From Napster to Netflix: The History and Impact of Streaming Services

NARRATION: At the 2019 Academy awards, Roma, by acclaimed director Alfonso Cuaron, took home three Oscars…

ARCHIVAL (91ST ACADEMY AWARDS CEREMONY, 2-24-19):
JAVIER BARDEM AND ANGELA BASSETT: Roma!

NARRATION: But the film’s significance wasn’t merely measured in trophies. For many, it marked a turning point for the American motion picture industry.

ARCHIVAL (2019):
NEWS REPORT: Roma is a Netflix streaming platform production, one few people saw in an actual cinema.

CYNTHIA LITTLETON (BUSINESS EDITOR, VARIETY): That really sparked a debate in Hollywood as to what constitutes a film. There’s a lot of traditionalists that see a film as something you go to a theatre, you see it on the big screen. The Napster experience for the music business shows the futility of trying to fight a innovation that people are clearly embracing.

ARCHIVAL (1998):
WILL SMITH: Bring it…

NARRATION: The year was 1998 – Will Smith and Shania Twain dominated the pop charts, Ben Affleck and Cameron Diaz were the big draws at the box office, and tens of millions tuned in for the final episode of Seinfeld.

ARCHIVAL (SEINFELD, 1998):
ELAINE: Why don’t you just blow it out your a…
KRAMER: OK… (noises)

NARRATION: And, in a dorm room at Northeastern University in Boston, a freshman named Shawn Fanning had an idea for a computer program.

ALI AYDAR (FORMER NAPSTER EXECUTIVE): I first started engaging with Shawn online over Instant Messenger, through his username Napster. The conversation went something like Shawn saying, ‘Hey, I’ve started creating this service to help people find music.’ He was insistent that this was going to be huge and that he might make a lot of money out of it. My response to him was, ‘You need to just concentrate on your studies.’

NARRATION: Fanning didn’t follow Aydar’s advice. He dropped out to focus on the program, and partnered with fellow teenage programmer Sean Parker to release a beta version. As it started to spread through chat rooms, they traveled to the Bay Area to grow the business.

ALI AYDAR: Initially, I was skeptical that, gosh, I’m sitting across from two 18 or 19-year-olds. I changed my tune once I learned that there are already 40,000 people using this thing.

NARRATION: Fanning called the program Napster, after his online username. Over the Internet, it allowed users to access music files stored on the hard drives of fellow Napster users.

ALI AYDAR: 40,000 wasn’t a big number, but it was bigger than what I thought it was going to be initially, which was zero because people weren’t willing to open up their hard drives. What I realized was, that people’s emotional ties to music, their general interest in music, was more than enough to overwhelm any kind of security or privacy concern.

NARRATION: It was on college campuses with high-speed internet that Napster really took off in the fall of 1999.

ARCHIVAL (MTV NEWS, 03-31-00:
REPORTER: So uh, how many mp3’s on your computer.
STUDENT 1: About 600.
STUDENT 2: Maybe like a hundred or something.
STUDENT 3: Uh, 6 or 7 thousand.

ARCHIVAL:
NEWS REPORTS: NAPSTER, NAPSTER, NAPSTER!

ARCHIVAL (CNN, 10-2-00:
NEWS REPORT: It’s called file-sharing, seen by some as the wave of the future.

NARRATION: But not everyone was cheering Napster’s rise.

ARCHIVAL (ABC, 2-27-00):
ANCHOR: College students are making good use of the Internet. The latest software makes it a bit too easy for students to access their favorite tunes.

ARCHIVAL (ABC, 3-9-00):
NED POTTER: No longer do you have to go a store and plunk down money.

STEVE KNOPPER (EDITOR AT LARGE, BILLBOARD): From ‘84 to 2000, the music industry made so much frickin’ money selling CDs. At first it was hair bands and then it was grunge bands and then it was boy bands.

ARCHIVAL (BACKSTREET BOYS VIDEO):
BACKSTREET BOYS: I want it that-away…

GREG HAMMER (MANAGING DIRECTOR, RED BULL RECORDS): I mean, it was a great time to be in the business. In 1999, you had two or three records come out in one week and sell a million records.

STEVE KNOPPER: You actually had to drive your car to the Tower Records and buy a CD for $18 to get the one song you liked. And so that was a good model. It made the industry tons and tons of cash.

ARCHIVAL (CHUMBAWUMBA MUSIC VIDEO):
ALBHY GALUTEN: I get knocked down, but I get up again…

ALBHY GALUTEN: Selling millions of Chumbawumba albums with one good song was an economic boom.

ARCHIVAL (CHUMBAWUMBA MUSIC VIDEO):
ALBHY GALUTEN: Never gonna keep me down…

NARRATION: It didn’t take long for the music industry to take notice something was afoot. Months after Napster’s rise, industry executives began a legal battle to stop it.

ARCHIVAL (CBS, 7-27-00):
NEWS CLIP: They are waging a war in the courts over who controls what artists create.

ARCHIVAL (NBC, 7-11-00):
NEWS CLIP: To record companies whose artists range from Tony Bennett to Metallica, this new technology in the wrong hands is simply stealing.
LARS ULRICH: Napster high-jacked our music without asking.

