Filesharing and the birth of the digital music industry Liisa Benmergui DAP02S October 28, 2004

Seminar Goals Discuss peer-to-peer networks History: Past events in digital music distribution Present state of online music industry Visions of the future

P2P : An overview

Definitions What is P2P? “Generally, a peer-to-peer (or P2P) computer network is any network that does not rely on dedicated servers for communication but instead mostly uses direct connections between clients (peers). A pure peer-to-peer network does not have the notion of clients or servers, but only equal peer nodes that simultaneously function as both "clients" and "servers" to the other nodes on the network.” - From Wikipedia, the free encyclopedia

Important p2p terms Client Server Servent

Centralised networks

Decentralised networks

Hybrid networks

P2P categories First Generation:  Napster Centralized, infringed copyright laws Second Generation:  Gnutella/FastTrack Decentralized “true peer-to-peer networks” harder to pursue legally Third Generation:  Freenet Built upon generation 1 and 2 technology Anonymous networks

History and events in p2p network activity

Where did it all begin? 1999  Napster is launched by college drop-out Sean Fanning Felt there was a need to create a common, “easy-to-use” forum dedicated to sharing music files, namely.mp3 format  In December, RIAA filed a class action suit against Napster. This gave Napster a great deal of publicity, and millions of users flocked to the service  In March, Nullsoft unofficially releases Gnutella first client was developed by Justin Frankel and Tom Pepper of Nullsoft, a division of AOL Shortly after release AOL decides to stop project Gnutella project continued via reverse-engineering

Historical milestones continued 2001  Limewire, main developer of Gnutella-based technology is released as open source  In February, Napster use peaked with 13.6 million users (source: comScore Media Metrix)  Napster ordered to pay 26 million USD in copyright infringement case 2002  Saw the rise of p2p networks and software development 2003 – 2004  Lawsuits filed against networks, as well as, individuals

Who is against p2p and why? RIAA: Recording Industry Association of America  The “BIG 4” EMI Sony-BMG Universal Music Warner MPAA: Motion Picture Association of America

Reasons Copyright infringement by p2p networks Copyright infringement by individual clients Lack of royalty payments

Reactions Lawsuits against centralized networks September 2003 RIAA files lawsuits against individual clients Lobbying for right to outlaw p2p networks Lobbying for rights to break into personal computers, if there is a suspicion of illegal activity

Is filesharing illegal? No, sharing files is not illegal, if a person has received permission from the files’ creator(s) Filesharing in theory is based on the fundamental idea of sharing, but it has received a lot of bad publicity due to filesharing network “misuse” by individuals

The birth of online music stores

One person’s misery is another person’s success After Napster, “downloading” became a household term The profile of the downloader has evolved into distinct categories Apple was one of the first larger companies to back this idea and revolutionize the music industry as we know it  By cutting deals with the artists themselves, Steve Jobs revamped the digital music scene

Legal online alternatives: an even shorter history 2003  May: iTunes Music store launched in USA Consists of iTunes software Compatible with PC and MAC  October: Roxio’s Napster 2.0 launched in USA Familiar name, different functionality

The beat goes on 2004  June iTunes Music store launched in UK  September MSN Music Store No software download Virgin online music store Beta version of software available

Why buy music if you can get it for free?

Factors Security issues  Consumers are not interested in spyware, pop ads, or viruses  Trusted brands have evolved in this domain guaranteeing consumers protection Ease-of-use  The publicity showered on p2p networks arguably raised awareness as to how easy it can be to search and download songs off the Internet

Portable MP3, WMA, AAC players have evolved  Smaller, lighter, easier to use than ever before Average consumer will choose price over quality of the music

What is the impact of filesharing on the music industry? RIAA claims that album sales have gone down Recent research has shown that filesharing is not a true threat to album sales  Clients that are sharing music online are not the target group of album marketing Contradicting research: who is right?

Visions of the future Factors that will affect media distribution  Broadband connections will facilitate downloads  Rethinking of the strategies to combat illegal copying  Demand for better quality downloads

Conclusion Filesharing has existed among smaller groups years before Napster came along Are lawsuits the true answer to this new problem?  The fact remains: Peer-to-peer networks do not seem to be disappearing, on the contrary, clients are on the rise Businesses must adapt, not deny