The Napster Controversy

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Case Details:

Case Code : BECG007
Case Length : 07 Pages
Period : 2000
Pub. Date : 2002
Teaching Note : Available
Organization : Recording Industry Association of America
Industry : Media, Entertainment & Information
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

Napster was developed by two students of Northeastern University, (Boston), Shawn Fanning (Fanning) and Sean Parker (Parker).

One of Fanning's friends had been searching in vain for digital music on the Internet. Fanning, who had an interest in computer programming, decided to help him by writing an Internet-based file-sharing program.

Once the program was developed, Fanning and Parker began collecting funds from their friends and families to set up Napster as a start-up...

The Arguments

Napster supporters claimed that the recording industry was over-pricing its products and that file sharing was the only legitimate way to get music cheaper. RIAA argued that if customers felt the merchandise was over-priced, they were free to decide against buying it. RIAA supporters cited the case of global diamond prices, which were being artificially inflated because they were controlled by an international cartel. They countered that by Napster's logic, it would be ethically right for a person to steal diamonds...

The Future of Napster

Towards the end of September 2001, Napster agreed to pay $ 26 million to music publishers to end the litigation. Napster also agreed to pay $10 million to the Harry Fox Agency, the licensing arm of the National Music Publishers Association for the future use of copyrighted material.

In addition, Napster agreed to pay music publishers one-third of the revenues given to content owners. It was reported that Bertelsmann was providing Napster the money for these deals...


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