Napster: An Information Agency Portfolio

by Zach Tomaszewski

for LIS 650, Fall 2000, taught by Dr. Darlene Weingand


In many ways, Napster is a model information agency. Examined here are some of the main aspects of management that affect Napster and that will likely affect libraries and other information agencies as they make the transition to the World Wide Web.

History and Current Structure

Shawn Fanning, the founder of Napster, came up with the idea of a peer-to-peer protocol to transfer mp3 files (a compressed sound file with near CD sound quality) in January, 1999. He was 18 years old at the time. He dropped out of college and lived for the next three months in one of his uncle's offices. He worked nearly non-stop on the program code, desperate to get it out before someone else had the same idea.

Napster (taken from Fanning's high school nickname, due to his curly hair) was incorporated in May 1999. Around that time, Napster received a $15 million investment from Hummer Winblad Venture Partners. Doing so brought Hank Barry and John Hummer onto the Board of Directors.

Hank Barry is current Interim CEO. He has an undergraduate degree in economics, a law degree, and 15 years of media/technology company experience. Shawn Fanning continues to play a large role in the direction of Napster and continues to develop software for the company. Napster has 45 employees and is looking to hire more.

Copyright Issues

Of course, the reason Napster is so famous is due to its problems with the issue of copyright. In December 1999, the Recording Industry Association of America (RIAA), representing a number of record labels and musical groups, brought a suit against Napster for infringement of copyright. Actually, the RIAA realizes that Napster is not actively engaged in illegal copying; rather they are concerned with Napster's "tributary copyright infringement," which means aiding others to violate copyright laws.

As only a medium for the transfer of music controlled by their users, Napster claims it is not responsible for any illegal material available on its service. Unlike web hosting companies which can be held responsible for material found on their servers, Napster has no mp3 files on their servers. Rather, their servers only provide a real-time indexing and communicating service. Even if they are required to censor copyrighted material, it is doubtful that they will be able to. The only likely method to do this is restricting transfer of any files on a blacklist. Users could simply rename or slightly modify files to avoid this.

Not everyone agrees that Napster is in the wrong. Many musical artists applaud Napster's revival of the love of music and the strong sense of community it fosters. The service allows unsigned artists to get their music out to people. As many point out, it's not "piracy" if no one's making money off it. The copying is being done by users, so even if Napster does make money off their service, the infringement itself is not being done for money. In short, Napster encourages free access, intellectual freedom, and a love for music!

Using Napster lets users listen before they buy and find new musical groups. In fact, CD sales have increased at a greater rate since Napster's release. Also, there are other ways to transfer mp3s, such as through regular downloads from webpages and by using open source Napster-like programs such as Gnutella.

The Association of American Physicians & Surgeons also worries that if the courts shut Napster down, the future of peer-to-peer networking will be in jeopardy. Many different virtual communities could benefit from a Napster-like service, from the transfer of medical information to collaboration in specific specialized or professional areas. Besides just allowing for the transfer of files, peer-to-peer network allow for a very focused community to develop around a single topic. If this is all true, shutting down Napster could harm independent music, peer-to-peer protocols, and set precedents restricting the right to free exchange of information. With the speculated impossibility of shutting down similar, though decentralized, services like Gnutella, these negative precedents would be implemented with little actual gain in restricting the unauthorized flow of copyrighted works.

There are two previous court cases that will likely play a role in the court's decision regarding Napster. The first case found a flea market manager guilty of allowing copyright infringement in the form of copied cassettes being sold on the premises. If it is possible for Napster to monitor what songs are being transfered (since Napster does have centralized, indexing servers, it does seem this would be possible), they may be obligated to do so and restrict the flow of copyright protected material. Of course, there would be no way to completely stop all violations in such a growing, transient system with millions of users plotting on how to transfer the music they want to here. But that reality doesn't mean that the court won't force Napster to either comply or be shut down.

