On December 6, 1999, the Recording Industry Association of America (RIAA) sued the first file sharing platform Napster for copyright infringment. This was the start of a still ongoing campaign against file-sharing and related practises. On the occasion of the 15th anniversary of RIAA’s lawsuit against Napster, I would like to retell the story of Napster relying on Joseph Menn’s book “all that rave. The Rise and Fall of Shawn Fanning’s Napster” (2003) as well as on court documents and press articles.
In the second part the studies and survey commissioned by the music industry as well as by Napster are highlighted that eventually were decisive in the Napster case. The studies also mark the starting point of a still ongoing scientific research on the impact of file-sharing on recorded music sales (see also part 1-25 of the blog series “How Bad is File-Sharing?”
The Music Industry’s Fight Against Napster – Part 2: The “War of Expertise”
The plaintiffs knew that the court would grant a preliminary injunction against Napster if there was evidence for a possible economic damage caused by file sharing. Therefore, both sides commissioned studies to support their respective positions. This “war of expertise” was not just decisive in the Napster case but has shaped the scientific discourse on the economic impact of file sharing on music sales until now.
The plaintiffs’ most effective expertise was a non-representative telephone survey on Internet behaviour in general and the usage of Napster in particular among 3,218 college students conducted by Field Research Communication from May 10-24, 2000 (Field Research 2000). According to this study (Field Research 2000: 3-4), 39.2 percent of file-shares used Napster for more than four months; 34.4 percent of the Napster users indicated that their use of the file-sharing service substituted CD sales; 40.4 percent of the users believed that Napster has some or a great deal of impact on their music purchases; 41.0 percent of the users described the nature of Napster’s impact on their music purchases in a way Napster displaces CD sales; the more intensive the use of Napster the higher was the substitution effect – the highest rate of substitution could be found in the group of users who downloaded more than 75 music files; 33.2 percent of the respondents were intensive Napster users; the longer Napster was used the higher was the number of downloaded music files; 48.6 percent of the Napster users previously owned less than 10 percent of the songs they downloaded and 46.6 percent of the users subsequently purchased less than 10 percent of the songs they downloaded that they did not previously own.
Field Research CEO, E. Deborah Jay, came to the conclusion (Field Research 2000: 34-35):
- 0 percent of the respondents said that they buy no or less CDs because of Napster;
- the longer Napster is used the more music files are downloaded;
- a high share of Napster users neither owned nor purchased the songs after downloading them from Napster.
If you read, however, the analytical part of the study, it becomes clear that only 500 college students of 3,218 respondents answered the questions on their Napster usage (Field Research 2000: 11). It is obvious that the study’s results cannot be generalized. The author, nevertheless, made generalizations and suggested a non-existing representativeness.
If we consider a population of n = 500, the study’s conclusion have to be taken with reservation. We can see that just 196 respondents have used Napster longer than four months (Field Research 2000: 13). 56 students (of 500) said “(…) they used Napster so that they would not have to purchase CDs, could purchase fewer CDs, or could make their own CDs” (ibid). That does not mean, however, that the respondents did not buy any or fewer CDs in fact. They just said, that there is no need to buy CDs anymore. Nevertheless, Deborah Jay concluded from these responses “(…) that Napster displaces CD sales” (ibid).
Further, 66 students indicated that they used Napster because it was free (ibid: 14). 13.2 percent (59 respondents) used Napster to get songs they want. 30.0 percent liked Napster since it provided quick, easy and convenient access to music. Further 31.0 percent appreciated the variety of songs available and that they can listen music they want. (ibid). And there was a minority of respondents (11.6 percent = 58 students) who used Napster to locate hard-to-find songs or rare music. These results highlight that Napster was not just used one-dimensionally as a huge gratis jukebox, but according to their specific needs. The results also indicate that Napster’s popularity could be explained by a lack of an attractive, legal music service on the Net.
In the Field Research study also the impact of Napster’s usage on music purchase behaviour was analysed. However, one could come to a different conclusions than drawn by the study’s author. Table 3 (Field Research 2000: 15) highlights that almost 60 percent of the respondents did not adopt their music purchasing behaviour because of Napster. In the group of respondents who have downloaded just a few music files, even almost 70 percent said that they have changed their music purchasing habits a little or not at all. In the group of heavy Napster users (more than 75 downloads) almost half of the respondents did not change their music purchasing behaviour a lot. Just a minority of 13.6 (n=68) percent of the respondents said that they buy lesser CDs or no CDs at all because of Napster. In contrast, 21.8 percent (n=109) of the college students agreed that Napster supported their music purchase decisions. This could be interpreted as a sampling effect of file-sharing for music purchases that can be verified by those 29 respondents (5.8 percent) who indicated that they purchased even more CDs because of Napster. With 6.6 percent (n=33) the share of those respondents buying more CDs was even higher in the group of heavy Napster users. In contrast, 5.6 percent of those respondents who rarely used Napster (not more than 25 downloads), purchased more CDs than before the arrival of Napster.
