Jim Seymour and George Mannes chatted on TSC Thursday, Feb. 22 at 5 p.m. EST.

TSC-RealMoneyLaura:

Thanks for joining us this afternoon.

We're chatting with

George Mannes

and

Jim Seymour

about

Napster

.

jseymour1:

Hello, everybody! Stop downloading for a minute, and let's talk about this thing...

TSC_GeorgeMannes:

Looking forward to this. I've gotten a lot of email response to recent stories I've written about Napster.

Passions are running high, to put it mildly.

chat-guest897 says:

I realize that Napster has never had a viable business plan. But how does the music industry think it can effectively limit what Napster offered, the ability to record, listen to, and share music as first started with tape recorders?

jseymour1:

Well, the music industry can just flat shut 'em down.

Judge Patel's

opinion gives them all the tools they need to do that.

TSC_GeorgeMannes:

Yeah, the record companies have legal and technical tools at their disposal to track companies and people down and sue the heck out of them. They will.

jseymour1:

We should remember that recording commercial releases, except for your own use, has always been illegal -- even that innocent gift to a friend.

chat-guest764 says:

Jim, Will the music industry ever start going after individual users of Napster/

IRC

/

Gnutella

, etc.? Should I be worried that I have thousands of MP3s on my computer?

jseymour1:

I very much doubt that. First, it would be unbelievably difficult. Second, they just can't appear to be burning their best customers. You're almost certainly safe, 764 (but you may want to change your name to 764...).

TSC_GeorgeMannes:

As long as you don't put up a Web site and say, hey everybody, come get your

Metallica

here for free! Better to receive than give.

jseymour1:

Lars Ulrich

wouldn't like that

chat-guest838 says:

I've subscribed to

Emusic's

service ... it works great with

Real Jukebox

and the content is great if you like older stuff and jazz. Do they have any chance?

jseymour1:

I think that in a business sense,

Emusic

has no chance of being a survivor in these wars But it has been a great service.

TSC_GeorgeMannes:

You can only be a survivor if you can get the content from the majors. And that's expensive.

chat-guest-3 says:

Barry Ritholtz's

article is essentially correct about

AOL

(AOL)

having the IP assets and customer base. But he trivializes the hardware and network issues. Don't you think a

Tivo

-like set-up device will be necessary?

jseymour1:

First, you're right: Barry got it right about AOL's play here. But I think you're wrong about him underestimating the problems. AOL could

easily

do this -- and, I believe will. I wrote that on

TSC/RM

months ago.

chat-guest820 says:

Is Napster dead? If so, who will rethink the business model?

TSC_GeorgeMannes:

I hate to declare the patient dead before we hit the emergency room. But as a business, it can only work if it gets in the good graces of the music labels. And given the rhetoric that's been flying, that's doubtful.

I think if Napster does survive, it will be in a form that most past users won't recognize.

jseymour1:

The Nap ain't dead. But it is hard to see how they continue. Their offer does not interest the majors. And Nap's refusal to shut down while negotiating is a deal-killer.

chat-guest126 says:

Barry Ritholtz

here. Has the recording industry

ever

met a technology that didn't scare the bejeesus out of them? These guys were against

radio

, for cryin' out loud . . .

jseymour1:

You bet, Barry! They killed my fave, DAT. They're afraid of their own shadows. And they are

not

smart about it....

TSC_GeorgeMannes:

Well, the people at Sony were extremely excited a few years back about Enhanced CD -- snicker snicker.

That's the hilarious thing about new technology: The stuff you think will be great is a dud, and the stuff that you think will kill you makes your business 10 times more profitable.

Remember, the movie industry went all the way to the

Supreme Court

in an attempt to kill, or maim, the VCR.

Of course, it's the best thing that happened to them since $4 popcorn.

jseymour1:

OTOH, remember that a supply of music is

every

thing for the Nap. If the labels cut 'em off, they're dead, period. And now the labels can do that.... R.I.P.

chat-guest463 says:

Jim/George, I'm becoming a bit disillusioned about LQID and the Liquid Audio format in face of the growing acceptance of MP3 as a standard. I thought LQID's acceptance among major labels, its security features and its higher-quality reception generally augured a positive future. What are your thoughts? Long LQID.

