved a jiu jitsu of the Napster sharing framework. The goal of the model would be to turn the Napster network into a massive data mining [4]/ advertising promotion / sales machine.

Each aspect of this model emphasizes the accumulation, analysis and application of consumer music data. The first goal would be to find out a) what people are listening to; b) what else they might want to listen to; and c) extending their relationships with the artists whose music they appreciate.

One of the best aspects of the Napster framework was user’s ability to peruse other people’s hard drives. Tracking downloading habits relative to that data could have been enormously powerful.

Amazon [5] uses a simple “Customers who bought this book also bought” method to drive recommendations. That’s an exceedingly simple, non-relational data base approach. A coopted Napster could have created a much more sophisticated, Google [6]-like page rank system, filled with rules such as multi dimensional rules: User “Likes the Beatles and Rolling Stones, but also has jazz and some hip hop but no country music, therefore: __________.” TiVo [7] uses a dumbed down version of this approach to make recommendations.

This algorithm should have been the holy grail for the industry, and would have created a powerful methodology for recommending new music and driving new sales. Napster would have been more like a multi-user programmed FM radio. Ideally, the Napster download medium would be of a lower burn quality (ripped at 128kps), somewhere between AM and FM. Napster traders would only be able to download these modest fidelity versions.

Considering that the industry now pays firms (such as Bigchampagne [8]) fees upwards of $40,000 per month for data not nearly as rich or informative, this model also makes financial sense for the industry.

The last aspect involves the conversion of downloaders to buyers. This would be aided in part by giving music fans an additional incentive to purchase an old school, manufactured and shipped polycarbonate disc [9], or in the alternative, download a higher quality MP3. There are many ways this could be done: CDs should be sold with both traditional tracks, and MP3s for Napster. Moving them to your hard drive encourages promotional downloads. Higher quality, non Napster MP3s (i.e., Apple’s AAC [10]) should also be on the disc. There has been some gradual progress made in adding videos, unique tracks, live or acoustic versions accessible over the net only with a purchased CD in the tray. The same incentives could be provided to those who bought internet based tracks. Album art [11], lyrics [11], etc, would only be available to those who legitimately paid for their music.

Here’s a real life example: I’m a big Steely Dan [12] fan; One day using Napster, I’m perusing someone’s hard drive, and see a bunch of Dan covers. I learn the sound track [13]to the 2000 Jim Carrey film “Me, Myself & Irene [14]” is all covers of Steely Dan classics. I download a few, like it, and order the full CD; I discover a previously unknown band, “The Push Stars [15],” who do a kickass cover of “Bad Sneakers.” A few more Push Star downloads, and I find a killer song “Drunk is Better than Dead [16].” (Incidentally, I end up renting the movie ‘cause of the soundtrack, which I might not have otherwise done).

All told, I end up buying a soundtrack, 3 Push Star discs, and a Ben Folds [17] disc (he does a nice cover of Barrytown). 5 CDs (and a film rental) from what started as one download. That’s the promotional power of a Napster like, centralized download facility. And that’s the opportunity which the industry let slip away . . .

Further Reading:

What Price Downloads? [18]

BigChampagne is Watching You [19]


Recording industry’s missteps [20]


The RIAA and the destruction of value [21]


The Music Industry Will Miss Napster [22]


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/09/the-napster-cooption-business-model/

URLs in this post:

[1] promised: http://bigpicture.typepad.com/comments/2003/09/the_great_recor.html

[2] The Great Recording Industry Business Model Contest: http://www.siliconvalley.com/mld/siliconvalley/business/columnists/gmsv/6728959.htm

[3] Napster: http://www.napster.com/bits/

[4] data mining : http://www.wired.com/wired/archive/11.10/fileshare.html?pg=1

[5] Amazon: http://www.amazon.com

[6] Google: http://www.Google.com

[7] TiVo: http://www.tivo.com/1.2.asp

[8] Bigchampagne: http://www.Bigchampagne.com

[9] polycarbonate disc: http://www.ee.washington.edu/conselec/CE/kuhn/cdaudio/95x6.htm

[10] AAC: http://www.apple.com/music/store/

[11] Album art: http://www.cdbaby.com/art

[12] Steely Dan: http://www.steelydan.com/

[13] sound track : http://www.amazon.com/exec/obidos/ASIN/B00004TJAY/thebigpictu09-20/104-2155773-8416758

[14] Me, Myself & Irene: http://us.imdb.com/title/tt0183505/

[15] The Push Stars: http://www.amazon.com/exec/obidos/ASIN/B00005A3HL/thebigpictu09-20/104-2155773-8416758

[16] Drunk is Better than Dead: http://www.amazon.com/exec/obidos/ASIN/B00000IP2V/thebigpictu09-20/104-2155773-8416758

[17] Ben Folds: http://www.amazon.com/exec/obidos/ASIN/B000002BOJ/thebigpictu09-20/104-2155773-8416758

[18] What Price Downloads? : http://www.needhamco.com/Research/Documents/20030716_Wolf_Bytes_39.pdf

[19] BigChampagne is Watching You: http://www.wired.com/wired/archive/11.10/fileshare.html

[20] Recording industry’s missteps: http://www.denverpost.com/Stories/0,1413,36~78~1626541,00.html

[21] The RIAA and the destruction of value : http://www.pacificavc.com/blog/2003/09/12.html#a353

[22] The Music Industry Will Miss Napster : http://www.shirky.com/writings/napster_wsj.html

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