The accidental revolutionary

He didn't mean to, but 19-year-old Shawn Fanning has come up with a computer program that threatens a $10bn global industry. And all because his friend wanted to download some MP3 music files

Unlike many of the people you may meet in these pages, Shawn Fanning never intended to achieve global domination. But also unlike most of the people here, the 19-year-old has truly managed to threaten an entire $10bn global industry, without meaning to. If ever there were an accidental revolutionary, it's Mr Fanning. And you won't be surprised to hear that the catalyst for his status is the internet.

Unlike many of the people you may meet in these pages, Shawn Fanning never intended to achieve global domination. But also unlike most of the people here, the 19-year-old has truly managed to threaten an entire $10bn global industry, without meaning to. If ever there were an accidental revolutionary, it's Mr Fanning. And you won't be surprised to hear that the catalyst for his status is the internet.

Until late 1998, he was just another computer studies student at North West University in Boston. He had never written any software for the Windows operating system, but Mr Fanning got interested when his roommate began complaining about the problems of using his PC to track down MP3 files - which compress CD-quality music into small, downloadable files - from websites.

Finding MP3 files on the Internet meant hunting around various sites, whose content would change from day to day or even hour to hour. Those sites were pursued relentlessly by record companies, which shut them down wherever they could, often within hours of their appearing. Mr Fanning saw the chance to try his hand at his chosen profession.

To help his friend out he wrote a program called Napster (based on his internet nickname, itself derived from his short-cut hairstyle). It was his first real programming challenge, one on which he worked for days at a time, often not pausing for sleep.

Once completed, and released onto the internet in January 1999, it was a piece of magic. It can tell you what MP3s an individual user connected to the net has on his or her computer - and start copying it from that machine if you want. No payment necessary or requested, for the Napster program or, more importantly, for the download.

The Napster company emphatically does not store any MP3 files. Instead, it operates a server, rather like a search engine. When someone logs on to the Napster service, their computer sends a list of the MP3 files on that machine to the Napster server: the artist's name and track title are encoded in the file. It also logs that user's location on the internet.

Other Napster users can then send a query to the central server, asking who has a particular track or artist's work. The Napster server sends back a list with their internet address; to start downloading the file from any of those people, you simply double-click on an icon in the program.

If you have a standard home modem, it will take you between seven and 10 minutes to download a three-minute MP3-compressed song. A standard 45-minute album would require a few hours. Total cost to a British user, a couple of pounds. Compared to a CD, there's no discernible loss in sound quality. The MP3 algorithm is designed to keep frequencies the ear is sensitive to, and ignore unimportant ones.

The big difference is that you haven't paid £10 or more to a record company or retailer for the music, which you can now listen to endlessly and download into a palm-sized portable MP3 player, essentially a microcomputer dedicated to replaying MP3 files.

It's not surprising that two things have happened. The music industry is having a collective heart attack at seeing its future revenue streams (which it insists are essential for developing and marketing new bands and artists) cut off; and computer users around the world are taking to Napster with delight. No more having to pay what they see as inflated prices for songs. In fact, no more paying at all, unless you want to spend the money to get the CD with lyrics, liner notes, photographs and the rest.

Clearly, the two business models cannot co-exist. Either the record industry gets paid when you take possession of a track, or it has to find some new way of collecting its money.

Just in case you're thinking it won't happen to your company, consider that this is a key example of what happens when a conventional business based on making things which carry information collides with the net. The book industry faces a similar challenge; only the fact that reading from a screen is 50 per cent slower than from a printed page is preserving it from a Napster-like destruction, at present.

The other key lesson is about what succeeds on the net. Even by internet standards, Napster has been a phenomenon, with a user base of up to 20 million who have downloaded it since Mr Fanning released the first version. And that number is growing, the company claims, by between 5 and 25 per cent each week. That makes its user base roughly equal to that of AOL, the world's biggest internet service provider. (AOL users can use Napster, just like anyone with net access.)

Yet there is no business involved in Napster: no money changes hands, not even for the program, which is free. So what's the lesson? It is this: on the internet, if you can find something which lets consumers communicate with each other without mediation, it will explode. Imagine if you had been the person who invented e-mail. Napster isn't quite that, but among the younger generation, it's not far off.