TSC_GeorgeMannes:

The one technology I notice that labels love is security.

Funny how consumers just don't care.

chat-guest580 says:

C'mon, however legal downloadable music works, won't AOL dominate? I mean,

Steve Case

had this thing figured since well before he ever donned a tie last January, no?

TSC_GeorgeMannes:

I don't know if they dominate. On the plus side, they're geniuses at translating technology into something that the everyday person can use.

On the other hand, even they said that they need to improve the popularity of their records in certain important genres.

Certainly, they have the power to create momentum, to force their music down their pipes and start building a market.

jseymour1:

What no one is mentioning here is that if/when the Nap folds, or is supplanted by AOL or the new Sony-Universal "Duet," or

anything

, the users can go elsewhere, effortlessly. And will. Maybe to an offshore service in a noncopyright-signatory country.

chat-guest981 says:

Is there any hope for long-suffering

Loudeye

investors to get a bump out of a Nap shutdown?

jseymour1:

I don't think so.

chat-guest364 says:

So if Napster shuts down, is it a win for a neutral portal like

Yahoo!

(YHOO)

to start a service?

TSC_GeorgeMannes:

No. Everyone will have to start from square one, and like Indiana Jones inside a booby-trapped temple, try to get out safe with the goods without getting hit by the poison arrows.

jseymour1:

It's a win for

any

alternative service willing to cut a deal with the right record companies. But again, it will be soooooo easy to evade the law by going to a Gnutella or to an offshore-based Nap-like service.

chat-guest897 says:

If Napster hadn't initially flaunted/advocated the ability to share MP3 files to get around record company sales, would the recording industry have had grounds to shut Napster down?

jseymour1:

How could Nap have gotten going without "flaunting" what it had to offer...?! :-)

chat-guest897 says:

Other than the "subscription" model mentioned for AOL in a

RealMoney

article earlier today -- and even then there are sharing issues -- how does the music industry propose to keep control of its recordings? Any feasible ideas?

TSC_GeorgeMannes:

None that I've heard of.

jseymour1:

I think all so-called DRMS -- digital rights management systems -- are doomed to fall, as hackers defeat them. So how do the labels "control" things?

chat-guest-3 says:

The five biggies are arrogant and not on the same page. Wouldn't the best thing be an overhaul of copyright law to force some action?

TSC_GeorgeMannes:

Sure, that would be great. It would be about as easy as changing the health care system in the U.S.

jseymour1:

Extremely unlikely. Congress has already spoken on copyright in the digital age, and is unlikely to change again so soon. Besides, the majors have the political clout, you and I don't. George, maybe, but not me.

TSC_GeorgeMannes:

And if it happens, woe to the consumer. The record industry will be able to afford to spend a lot more money on lawyers.

More than Napster fans can afford.

chat-guest764 says:

Will the print entertainment industry be subject to the same online problems as music? Or will holding an actual physical book never go out of style?

jseymour1:

I don't think "physical books" will go away, but I think we're already seeing a lot of copyright violations of printed matter, courtesy of the Web.

chat-guest-3 says:

How would an AOL- or Label-driven solution help the artists? (

Not.)

Maybe if the artists got organized, found a technology partner, and left the labels, we'd get a real solution.

TSC_GeorgeMannes:

I would assume their contracts might get in the way.

jseymour1:

Yes, of course: Artists

ought

to take over. And maybe a few giant acts

will

. But in general, artists would be no better served by their labels in that environment than they have been in the traditional system.

chat-guest-18 says:

Does anyone foresee a major label consortium developing to get into the MP3 business, rather than an every company for itself approach?

jseymour1:

We already see that in the Sony-Vivendi/Universal Music "Duet" system, announced -- for the second time, ahem! -- today. So, sure, some label cooperation is likely. But they'll have to dodge antitrust questions.

chat-guest487 says:

Basically, anything different from Napster is going to be less convenient to end users. How do you think pay-per-usage services might address this?

TSC_GeorgeMannes:

I think there's a real distaste among consumers for pay-per-usage. They don't like to hear the meter running.

