Putting the Napster Genie Back in the Bottle By SAUL HANSELL http://www.nytimes.com/2005/11/20/business/yourmoney/20fanning.html?pagewant ed=print San Francisco
SHAWN FANNING turns 25 on Tuesday, and it's been a very long seven years since he wrote a little computer program that let him trade electronic music files with his dorm mates at Northeastern University in Boston, where he was a freshman. He called it Napster, after his nickname, and it quickly grew into an Internet phenomenon - not to mention the music industry's bête noire until it was shut down by the courts four years ago. Now the public spotlight is turning back to Mr. Fanning, this time as a symbol of how big business and the disruptive force of the Internet just might find a way to get along. This month, Grokster, one of the file-sharing services that emerged after the original Napster vanished, stopped distributing its software and agreed to pay the record industry $50 million, which it has no prospect of ever raising. Grokster decided to give up on a legal battle that had effectively been lost when the Supreme Court unanimously decided in June that it and other file-sharing services could be held liable if people used them to steal copyrighted works. By year-end, a new version of Grokster will appear - this one sanctioned by the record industry because it will use technology, built by Mr. Fanning, that requires file-swappers to pay for copyrighted material. In other words, Mr. Fanning, who let the genie out of the bottle when he created the copyright-busting Napster, is now selling a way to put the genie back into the bottle. His new company, called Snocap, has produced software that can enable music services to fulfill the original promise of Napster - a community of dedicated fans exchanging a wide selection of music - while monitoring the file-trading for copyrighted works. The new Grokster will still use peer-to-peer technology, which lets users download songs directly to one another's computers. But when a user tries to get a copyrighted file, Snocap can block the download or force the user to pay for it, depending on what the artist and label want. IF Snocap catches on - still a very big "if" because only one file-sharing service has signed up to use the software - it will vindicate Mr. Fanning's passionately held belief that if Napster had been allowed to live, it would have become a legitimate and profitable sales outlet for artists and music companies. After the original Napster closed, the name was sold to a new company that sells licensed music under paid subscriptions and does not use peer-to-peer technology. "Nobody has ever built a reliable peer-to-peer service, where people can really access all the music they want in one location," Mr. Fanning said. "Once I got it into my head, I couldn't imagine the media space without one." Yet curiously, at this crucial time for his young company, Mr. Fanning is pulling back from day-to-day operations and declining most opportunities to appear in public to champion it. Always painfully shy, Mr. Fanning says he wants to defer to the company's management, including a newly hired chief executive, Rusty Rueff, who had been a senior executive at Electronic Arts. In the meantime, of course, Apple Computer and other companies have built thriving, unquestionably legal music-downloading businesses. And others are trying to build authorized paid services using peer-to-peer technology. Mr. Fanning's vision is much more ambitious than these others. He doesn't simply want to impose fees for the same songs that are available through Apple's iTunes and other stores. He wants to create an open system that would allow anyone with music to share - big labels and garage bands alike - to register their works with Snocap and set the economic terms under which songs could be traded. Snocap would collect the fees, using software that listens to each song in participating file-sharing services, matching songs that listeners order with those in the registry and forcing users to pay the price the song owner demands. If this works for music, Snocap may ultimately serve as a template for resolving some of the thorniest problems facing all sorts of copyrighted material, according to Jonathan Spalter, a former Vivendi official who worked as Snocap's chief executive in 2003 and 2004; he left after differences with Mr. Fanning. "They have a shot, but it's a nine-bank billiard shot and they have only one stroke of the cue to get it right," Mr. Spalter said. "You need to get consensus from a firmament of major labels, independent labels, the publishers, courts, legislature, the peer-to-peer to companies, retailers and other actors. This is the ultimate, purest form of herding cats." The record companies, meanwhile, have escalated their attack on digital piracy, suing file-sharing software makers and the people who share music and hiring white-hat hackers to pollute the file-sharing networks with songs that purport to be the latest hits, but actually contain only static or worse. If any of these tactics have restrained piracy, the effect is modest. Album sales are 30 percent below their level the year when Mr. Fanning let Napster loose, and 10 times as many songs are downloaded from file-sharing services as are bought from paid services like iTunes. So it should come as no surprise that the record companies are starting to embrace Mr. Fanning's idea that peer-to-peer file-sharing services can be reconstituted as legal sales outlets. "Many of the people on these