The Day the RIAA Lost Its War on Technology

On this day in business and technology history ...

The Recording Industry Association of America has long had a difficult relationship with technology. In the 1970s, it fought against cassette tapes that it feared would record its copyrighted songs and thus destroy its sales base. In the late 1980s, it killed Digital Audio Tape technology by copy-protecting the format to death. In the 1990s, the RIAA finally met a technology it couldn't control: digital audio. But the RIAA threw its considerable power into fighting it, and the landmark case of the digital-music age was filed on Dec. 7, 1999: A&M Records v. Napster, also known as the RIAA v. Napster case because of the large number of record labels listed as plaintiffs.

Napster was one of the originators of modern peer-to-peer file sharing services. It had come online only six months before the RIAA's lawsuit, but its immediate popularity and its focus on the free transfer of music files put it square in the music industry's crosshairs. The lawsuit only served to increase that popularity by making Napster a household name, and at the peak of its popularity Napster had 25 million active users. However, in 2002 a judge ruled that Napster was liable for copyright infringement, and the site was forced to shut down. Its assets were quickly purchased by German media giant Bertelsmann, which later found itself on the hook for more than $300 million in music-industry claims against Napster.

The Napster case contributed greatly to the RIAA's unpopularity with the public, particularly after it began suing individual file-sharing users en masse for copyright infringement. File-sharing programs were far easier to build than it was for the RIAA to take them down, and in the decade after the Napster case, the music industry's revenues dropped by nearly 60%. The RIAA's general helplessness against file sharing also contributed to the growth of Apple's (NASDAQ: AAPL  ) iTunes, which came online in 2001 and became the first true digital-music sales success, as it sold a billion songs within its first three years of operation.

Napster itself lives on, sort of. Best Buy (NYSE: BBY  ) bought the service in 2008 for $121 million and merged its Napster assets with Rhapsody, at the time the largest on-demand music service in the United States, in 2011. Sean Parker, one of Napster's founders, later earned far greater fame as the first president of Facebook. Justin Timberlake, who played Parker in The Social Network, the Oscar-winning 2010 film about Facebook's early years, famously said: "A million dollars isn't cool. You know what's cool? A billion dollars." Parker should know, as he became one of the world's youngest billionaires when Facebook went public.

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