Moreover it is worth looking at table 8 of the study (Field Research 2000: 22). It highlights on the one hand that 46.6 percent (n=233) of the students purchased less than 10 percent of the songs they downloaded from Napster, but on the other hand 23.3 percent said that they purchased more than 25 percent of the songs they had still downloaded from the file sharing platform. 15 respondents even indicated that they had bought all the files they had downloaded before from Napster. Again we can see a clear sampling-effect of Napster.
Apart from the weaknesses of this study – not representative, just college students were surveyed, simple descriptive statistics – the results can be explained differently than the study’s author did. Nevertheless, Judge Patel agreed with the conclusions of Deborah Jay and wrote in her decision: “But selecting out college students, I don’t think it was inappropriate and, therefore, does not negate the entire study. What it makes clear to the court, however, is that it is only looking at college students and, therefore, we know that it’s only looking at a segment of the market. Nonetheless, a segment that Napster itself has said it has targeted. And it gives us a snapshot, particularly for preliminary injunction purposes, of what is happening in a particular market.”
The music purchase behaviour of college students was also a focus in the second study submitted by the plaintiffs. A SoundScan survey  highlighted that album sales in record stores nearby colleges and universities with a broadband access had declined from the first quarter of 1998 to the first quarter of 2000 by 7 percent, whereas overall national album sales in the U.S. had grown by 18 percent since 1997. It is striking that despite of Napster the national album sales in the U.S. essentially increased. Thus, the arrival of Napster had no negative overall effect on album sales in the U.S. Thus, we should not conclude that there was a simple causal relationship of decreasing album sales in record stores nearby universities, since the decline could also be caused by other factors. Since the study did not compare specific album titles but just overall sales figures, the results are flawed and not reliable.
Figure 1: Album sales in record stores nearby colleges and universities with a broadband Internet connection
Source: Report of Michael Fine, CEO von SoundScan Inc. in the Napster trial, p 8.
Professor of Marketing, Peter S. Fader of Wharton School, who was commissioned by Napster to conduct a study on the impact of file sharing on music sales, pulled apart the studies commissioned by the plaintiffs and concluded: “(…) that Napster has a direct and net positive influence on music purchases.” Fader based his statement on six studies revealing a significant sampling effect of Napster as well as a study conducted by himself: “(…) 28.3% of users who have downloaded files with Napster saying that their music purchases have increased since they began using the software. This is in contrast to the 8.1% who say that their music purchases have decreased.” (Fader 2000: 14). Fader asked 1,605 Internet users in an online survey on their Napster usage and their music purchase behaviour. Just 18.2 percent of the surveyed Napster users were students, the great majority of 76.5 percent were not. However, the survey’s sample was not representative and therefore the results could not be generalized too. Nevertheless, Fader’s critic on the Field Research study and SoundScan survey as well as on a very subjective assessment by a New York City record store owner is plausible. Fader (2000: 15-23) criticised on the Field Research study that just college students were surveyed and accused Deborah Jay to subjectively interpret answers to open-ended questions. He also highlighted that the Field Research study ignored any evidence of a sampling effect by Napster. Fader’s critic on the SoundScan study focused on the omission of other causes for the decline of album sales in record store nearby universities. Fader argued (2000: 9-12) that online sales of music albums were not taken into consideration by the study, what could have an impact on album sales: “Fine has not attempted to determine the extent to which online music purchases by college students have replaced their purchases at retail. Without accurately capturing changes in music sales over time, Fine cannot say anything about the impact of Napster use on those sales.” (ibid: 9).
In a second study commissioned by Napster, Robert E. Hall, Professor of Economics at Stanford University, highlighted that Napster did not have a negative impact on the plaintiffs profit in the near future. He compared two scenarios: (1) Napster is allowed to stay online before the copyright trial or (2) Napster has to go offline because of the court’s provisional injunction. Hall concluded that “Napster’s activities will not reduce the plaintiffs’ profits in the near future, and therefore shutting down Napster pending trial will not prevent a loss of profits.” (Hall 2000: 2). He backed his conclusion with three assumptions: (1) Napster has a sampling effect on regular music sales; (2) Napster stimulates the building of a digital download music market; (3) if Napster is closed down, the users would change to other file sharing services. All in all, Hall calculated the loss of a Napster shutdown for the record labels of US $63 million.
Finally, we also have to consider Ingram Olkin’s study commissioned by the plaintiffs. As a Professor of Statistics at Stanford University, Olkin highlighted that almost all users of a large random sample uploaded copyrighted works on the Napster server. He also showed that 87.1 percent of the files downloaded from Napster were copyright-protected. Thus, the claim of the Napster representatives that a substantial part of the files shared with the help of Napster’s software was not copyrighted, was misleading.