Silicon Alley News: Judge Weighing Napster’s Fate

By Samuel Rosales,
Silicon Alley News

A court in San Francisco’s federal district court is weighing
the fate of Napster Inc., the online music warehouse whose file
swapping technology has spawned copyright-infringement lawsuits by
the music industry and recording artists.

If Judge Marilyn Patel signs a temporary injunction against
Napster, an estimated 87 percent of its service would be shut down,
leaving approximately 15 million surfers worldwide without their
online music provider.

The injunction was requested on June 12 by a coalition led by
the Recording Industry Association of America (RIAA), which argues
that Napster encourages piracy and harms CD sales.

Napster’s legal defense is the Audio Home Recording Act (1992).
The company claims this act gives users the right to download songs
from other Napster users, even if that music is protected by
copyright, a move the RIAA labels as “another veiled attempt to
reinvent itself and its legal position.”

But Napster’s CEO Hank Barry said on Monday that his company is
moving toward a business model that recognizes intellectual
property. Speaking to attendees of Jupiter Communication’s Plug-In
conference in New York, Barry said the key issue is compensating
artists for their music.

Companies such Liquid Audio are among those watching the events
with a keen eye. The company’s CEO, Gerry Kearby, said Napster is
using its new technology that monitors music file origination. The
Liquid Audio product essentially tracks file downloads from
computer to computer.

Napster currently has no revenue model, only an enormous music
library stored on a massive network, an impressive chunk of
listeners, and a mammoth set of legal problems.

Doug Milles, vice president of marketing for Alley-based EverAd,
told atNewYork.com that whatever the legal outcome of Napster, the
company needs to look at business models, most notably the three
basics: subscription, direct sale and advertising revenues. EverAd
runs PlayJ, an ad-supported site that licenses content from
recording companies and offers free music downloads (the files
contain wrapped in dvertisements).

If the injunction is allowed and Napster’s 15 million listeners
are booted off the popular site, companies such as PlayJ could
benefit, agreed Milles. Folks may be willing to watch a banner ad,
for example, in return for the free music that is such a part of
Internet culture.

Even if the company avoids the injunction, Milles added, the
company “will probably scramble to go to streaming based ads, and
hope to work with a legally licensed model, and legally licensed
content.”