Industry Case

When Shawn Fanning dropped out of Northeastern University in January to work full-time on his idea of developing an online service that allowed Internet users to search for digital music and then share that music with other users, his parents and many of his friends were skeptical of his career choice. However, when 3,000 copies of the program had been downloaded within a few days of the program's June 1, 1999 release Fanning, nicknamed "Napster" for his curly or "nappy" hair, knew he was onto something. However, even in Fanning's most optimistic scenarios he did not foresee that his creation would revolutionize the digital music industry resulting in $270 million digital music sales in 2004, including both online subscription services and downloads, and spawn sales of 24 million MP3 players worldwide that amounted to $3 billion in 2003.

f these labels was protecting their artists' intellectual property and the labels were hesitant to make their music available online unless they could ensure strong digital rights management (DRM). To ensure DRM the industry had recognized that any legal music files would need to be encoded in such a way that the consumer had to pay for the file in order to be allowed to play the file on a computer, burn the file to a CD that was readable in a traditional CD player, or copy the file to an MP3 player. The slow adoption of the early legitimate online digital music services forced industry members to realize that any successful fee-based service would have to contain features that were similar those of the enormously popular file-sharing software including a wide selection of music, a relatively easy-to-use interface, the ability to burn CDs, and the a