ARCHIVAL:
HILARY ROSEN (RIAA): A business model built on infringement is not only morally wrong, but legally wrong.

ARCHIVAL (COMMERCIAL):
MANDY MOORE AND BRITNEY SPEARS: Illegally downloading music is the same thing as going into the CD store and stealing a CD.

ALI AYDAR: We felt pretty strongly that digital distribution was going to bring the industry closer to its customer, and instead of killing it, they would take advantage of the value that it brought.

ARCHIVAL:
SHAWN FANNING: We’ve heard that we couldn’t survive before, when we had 700,000 members and when we had 17 million members.

ARCHIVAL (NBC, 7-27-00):
HANK BARRY: A chorus of studies show that Napster users buy more records as a result of using Napster.

HANK BARRY (FORMER CEO, NAPSTER): We wanted it to be an industry-supported service that would be a successful business. We tried to make sure that the record industry could understand how this could be beneficial to them, but it was very clear to me from the early going, that they were really loathe to license Napster.

GREG HAMMER: Anybody with enough money could go and make a record. But that didn’t guarantee you getting into stores, which is the only place that you could actually buy that record. That was the power of the music business — the distribution. The industry went wrong in trying to hold onto that distribution channel, and those chains, and not trying to find a solution to what was obvious was coming in the future.

NARRATION: In July of 2001, after more than a year of legal battles, the record industry got its wish.

ARCHIVAL (CBS, 7-27-00):
DAN RATHER: The free music service run by Napster was ordered to stop the music.

NARRATION: Napster, which at its peak had about 70 million registered users, was shut down due to court orders.

But while the industry may have defeated Napster, the idea had taken hold. A flurry of other downloading services took its place. Desperate to stem the tide, the labels upped the stakes and sued almost 20,000 people for using illegal downloading software.

ARCHIVAL (CBS NEWS, THE EARLY SHOW):
HARRY SMITH: Do you feel you’re being some sort of a test case here?
MOM: Um, yeah.

NARRATION: But CD sales continued to plummet, shuttering record stores across the country.

ARCHIVAL:
NEWS REPORT: An industry in turmoil…

NARRATION: So when Steve Jobs came to the table with plans for a new online music store, the major labels finally surrendered.

ALBHY GALUTEN: You had only two choices. Either you don’t do a deal with Steve, in which case people continue to just email the MP3s to their friends. Or you do a business with him, and he has a store, and then you can sell things.

NARRATION: And as online streaming services like Spotify and YouTube gained popularity, the music industry realized it was better to partner than fight them. In recent years, streaming revenues have provided the industry’s first real sign of positive growth since the pre-Napster days.

ARCHIVAL (BLOOMBERG):
ANCHOR: Streaming is rapidly changing how media is bought, how it’s consumed, who profits from it, and even how much is made.

NARRATION: But for mid-tier artists who once benefitted from album sales, the payouts from streaming can be slim.

ALBHY GALUTEN: The top one percent generate most of the revenue. Hopefully more will be able to earn a living as time goes on, but it is ever more challenging.

NARRATION: And as for record labels, the opportunity for them to be leaders in online distribution had long passed.

ALI AYDAR: They didn’t take the time to really understand what was going on and to think about the future implications of it. ‘Cause it was clear to us if we didn’t exist, something else was going to exist. The whole reason why there are so many people using this service is because this is how people want to access their music.

NARRATION: The lessons of Napster are resonating today, as another established industry, television and film, faces the same existential challenges.

CYNTHIA LITTLETON: When the music industry was in the depth of the legal fight with Napster, smart people were looking at the film and TV industries and saying, ‘you’re next. Just wait ‘til the Internet speeds and capabilities get fast enough so that you can distribute a movie or a TV show.’

NARRATION: That day is here. Nearly 70 million American households now stream movies and TV shows from an internet-connected device.

CYNTHIA LITTLETON: What Napster introduced America to was the idea that you could have a very large menu of content at your fingertips. And you could hit a button and get that delivered.

In Hollywood, the move toward the direct-to-consumer business models has been incredibly disruptive. You’re talking about an industry that has functioned basically the same way for about a century.

NARRATION: And a new study predicts revenues from online streaming services like Netflix and Hulu will outpace movie theater box office receipts in 2019.

CYNTHIA LITTLETON: There’s a tendency to be so ingrained in an industry that you don’t see the potential for innovation, for improvement. Right now, Hollywood is in the throes of a very, kind of, fast and furious reaction to what’s clearly been embraced by consumers about the Netflix model.

ARCHIVAL (WABC, 4-12-19):
NEWS REPORT: Disney is taking on Netflix with its own streaming service, and it’s called Disney Plus.

NARRATION: Today, with TV and film companies navigating the Internet revolution in real time, Napster’s impact on the music industry is a reminder of the peril of taking too long to embrace the future.

HANK BARRY: We’ve had a massive change. Massive. I mean, we haven’t seen anything like it since, you know, the invention of the printing press. There are going to be many, many new and wonderful ways to exploit, enjoy, distribute creative works, and we just have to be open to them.

(END)