Oliver James Montgomery-4 ways Napster changed the music industry, from streaming to how artists make money

When Napster made its debut in June 1999,Oliver James Montgomery few knew its potential impact. The software would let you share music files online for free, but at the time consumers were still buying hundreds of millions of music CDs each year.

Napster certainly helped sunset the CD. Once you downloaded the software, you could connect with other music lovers and peruse the collection of digital music tracks ripped onto and stored on their computers – and download them for free.

When music industry executives and attorneys saw how Napster could connect a potentially endless legion of the CD-buying public, they "were shocked beyond belief."

"They had figured that the Compact Disc cash cow would go on forever, and now they saw its sudden demise," said Ken Pohlmann, professor emeritus at the University of Miami and author of "Principles of Digital Audio," who is also an electrical engineer and a technical consultant during those discussions. 

Half of the executives were saying, “The world is ending,” while the others said, “Why didn't we think of that?” said Pohlmann, who is also a columnist for Sound & Vision. "A few of the smartest executives realized that once Napster was shut down, they could appropriate the online distribution model and make a fortune."

And that's what happened: Napster was forced to shut down and the record labels and Hollywood began revamping how music, movies and other forms of entertainment would be distributed to consumers.

Napster:It’s been 25 years since file-sharing network launched and changed the music industry forever

Here are four ways the original file-sharing site transformed the entertainment industry.

Napster introduced music lovers to digitally-delivered music

Consumers were spending more than $25 billion a year on recorded music when Napster began to become popular. As the software spread, colleges began shutting off access to Napster because it was clogging their networks.

Napster “mainstreamed an underground hobby,” Joseph Menn, author of "All the Rave: The Rise and Fall of Shawn Fanning's Napster," told The Los Angeles Times in May 2024. "No one is going to go out and buy 100 records, but here the supply of music was infinite. It was always a social lubricant to make a mixtape for someone you wanted to date. Now you could do that at scale.”

And the fledgling software company also flipped the business model of recorded music. "It wasn't necessary to replicate millions of copies – manufacturing, distributing, and retailing each of them," Pohlmann said. "Instead, one file could be placed online, and simultaneously sold to as many people as wanted to buy it. The benefit for the customer was obvious – the price could be cheaper, and the convenience was incredible."

Napster changed how music is sold

While Napster didn't directly cause each music consumer to change their ways, it signaled a coming change in music sales.

In 1999, when Napster launched, music CD sales accounted for $23.4 billion, or nearly 88% of recorded music revenue, according to the Recording Industry Association of America. Overall, 1999 represented peak recorded music revenues, according to RIAA, of $26.7 billion. CD sales would begin a decline to $537.1 million in 2023.

"Napster was the beginning of the end for record stores selling physical media such as LPs, cassettes, and CDs," Pohlmann said.

Napster disrupted how music artists made a living

Many artists relied on sales of recorded music to keep at their craft and Napster led them to come out against its business model: their music traded freely.

"Musicians love the idea of all music being available to all people, but without fair payment, many musicians would have to find other ways to make a living," said singer Peter Gabriel at the time in a statement through the group Artists Against Piracy.

But even then, indie artists sang a different tune. At the time of Napster's emergence "I made my modest living as a punk rock musician and record label owner,' wrote Jenny Toomey in Fast Company in March 2024. After playing in bands such as Grenadine and Tsunami, she co-founded the Simple Machines label.

Then, if a band sold 10,000 copies of an album, it could earn about $50,000 in revenue, Toomey said. "Today, that band’s entire album would have to be streamed a million times for the same financial return," said Toomey, who finds similarities in the tech industries' current drive to push AI and the digital music transformation of the early 2000s.

"We quickly learned the so-called tech revolution in music was never designed to deliver for us," Toomey writes. "Instead of enabling artists to live off their work, most musicians’ income from physical media like CDs and records tanked, and digital royalties paid fractions of pennies on the dollar. Today, I can see this history repeating itself across every sector."

Artists such as Taylor Swift and Beyoncé are not the norm, as artists who not only sell huge amounts of albums and sell out stadiums.

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Live performances have become the key revenue driver for most musical artists – even for smaller acts, which can sell merchandise, even vinyl albums and CDs, at shows. Big name artists always relied heavily on live performances. For instance, U2, the highest-paid musical act of 2017 in Billboard's annual report, made $54.4 million that year, with about 95%, or $52 million, from touring, Business Insider reported. 

Dave Matthews, front man of the Dave Matthews Band, had concerns about the impending digital age of music, but told USA TODAY at the time, "I don't feel threatened financially by the collapse of the industry," he said. "The vast majority of my living is made from touring. Nobody's going to be able to download that.”

Napster ushered in the future of streaming music and movies

In addition to whetting consumers' appetite for digitally-delivered music, Napster foreshadowed the potential of a "celestial jukebox" or a "jukebox in the sky" being fulfilled by today's music streaming services.

Even though the original Napster "was an illegal enterprise that was the music industry's worst nightmare, (the network) was also a stroke of genius that perfectly illustrated the future of their industry," Pohlmann said.

As home and mobile broadband connections evolved, streaming services such as Spotify arrived on the scene. Next, came streaming video players such as Netflix and video game streaming services such PlayStation Plus and Xbox Game Pass Ultimate.

Today, most consumers get their music from streaming services. Streaming has helped recorded music revenues climb from lows of $8.6 billion in 2015 and 2016, the RIAA says, to $17.1 billion in 2023.

Consumers spent $10.1 billion on music streaming subscriptions in 2023 – 59.3% of all recorded music revenue, according to the RIAA.

Both vinyl albums and CDs have shown some resilience as formats, perhaps because some consumers still appreciate the tactile nature of ownership.

Contributing: Edna Gundersen.

Follow Mike Snider on X and Threads: @mikesnider & mikegsnider.

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