In December 1999 the music business took its first legal steps against Napster. The Recording Industry Association of America, which represents the big labels, sued the company for "contributory and vicarious copyright infringement". That suit will finally come to court a week from today in a northern Californian court.

Even before that, Napster had been sued successfully by the heavy metal group Metallica (ironically, Mr Fanning's favourite group) and the rap artist Dr Dre. They forced the company to prevent hundreds of thousands of fans from using its servers. Many of those fans, it is thought, simply wiped all traces of Napster from their PCs, then downloaded a fresh copy of the program and logged in again under a different name.

Metallica fans were, to put it politely, annoyed. Bad PR? Absolutely, says Alan McGee, discoverer of the supergroup Oasis. "How stupid of Metallica to, in effect, sue 300,000 of their fans," he said after the case.

How does Mr Fanning react to all this? With multi-million dollar lawsuits looming he is incommunicado, at least as far as the press is concerned. But his opinions remain consistent through months of earlier interviews. Is it intended to destroy the music industry? "It was ... to create a music community," he told ZD Net in March. "I thought it was pretty exciting, just in terms of the technology."

But isn't it theft, what all those people are doing? "I can't really discuss that," he told The Observer in May. He thought the service would benefit independent bands without record label deals who could make their MP3s available for download without going through intermediaries such as MP3.com, a commercial website, which very definitely does store MP3s, and recently had to pay the record industry $40m (£25m) in a settlement which allows it to play MP3s of known artists through its site.

The MP3.com decision was a small chink of light for the RIAA's members. In 1998, it lost a significant case against Diamond Multimedia, which makes the Rio MP3 handheld player, effectively a Walkman for the MP3 generation. The RIAA sued Diamond and lost. "The RIAA suing us was the best piece of publicity we got," says Nick Caddick, Rio's senior European marketing manager.

The RIAA lost because, as happened before when the copyright industries sued over cassette recorders and VCRs, a judge ruled there was a legitimate use for the products - making your own recordings of your own work. Because that legitimate use exists, the product cannot be banned, though it can be used to abuse copyright, for example by making copies of records. It would be up to the record companies to police anyone making copies. They capitulated. (Similarly, Sony was sued by the film and TV companies when it introduced the Betamax VCR in the 1970s; the same argument was used and prevailed.)

The Napster company was formed last summer after Mr Fanning was persuaded by his family to try to capitalise on his invention. In May it received $15m of venture capital funding. And the argument it is putting forward in its defence is the same one: you could use it to give people access to non-copyrighted work. The fact that millions of people don't use it that way really isn't Napster's fault, because it does not control what is downloaded.

Not only does it have heavyweight arguments in its favour, Napster also has a heavyweight lawyer, David Boies, better known for his remarkable demolition job of Microsoft for breaking antitrust laws. He was the lead lawyer for the US Department of Justice. He won that case. Now he is again, in a sense, representing millions of consumers against powerful forces ranged against them. Mr Boies, who is in private practice, filed Napster's defence against the RIAA case earlier this month.

Besides various affidavits from members of the (independent) record industry declaring how pleased they are with Napster, he put up a number of independent planks on which the defence will rest.

One is that the United States' 1992 Audio Home Recording Act (AHRA) allows individuals to share a song with as many people as they want, as long as it is a non-commercial use. (The RIAA riposted last Friday that the AHRA specifically mentions "a household and its normal circle of friends, rather than the public".)

Napster is also hitting back, defending itself by alleging that the record industry is acting in an anti-trust manner, By blocking new means of distributing music (that is, online and directly between users) the industry is misusing its copyright privileges, Mr Boies said. And under an obscure antitrust doctrine, that would mean the industry cannot sue Napster. The RIAA was silent. Few people argue antitrust law with Mr Boies.

The RIAA's principal riposte last Friday was that Napster "uses euphemisms like 'sharing' to avoid the real issue. The truth is, the making and distributing of unauthorised copies of copyrighted works by Napster users is not 'sharing', any more than stealing apples from your neighbour's tree is 'sharing' ".

The music industry has a basic problem with the whole Napster model. But, in part, that is because it has been so amazingly slow to realise what was happening in the digital landscape.