AOL figured this out a few years back when they went to flat-rate monthly pricing.

jseymour1:

I think a $4.95 flat fee

all labels'

songs pay service would work. Short of that, it ain't in the cards. And I don't think $4.95 sounds very appealing to the

RIAA

members.

chat-guest192 says:

The record companies are playing with fire here. Nobody feels any remorse about denying

Elton John

a fifth house in Sardinia or wherever he's spending it now.

jseymour1:

Well, I helped buy Elton's first four houses, so maybe, maybe. I agree that the labels have been oafish, but that's in character for them. Do not look to them for wisdom, kindness or equity.

TSC_GeorgeMannes:

That's a major PR problem the record industry has to overcome.

As much as artists are complaining about lost revenues from Napster, consumers are skeptical that

Elton John

,

Madonna

, Metallica or anyone else will be rendered homeless by Napster?

chat-guest192 says:

Is there any evidence that Napster is affecting the bottom lines of the majors?

jseymour1:

None.

TSC_GeorgeMannes:

As Jim so psychically answered, none.

There are some reports about depressed CD sales in college towns, but CD sales, at least in the first half of last year, were up over 1999.

chat-guest192 says:

Is there any evidence that Napster is affecting the bottom lines of the majors?

jseymour1:

The only study I know said Nap users were heavier buyers of CDs than non-Nap users. The Nap has been especially useful for sampling bands you don't (yet) want to gamble $17 on

chat-guest790 says:

I have ripped some CDs and see the value of having MP3s on the hard drive, but I don't seem to want to go out looking for them. Never tried Napster. I seem to prefer streaming services that come across like radio, but where I have some control, like

SonicNet

,

RadioAMP

at bn.com or

Launchcast

. Full disclosure -- I went long LAUN recently. They also continuously stream videos in a personal "station" format.

TSC_GeorgeMannes:

As

Larry King

would say: What's your question, caller?

jseymour1:

Streaming will be huge -- is already -- but it's an of-the-moment service and won't replace getting and keeping tunes on your HD. And it's tough to stream on your afternoon run or bike ride.

TSC_GeorgeMannes:

FYI, I like SonicNet for hearing a sampling of new songs.

chat-guest192 says:

I think Napster is a real indication of the deep dissatisfaction with the artistic quality of most CDs. Two listenable tunes and the rest crap. All for the bargain price of $17!

jseymour1:

Agree completely.

The

real

risk for the majors from Nap-like services is that as we start buying songs

by the song

, we kill off the obsolete "two-good-ones-and-10-dogs" model of the typical pop CD.

chat-guest364 says:

Is P2P the killer app for driving bandwidth?

TSC_GeorgeMannes:

I don't know if it's killer for driving bandwidth, or why that's important. But I do think it will continue as a theme in the free-MP3 arena.

Consumers will probably gravitate toward that for file sharing, giving record companies the difficult task of figuring out who to sue, and for what. I just hope it doesn't become one of those overhyped technological cure-alls, the way "push" was a few years back.

jseymour1:

Important to note that P2P drives

distributed

bandwidth consumption....

chat-guest820 says:

Hello Jim: Isn't music only the beginning of this story? 50,000,000,000 pages of text are copied illegally in Latin America every year!

jseymour1:

Your question, then? Do I hear Larry King in the background again?

TSC_GeorgeMannes:

No, I think music is the real story. A lot more people are entertained by music than informed by text. Music is where the money is.

chat-guest192 says:

Metallica is washed-up gut rock. Napster is for exploring the cutting edge without buying unlistenable garbage.

jseymour1:

Well, I agree. But doesn't even someone like Lars Ulrich deserve a chance to make a living from his garbage?

TSC_GeorgeMannes:

Actually, I don't listen to Metallica, or whatever it is the kids are listening to today, or were listening to in whatever decade they performed. But I did go out and buy a

Louis Prima

CD after hearing a lot of his songs through Napster. I'm sure he'd be grateful, if he were alive. I hope his heirs are happy.

jseymour1:

Keely Smith

would love you, George!

chat-guest126 says:

Barry Ritholtz

again -- I would definitely be willing to pay 10 bucks a month for unlimited everything -- but it must include all the labels and indies.

