sonal computer manufacturers saw the potential
of audio applications and
began developing affordable consumer machines
that included CD-ROM
devices and high-quality speakers that could be
attached or built right into the
computer itself. Soon music fans were swapping
tracks and copying and burning
their own CDs. The recording business fought
back with new legislation. The
Audio Home Recording Act of 1992 required
manufacturers of digital records to
pay a 2 percent royalty rate to copyright
holders to compensate for the ease of
piracy that digital recording allows and
required that recorders contain a device
to prohibit serial copying.
· In the late 1990s, instead of
embracing MP3 as the new dominant format,
record labels banned together and attacked. In
1998, the Recording Industry
Association of America (RIAA) filed a lawsuit
against Diamond Multimedia, the
manufacturer of the Rio MP3 player. That same
year they filed the first of many
suits against Internet "pirates" for posting
audio files online and allowing
anyone to download them for free. And then
Napster came along.
· Ready or not, the recording industry
was forever changed in May 1999 by the
unveiling of Napster. The first P2P network,
Napster made it possible for users
to share and swap music files by remotely
accessing each other's hard drives. The
major record companies, namely EMI, Sony BMG,
Universal, and Warner, felt so
threatened by Napster that they joined forces
to sue it out of business. Months
after its launch, the RIAA filed suit against
Napster for alleged copyright
infringement. After two years of legal battles,
Napster was ordered to remove all
copyrighted material from its network, and the
service shut down in July 2001
(after filing bankruptcy and selling off
assets, Napster re-opened in 2004 as
Napster, Inc., a paid subscription service). At
the time of its closing, Napster had
around 14 million users. Experts in the
industry assert that billions of dollars in
revenue were lost by suing Napster and trying
to thwart P2P file sharing, rather
than negotiating a model that would benefit
everyone. Seemingly overnight,
other P2P file sharing services, such as
Grokster, Kazaa, and Morpheus, sprang
up. The RIAA filed suit against them in October
2001. Because these networks
did not use a centralized server, as Napster
did, it was ruled they could not be
held liable for illegal activity of file
sharing that may take place within their net-
works. The enormous publicity surrounding the
legal scuffles did not scare off
users, as the record companies had hoped. The
harder they fought against this
new distribution channel, the more popular it
became.
ARE RECORD COMPANIES AT FAULT FOR THE BROKEN
SYSTEM?
Some blamed diminishing CD sales on P2P file
sharing; others place the blame
with the record labels themselves. Over the
last several years, label executives have
made a series of botched opportunity decisions.
Among their biggest was a failure to
address online piracy at the outset and make
peace with Napster.
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