networks are not so much there to get their music free, although some of them certainly do," said Edgar Bronfman Jr., the chief executive of the Warner Music Group. "In the next year or two or three, we can develop legal services with the same availability of music, the same vibrant communities, that free services will not be so compelling." Last week, Warner became the last of the four major labels to agree to supply music to Snocap. It is still unclear how many users of those free peer-to-peer services will start to pay when software like Grokster starts to demand money for copyrighted songs. It is not that difficult to find so-called open source file-sharing software, which is developed by elusive networks of volunteers who may well be out of the reach of the recording industry's lawsuits. And Grokster users who don't update to the new version of the service will still be able to trade songs with one another free. "I don't know if someone can be successful transferring from regular, free file-sharing to paid file-sharing," said Thomas Mennecke, a news editor at Slyck, an online site for file-sharing users. "If you are going to pay for a song, why not use iTunes, which has the Apple iPod coolness?" He doesn't see much impetus for hard-core users to start paying for their music. "I only see file sharing getting bigger and better," he said. "If you shut down the commercial guys, the open-source systems will always be there." Snocap will not necessarily be the main beneficiary if legal file sharing takes off. The only service that has agreed to use its technology is Mashboxx, a start-up backed by Sony Music. It has agreed to buy the Grokster name and use it to sell a version of its service. Complicating this partnership is the fact that Mr. Fanning has a stormy relationship with the man who created Mashboxx, a loquacious former music publicist and file-sharing promoter named Wayne Rosso. Snocap still hopes to recruit other customers from the major file-sharing services, many of which are negotiating with the record industry to see if they can avoid being sued. Some services are simply shutting down and some are being courted by IMesh, which has its own approach to a legal peer-to-peer system. Mr. Fanning began working on what would become Snocap the day after the old Napster closed in September 2001. Gathering a few of his close friends and compatriots in a San Francisco music studio, he tried to figure out what went wrong and what to do next. He had been on an emotional roller coaster, becoming a hero to millions delighted with instant free music and then an archvillain to the music industry, even though he was pushed to Napster's sidelines by the series of grown-ups who tried to profit from his invention. In the end, Napster was the quintessential Internet company: it upended a huge and powerful industry without ever earning a dime itself. And after all the plans failed, all the lawsuits were lost, all the money was spent and all the outside managers departed, Mr. Fanning decided to try to get his revolution back. HE started over, working with Jordan Mendelssohn, a programmer who was an early Napster employee, and won the backing of Ron Conway, a Silicon Valley angel investor who had provided crucial early financing to Napster. He also hired two prominent lawyers - John T. Frankenheimer of Loeb & Loeb in Hollywood and Fred Davis, son of the recording executive Clive Davis, in New York - to persuade the record companies to cooperate with him, the person most closely identified with all their troubles. "My job was to market the so-called Antichrist back to the music industry," Mr. Davis said. Executives at the major labels received Mr. Fanning's idea enthusiastically. After all, it was as if he had found a way to put a police officer and a cashier in the satchel of every shoplifter on the planet. But Snocap stalled nonetheless. Developing the software turned out to be much more complicated than Mr. Fanning had anticipated, and he could not win the cooperation of file-sharing companies. And despite the music executives' enthusiasm, negotiations with their lawyers dragged on for months. As Mr. Fanning struggled, Andrew R. Lack, the former head of NBC who took over Sony's music operation in 2003, wondered if he could make peace with the users of file-sharing systems, and approached Mr. Rosso, the former president of Grokster. Mr. Rosso says Mr. Lack had an idea: Was it possible to let people try out songs free? What if they could get whole songs, not the 30-second samples available on iTunes, but require them to buy the songs they really liked? The response from most other file-sharing services was chilly, but Mr. Rosso thought enough of the idea to create a new service - Mashboxx - along the lines that Mr. Lack had outlined. Soon, he found that Snocap's technology offered the best way to identify copyrighted songs on the network. (Mr. Lack was not available to be interviewed for this article.) Unlike iTunes and other "closed" systems, where people can buy only what the retailer chooses to sell, Mashboxx is a true "open" peer-to-peer system that in theory can download any song from any computer that participates in a file-sharing network. This could include something that a garage band recorded by itself or a free release by an up-and-coming indie group. If a Mashboxx user tries to download a song that has been registered as copyrighted in Snocap's database, however, Mashboxx will either block the download or substitute a free but low-quality version