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In 2000, the music industry's top executives
gathered for secret talks with Napster
CEO Hank Berry. Those present included CEOs from
Bertelsmann (BMG), Universal,
and Sony Corporation. They discussed assessing a
monthly subscription fee of
around $10 from the estimated 38 million users.
Napster publicly offered $1 billion to
settle the dispute and to form an agreement to
move forward. Labels executives
caught cross-fire from retailers who did not
want product sold online for less than in-
store prices and from artists who feared their
promotional deals and sales through
Wal-Mart and Best Buy might be jeopardized. In
the end, the record labels never
completed a deal and instead forced Napster to
close in July 2001.
Over the next two years, the labels continued
to file lawsuits against unauthorized
file sharing sites and failed to offer the
public a viable legal alternative. A few labels
made unsuccessful attempts at starting their
own subscription services: PressPlay, a
joint venture between Sony Music Entertainment
and Universal Music, carried only
those two companies' music, and
MusicNet--backed by EMI Recorded Music, BMG
Entertainment, Warner Music Group, in
partnership with streaming media company
RealNetworks--which carried BMG, EMI, and
Warner Music titles.
Consumers criticized both services for catalog
limitations, their inability to inter-
face with many MP3 players, and restrictions on
burning tracks to CDs. Both services
failed, while the public demand for and
consumption of MP3-delivered music con-
tinued to grow.
In the fall of 2003, the RIAA began a
full-blown assault on illegal downloading by
filing numerous copyright infringement
lawsuits. As of 2006, more than 17,000 law-
suits against music fans had been filed. Many
were settled or dropped, like that
against a 65-year-old Massachusetts
grandmother, Sarah Seabury Ward, who was
accused of illegally sharing many hip-hop
tunes. Ward claimed she knew little about
downloading and uploading songs online until a
process server pounded on her door
late one night.
The RIAA maintained the lawsuits were meant to
spread the word that unautho-
rized file sharing can have consequences. But
file sharing did not go away. In 2006,
there was a 4.4 percent increase in the number
of P2P users, and an estimated 1
billion tracks were downloaded illegally per
month, according to research group
BigChampagne. Still, record companies were slow
to devise a model that would ade-
quately service the online
consumer.
In the midst of all the legal wrangling, Steve
Jobs and his team at Apple Computers
launched iTunes, an online music store, in
2003. Jobs was able to finally lead the
recording industry into the digital age by
convincing the five major record companies
to license their catalogs of songs to Apple for
distribution on iTunes. In addition to
having a legitimate online music store, Apple
also provided users with "rip, mix, burn"
tools that made it easy for consumers to make
their own CDs. In the first year, iTunes
sold 70 million songs at $0.99 per song,
earning nearly $70 million in legal Internet
music sales. While CD sales diminished, the
purchase of downloaded digital music
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