Besides the lawsuits, music business people like to deny the public really likes MP3s. Last week, Nick Raymonde, the A&R (artists and repertoire) director at BMG Music, one of the biggest music companies, said in an interview that MP3 "is not a particularly good format technically" and "I don't really see a lot of kids walking around with MP3 players yet".

As for Napster, he thinks it "a nuisance. I'd rather go and buy a CD. I don't use it at all because, if it was a band I liked, I'd feel as if I was stealing from them". One wonders who has it totally wrong: Mr Raymonde, or the millions of Napster users.

There's also the fact that the industry claims furiously that Napster is already depressing CD sales. One recent study claimed CD sales within a few miles of US universities, where Napster is most commonly used, have fallen; the company riposted with studies showing rising sales.

Belatedly, the record industry is moving towards an accommodation with the millions of people who are online. But its problem is that while those moves might have made sense a few years ago, today they look retrograde.

For instance, earlier this week EMI began offering downloads of work by Pink Floyd (including its seminal Dark Side of the Moon), Frank Sinatra and rap stars NWA, among 100 other albums and 200-plus singles.

Great - except that you'll need a particular program to hear the music, and another program to make sure you're obeying your download licence, and you won't just be able to swap it around between computers (if you have more than one) and MP3 players. Basically it'll be a pain.

But the real kicker is this: you'll still have to pay for it. EMI intends to sell the digital music, via a new set of online retailers, for as much as the physical album.

An EMI spokeswoman said: "We want to learn what the users want, how they find the user experience." Actually, it's right down the digital road, at www.napster.com. You get it free, then you decide if you'd like the physical CD too.

The amazingly slow-moving reaction of the industry led Carolyn Kantor, senior vice-president of MP3.com, to say: "The music industry is a $40bn industry locked in a $10bn body." She means that by resisting new forms of distribution which resemble Napster, it is cutting itself off from huge potential sources of revenue.

"Progress is about embracing new forms of digital music distribution," she told a London conference in May on the future of music.

"Look at the film industry - it has found a way to take one product through a huge life cycle, where you pay to see a film, then you can see the film as pay-per-view on cable, then you can hire a video, and finally it's on TV free.

"But the music industry hasn't created a model that let them make their money beyond the first release of the product."

If Napster wins its case, the effect on the industry will be dramatic. MP3 sharing will become endemic. There is no technical way to prevent CD tracks from being turned into MP3s. Internet access is becoming swifter, so in a few years, downloading a 5 Mb file (ie, a four-minute MP3 song) will take less than a minute.

That's faster than it takes to actually transform the CD track into an MP3, meaning that using Napster will be preferable to buying the CD. The record industry's only recourse would be to sue every Napster user individually. As Mr McGee might observe, what a brilliant way to piss off your customers.

"In the short term, the industry badly needs some transparency about its prices," admits one music executive, who asked to stay anonymous.

"People are going to want to know how much the artist is getting if they buy a song, rather than download it. For the fans, that might work. But as long as all you see is the single price tag, and you don't know how much goes to the record shop and how much to the record label and how much to the artist, you assume nothing goes to the musicians."

That attitude has been fostered by artists such as Courtney Love and Chuck D (of rap group Public Enemy) who have publicly declared it is the record labels who are the pirates, not the fans, or Napster.

A growing number of bands are also using MP3s - and some even use Napster - to distribute some of their music, aiming to make money from live performances, merchandise and spin-offs. The music becomes something you just do. It's a future-oriented way of making money that the record industry seems calamitously unready for.

Napster, too, is preparing itself for the future. Last week it announced it had hired - "stolen" was the nose-tweaking word it preferred - an executive from one of the record companies suing it. Keith Bernstein started as operations director on Monday, joining from Seagram-Universal, the world's biggest record label and a sworn enemy of Napster, which earlier this year hired an A&M legal affairs executive.

In theory, Napster could be used to enable the swapping of any sort of file, not just MP3s. That is what another new system, which is called iMesh (www.imesh.com) does: people logging on there can exchange MP3s, but also pictures, and even (if they have the patience) movie clips, encoded digitally, much as MP3s encode the analogue sound of music.

And what if the RIAA wins the decision? "We'll appeal," said a Napster PR. "There will be a lengthy appeals process. You know, these things can just go on and on. We're going to be around for years."

The question now is, will the record industry?