on which an announcer invites listeners to pay for a high-quality version without announcements if they like what they hear. The free version would expire after being played five times. Mr. Rosso says that this tests the theory that people use peer-to-peer, or P2P, file-sharing networks to try out songs, and that they will pay for music they like. "It is the great hypocrisy leveler," he said. "We will see if people use P2P to sample music or not." Mr. Fanning and Mr. Rosso are now in a wary dance. Mashboxx and Snocap need each other, but their founders are mutually antagonistic. Indeed, Mr. Rosso is everything that Mr. Fanning isn't. Mr. Fanning is young, a gifted technologist, deadly serious about Snocap and terminally shy. Mr. Rosso is 56, a technological neophyte driven by opportunity rather than conviction, and a blue-ribbon publicity hound who once represented Harry Connick Jr. and Aerosmith, among others. These days, Snocap's bustling offices fill a floor of an old warehouse building nestled between two skyscrapers in downtown San Francisco. Surrounding two dozen cubicles filled with programmers and dealmakers are a few conference rooms; a kitchen with free Twizzlers, gorp and soda; a computer room; and another small room with a foosball table and a set of Mr. Fanning's drums. "I hate mornings," Mr. Fanning said as he arrived one bright day last spring, dressed in torn black jeans, a black ribbed pullover and gray sneakers, looking much as he did five years ago on the cover of Time magazine. He grabbed a Pepsi and wandered out to buy a sandwich for breakfast. Never a coffee drinker, he is trying to cut back on soda; at least he has downgraded from Red Bull. Now Mr. Fanning is on the verge of settling, somewhat reluctantly, into a more adult phase of his life. He left the house he shared with two buddies in Silicon Valley and moved into a loft on Potrero Hill in San Francisco with his girlfriend, who works at Apple Computer. Neither she nor the neighbors are quite so accommodating as his old roommates when it comes to his desire to play drums and guitar; when he really wants to cut loose, he says he now has to visit a friend's music studio. When Mr. Fanning starts to explain the details of the complex software and business arrangements behind Snocap, his eyes glow with the intensity of many of the 20-something entrepreneurs of the dot-com boom. But he is living their dreams in reverse: first he revolutionized an industry, then he made the cover of Time and now he is figuring out the PowerPoint presentations for the business model. The heart of Snocap is its sophisticated registry, which will index electronically all the files on the file-sharing networks. "Rights holders," which are what he calls musicians and their labels, will use the system to find those songs on which they hold copyrights and claim them electronically. Then they will enter into the registry the terms on which those files can be traded. It could be just like iTunes - pay 99 cents, and you own it - or it could be trickier: listen to it five times free, then buy it if you like it. Or it could be beneficent: listen to it free forever and (hopefully) buy tickets to the artist's next concert. Of course, the rights holders could also play tough: this is not for sale or for trading, and you can't have it. One of the more interesting aspects of the software Mr. Fanning has built is called "missing masters." After a label sends Snocap all the music it currently publishes, the label's executives can use the software to see all the other tracks available from any particular artist. These are what Mr. Fanning calls "gray tracks" - bootleg recordings made by fans at concerts or in secret by recording engineers in studios. By some counts there are 25 million unique files available on the file-sharing networks, and no more than two million available in authorized download stores. Some artists and labels may well want to quash these gray tracks, which many consider to be inferior versions of their work. But Mr. Fanning predicted that many would choose to make available - and possibly profit from - music that until now was simply contraband. "There is a huge interest on the part of your fans in this stuff," he said, "and it is already traded, if you don't make available, then you will hinder the growth of your artists' careers." EVEN as he bubbles with these kinds of ideas, Mr. Fanning is rarely seen in Snocap's offices. Nor is he appearing much in public. He accepted an invitation to testify before the Senate Judiciary Committee in September, then backed out, people close to him said, because of his shyness. He says he is confident in Snocap's management and needs time to spend on his personal life. "I'm trying to step back and look at the big picture," he said last month over a Perrier at his favorite San Francisco steakhouse. "It has been seven years since I started Napster, and I didn't take a break when I started Snocap. That's a quarter of my life." Moreover, he argued that the ideas behind Snocap were so powerful and inevitable that his second invention would eventually take on a life of its own, as Napster did - albeit far more slowly. "Ultimately," he said, "people will recognize the value of what we have done." You are a subscribed member of the infowarrior list. Visit www.infowarrior.org for list information or to unsubscribe. This message may be redistributed freely in its entirety. Any and all copyrights appearing in list messages are maintained by their respective owners.