On the other side of the coin is the past suit pressed by Sony against video cassette recorder manufacturers. When the case originally went to court, the main use of video recorders was making illegal copies. But over time, as the case was fought and appealed, this subsided as the main use as companies began releasing more movies on video. In the end, the courts decided that there were sufficient "non-infringing uses" to keep video cassette recorders on the market. Indeed, many of the originally protesting movie produces became involved in video production themselves. If Napster can prove that there are enough non-copyright material available on their service, or in peer-to-peer networks in general, the court may follow the precedent set by the Sony case.

Napster also claims that they are covered by the Audio Home Recording Act of 1992. This is not entirely true, since this law applies to specific digital recording devices for which the manufactures have paid royalties of about 2% of the price of the device and have implemented features that control the number of copies that can be made. In my opinion, however, this may still be an important law for Napster's defense. The Audio Home Recording Act does mean that authors (or rather publishers and distributors, on the behalf of authors) get paid for their work. But the author never explicitly permits the copying! This is a case where copyright law has chosen to be rather pragmatic on the subject: as long as people are getting paid, the actual granting of rights is not as soundly protected. In this case, Napster may indeed be able to work out some deal in which they pay some small fee to recording artists and continue to operate their file sharing service. If this happens, copyright laws will continue to affect Napster long after the current court case has been decided.

On a business level, the legal battle has been a double-edged sword for Napster. On one hand, most of their time and energy goes into the legal battle. Indeed, most of their upper management have some sort of law background. It must be hard to do serious business planning when you don't know if your business will still be in existence next month. On the other hand, the suit has produced tons of free publicity -- it seems doubtful that Napster would have the current number of users if it weren't for their newsworthiness.

Coming Changes in Form

There actually is a deal currently in the works that may reconcile Napster with the music industry and change the shape of music on the Internet. The company Bertelsmann, who owns BMG, which is one of the five major record labels currently suing Napster, will likely give Napster a loan of $50 million in order to develop a new membership version of their service. The price for this membership is currently placed at $4.95 a month, which will primarily go to pay royalties. In return, Bertelsmann will have the chance to purchase Napster stock and will withdraw their suit once the membership-based service is up. The details of this collaboration are not yet finalized.

This merger will likely have a huge impact on the music industry. Napster is currently the most popular music-oriented website on the internet. The second most popular is CDNow; BMG third. Both of these latter companies are owned by Bertelsmann.

Bertelsmann's CEO is in fact a user of Napster, and there is talk of digitalizing books and movies, which could easily lead to Napster-similar services for these materials. If Napster can gain support from one of the major suing record labels, the others are likely to follow. In the end, it may work out better for all musicians, as all could be compensated regardless of their record labels. Record labels would have an alternative, web-based venue. Napster would gain reputability and likely provide higher quality services. It seems both companies have much to gain from collaboration.

Of course, it seems strange that Napster is paying royalties to compensate the actions of its users, but if it satisfies the recording industry, it may at least allow the internet company to get back to business. On the other hand, many Napster users have already expressed outrage at the idea of having to pay in order to transfer songs that they supply from their own hard drives. Napster will have to tread carefully to avoid alienating its customer base. It seems to know this, however, and is already promising that, if it does implement a fee-based service, that it will always continue to provide a free version of the service as well. The likely difference between these two services has not been disclosed. I imagine they will lose some users the moment they "sell-out" and implement a fee-based version. Yet I also believe they will gain other users who until now have refrained from using them due to the legal issues.

User Community

Napster's mission is "to provide music enthusiasts with an easy-to-use, high-quality service for discovering new music and a forum for communicating their interests with other Napster community members." It is interesting to note that that providing a community forum is as important to Napster as simply providing a means to transfer music.

Of course, Napster wouldn't exist without its community of users both providing and downloading music files. Yet even still, Napster's involvement with its user community is impressive and an excellent example of what an information agency can do in this area. At the start of this semester, there were about 23 million users; at last count it was nearly 40 million. That is incredible growth! And it is likely to continue to grow since Napster finally released a version of their software for Macintosh computers.

