<nettime> In Defense of the Free Ride

["cpaul" <chris@nait.nl>]

How the Best Price for Napster Downloads Might Actually Be Free

By Robert X. Cringely

http://www.pbs.org/cringely/pulpit/pulpit20010208.html



When I visit New York City, I like to ride the subway. It is the fastest way
to get around town and stay out of the weather at the same time. The New
York City subway system is a remarkable engineering achievement, but there
is one aspect of it that I can't understand -- why they charge people money
to ride it.

If, like me, you had literally grown up covering city council meetings for
bad newspapers, you'd know that just about every transit agency in America
claims that ticket sales cover only 10 to 15 percent of the actual cost of
providing their service. The rest of the money apparently comes from
government and from annoying transit ads. And if you bothered to wade
through those transit committee budget reports, you'd make the startling
discovery that the cost of creating and selling transit tickets followed by
carrying the money here and there also costs 10 to 15 percent of the actual
cost of providing the service. So if we eliminated the money infrastructure
from our transit systems, they would run faster and simpler than they do
today, nobody would have to buy a ticket, and it would all still cost the
same.

Why, knowing this, do they still charge to ride the subway? Part of the
reason is that Federal transit money is often configured as matching funds,
and the Feds like to match against ticket revenue. No revenue (no tickets),
no Federal matching funds. Now that's a silly reason. Another reason is a
Puritan work ethic that says people just ought to pay to ride the train,
darn it. Of course, there are transit unions that don't want their members
to lose their jobs. And finally, there is the argument that making the
subway free would lead to its overcrowding with rowdy folks generally going
nowhere. Having lost MY work ethic way back in the Summer of Love, I find
all these arguments bogus. If people are already paying for the service
through their taxes, then they are paying for the service, not freeloading.
And the freeloaders can think of many places more comfortable than the
subway.

So I think all transit should be free. Poor people could get to work and
back, kids could get home easier in the dark, there might be less driving
and more fuel efficiency. And the very fact that it would be easier to get
to work might make more people inclined to go there, leading to greater
economic development. This isn't socialism, it's trickle-down transit.

But the reason I bring it up at all is Napster.

Here's my thinking. Last quarter was the worst Christmas quarter ever in
terms of year-on-year PC sales growth. PC sales didn't grow, at least not in
the U.S. -- they actually got smaller in what is normally the biggest sales
quarter of the year. This is bad news for manufacturers and retailers, but
it could have been even worse. Those $400 MSN and Compuserve and AOL system
rebates have helped sell at least an extra three to four million units over
the last year, according to PC Data, which keeps track of such things.
That's three to four million PCs that might never have been born. And with
this week's announcement that the Microsoft rebates are about to end, well,
it could be more bad news for PC sales.

About the only bright spot in the Christmas quarter for PC sales was the
incredible popularity of standalone CD-R drives, blank CD-R disks, and even
whole new computers that came CD-R-ready. People have been so madly
downloading and storing MP3 music files and burning their own CDs that
Napster recorded in November more than 1.7 BILLION song downloads. There
would have been even more, but the Napster servers maxed-out at around
800,000 simultaneous users and 1.7 billion downloads per month. With at
least 20 million U.S. users -- most of whom didn't have a CD-burner before
last year -- Napster has been an incredible success.

In fact, I think most people -- even most PC industry people -- don't
understand the true impact of the Napster music-sharing business. In
November, there was an AVERAGE of more than 800,000 Napster users on-line at
any given moment. What other entertainment media average 800,000 users on a
24 hour-per-day basis? None of the TV networks can claim that kind of
round-the clock loyalty. And remember TV viewing was the previous top
brain-rotting activity for average Americans. No more.

So Napster, barely a year old, has had the kind of impact on consumer
behavior that it took TV at least a decade to achieve. And the economic
impact of Napster is profound, too. In what was otherwise a disastrous
Christmas quarter, sales of external CD burners, internal CD-R and CD-RW
drives, both types of media, and new computers bought specifically because
they had CD-writing capability, came to more than $20 billion in the U.S.
alone.

So Napster, which cost almost nothing to create and is embroiled in
cascading court cases from disgruntled record companies, kept the Christmas
quarter from being even worse.

The Napster phenomenon is bigger than most people realize, probably because
the press chooses to dwell almost entirely on the piracy aspects of the
business. Studies have not clearly shown that downloading MP3 files leads to
fewer purchases of commercial music CDs. On the contrary, some studies have
shown that MP3 downloaders buy MORE CDs as a result of their Napstering. And
we do know that these users bought more than $20 billion in Napster-related
hardware and software last quarter. That is more money spent on hardware and
software for saving and playing music than Americans paid during the same
time for recorded music, itself -- a LOT more money.

This is an enormous and vital point. The PC industry is built on killer
apps -- applications so compelling that users will buy entire computer
systems just to run them. Napster is clearly the killer app for this decade,
but so far the industry seems to pretend it isn't. Compaq and Dell and IBM
and Gateway HP and Apple and the other big companies should be doing
whatever they can to encourage Napster use, but they don't. Napster is such
a big killer app that the PROFITS on the sale of Napster-related or inspired
PC hardware and software were more than the SALES of the very music industry
Napster feeds on.

And that brings us back to the New York City subway. The arguments for
making the subway free apply equally well to Napster or Napster-like
services. Napster itself is about to make the risky jump from free to paid
service. They think enough people will pay $5 per month for the right to use
Napster that it will become a profitable business. I'm sure it will. But a
profitable business and a killer app are different things. I fear that
Napster, having established market dominance, is about to throw that
dominance away. And that means something else -- Gnutella, maybe -- will
replace Napster, and the beat goes on.

But it would be better not to replace Napster. It works and people are happy
with it. Even better, since the downloads are logged by Napster servers, it
is possible to use those logs to pay royalties, something that can't be done
with Gnutella.

The cassette tape and VCR businesses faced this exact problem and eventually
came up with invisible programs to pay the music, TV, and film industries a
small royalty on each blank tape. The same thing should happen for CD-Rs and
RWs INSTANTLY. Add a few cents to the cost of every blank disk, throw in a
few dollars for every CD burner, and suddenly you have $1 billion or so to
pay to artists, writers, and publishers in the exact proportions specified
by the Napster servers. That $1 billion is approximately equal to the entire
profits of the recording industry, and it is $1 billion they aren't getting
now.

I say do it and get the PC industry growing again. It's cheap, it's
painless, it's practically a free ride.


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