TSC_GeorgeMannes:

But you wouldn't get everything -- not exactly. Napster says it's envisioning you will have to pay more if you want to copy to CDs or download to a portable device like a Rio.

So $10 a month gets you the privilege of listening to everything while seated at your computer. Still interested?

jseymour1:

So would I, but do you think the majors are going to line up behind that ...

and

the "minors" and truly obscure labels. Zydeco? Eurovision junk? Free jazz?

Old

-- say, fifties bop jazz? You won't get it.

chat-guest-34 says:

So the real issue is not consumers ripping off the artists, but the major labels and their control over the artists.

jseymour1:

That's

always

been the issue.

TSC_GeorgeMannes:

The thing that the labels have always given artists, the thing that artists love them for, is promotion and radio airplay -- cutting through the clutter for them. A lot of artists have been willing to cede a lot of control to labels in return for that.

chat-guest897 says:

So if Napster goes under, which software platform will be next, or will Napster just go "offshore"? I just can't see the music sharing/pirating stopping.

TSC_GeorgeMannes:

That's the thing. I read recently, I don't remember where, that the music industry is using a whack-a-mole legal strategy to deal with online music.

They'll keep whacking, but the moles will keep popping up.

jseymour1:

Nap itself won't go offshore --

Bertelsmann's

$60M investment in Nap guarantees that -- but someone else sure will -- and fast.

chat-guest528 says:

Is there any evidence that shared music files have served as Trojan horses or virus spreading devices?

jseymour1:

No evidence of that. Only problem is with those folks who hate the Nap, and put up "wrong songs" under song names you want. Don't worry -- yet -- and remember that too much downloading will

not

produce hairy palms.

chat-guest126 says:

Barry Ritholtz -- also, don't underestimate the power of doing an "end run" around the gatekeepers; I

love

seeing what other people listen to it's a great way to discover new music.

jseymour1:

Good point.

TSC_GeorgeMannes:

Yes, I love new music, too.

chat-guest126 says:

Barry Ritholtz. -- my last comment: Napster has cost me tons of money sure , I have 30 gigs of MP3s, but without Napster, I never would have found a lot of great stuff. Did you know the soundtrack to

Me, Myself, and Irene

were all newer bands doing covers of

Steely Dan

songs? I can tell you of 100 other CDs you would never consider buying that Napster will motivate you towards

TSC_GeorgeMannes:

Call up Hank Barry at Napster. Maybe he'll trot you out for his next press conference.

chat-guest396 says:

Have the labels suggested a credible alternative to Napster? Or do they just want to kill it?

jseymour1:

They just want to kill it, so they can stall even longer on recognizing the changes wrought by digital music.

jseymour1:

The RIAA has made it

very

clear they want the Nap out of business,

not

"reformed."

TSC_GeorgeMannes:

Deformed?

chat-guest820 says:

Jim, will we be streaming on our phone on the 3g phones in Europe and Japan any time soon?

jseymour1:

Great question. I had been very skeptical of that, but a couple of recent demos and talks with some early European "streaming-phone" users have begun to persuade me that MP3s over the 2.5G or 3G phone in your pocket will probably be big.

chat-guest528 says:

Is

RealNetworks

(RNWK) - Get Report

in a position to bring the big players together on a model that will work?

jseymour1:

They tried that, sub rosa, and it didn't work. RNWK wanted to be

the

site for music on the Web. And again, just a streaming model,

not

downloads you can keep.

chat-guest-34 says:

It's simple, isn't it? "Music-on-demand." Give us that, we'll pay, and Napster becomes a dim memory.

TSC_GeorgeMannes:

If only it were that simple.

jseymour1:

Thanks, everybody. Good talk today. I also want to thank erstwhile

TSC

chat producer

Laura Poynter

, whose background comments to George and me inspired many of our better replies. She's a true Nap junkie; next time we'll get her on the air, too.

TSC_GeorgeMannes:

Thanks you all for your questions and comments. And that includes you, too, Laura.

TSC-RealMoneyLaura:

Thanks for joining us today. A transcript of today's event will be available at www.thestreet.com.