There are several ways that Napster both promotes a sense of community and gains support from that community. The primary community feature is the many available chat rooms. Admittedly, there is not that much chatting, at least in the public rooms, compared to the number of users online. But the same is true of the Internet in general -- not that many web surfers spend their time in chat rooms.

Another feature is the Hot List. This is basically a way to "bookmark" another user so that you can see whenever that user is online. Though this can be interpreted at treating people as Kantian ends and not as means, it does mean that users are very aware of other users and realize that mp3 availability depends on who is online at any particular time.

On Napster's webpage is a forum discussion list, on which users can post messages on various topics. Most conversation concerns Napster, such as technical help, new artists, what's new with major artists, the future of Napster, and the actions of courts and censoring universities. But there is some general conversation in here too, such as describing first kisses. Since this is a community, there are all kinds of people involved and so Napster chooses to moderate the forum in order to keep submissions genteel.

This discussion group is really useful for Napster to see what current user opinion is and to get feedback. For example, much of the discussion was an uproar over the new merger and the possibility of having to pay to share mp3s. Napster also gets some feedback from emails, as they list addresses for customer feedback, technical help, partner requests, or advertising interests on their website.

Besides helping users communicate among themselves and gathering user opinion, Napster also harnesses this immense resource to its advantage. Through their Speak Out page, they encourage users to lend their support to Napster. They list the mailing and email addresses of major record labels. They also, based on a user's zip code, supply contact information for relevant Congressional representatives. Napster encourages its users to by CDs whenever possible.

And Napster also keeps their users informed. They have an email newsletter users can subscribe too concerning Napster's plans for the future. They have a Press Room linking to most of the articles published on web concerning the company. They also display supporting quotes from famous musician as well as reviewing new music by generally unknown artists.

Links to most of these many features are conveniently located on the Home page every time a user logs onto the service. This close contact with their users means that Napster knows what they need to do to stay popular and productive. It also means that they have a huge lobbying base they are effectively using to the best of their advantage. Libraries would do well to take note of this involvement.


Due to their current legal involvements, Napster is quite conscious of their policies. Their copyright policy is stated on their web page, stated during setup before the software is loaded, repeated in a pop-up window the first 3 times the software is run (the user actually has scroll down through the entire policy before clicking continue), and is stated on the bottom of the Home screen whenever the software is started.

In relation to their focus on their user community, they have developed quite a sound privacy policy. They do collect "Personally Identifiable Information" (currently only a user's email address), but reportedly do not connect it with the user name the user uses on the service. They also collect demographic info (age, income, etc.) to know more about their users, but again this information is not connected with individual use of the service.

They also have a Terms of Use policy for both their software and website. This is the usual prohibition again hacking or tampering or reverse compiling the software, copyright notices for their graphics and content, disclaiming of any implied warranty, and a statement of which laws govern these conditions.


Napster's technology is what keeps them running. The software was originally written entirely by Shawn Fanning and is still a beta version, which means it may cause errors and operating system crashes, though in fact it rarely does. Because it was developed quickly and there has been little time to devote to its development since then, there are a few features that are missing. Most noticeable is the lack of a resume download feature. Right now, if a song fails to completely download, a user only has half the song and must start the download again from the beginning.

It is also important to remember that mp3s, though very good, are not CD quality sound. Often, the music may contain skips, jitters, and glitches. This is acceptable to most users now, but may become more of a concern if Napster starts charging. Also, it keeps those users concerned about top quality sound buying CDs. Changes in mp3 compression technology could affect Napster.

Finally, Napster must be sure that their servers can handle the immense user load. In fact, they have done an excellent job of this and their service has been down very infrequently.


I would say that Napster is under excellent managemnt. They have tried to keep things focus on the users and the music. They are performing well. Like any modern library should be, they are strongly affected by intellectual property right laws, open to growth and change, closely tied to user base even when this involves no face-to-face contact, have established policies concerning their service, and are intimate with the technology that makes it all possible. Napster is setting precedents, in both legal and e-business arenas, and I look forward to the outcome: it will impact us all as we move further into this digital age.

Napster's Logo.  Click here to visit their site.