Above, we make a brief mention of “piracy”. In this context, piracy is the act of illegally
obtaining and sharing an artist’s work online without providing them compensation. Computer
innovations allowed pirates to pull, or “rip”, music from CD’s and distribute it online with very
little audio degradation (Balaban, 2001).
The year 1999 will go down in history as the first step in the new music industry. This
was the year Napster debuted. Napster allowed individuals to freely share music online without
any money going to artists or labels. By 2000, Napster had 75 million users. Although profits
within the music industry continued to grow, profits were down 4% in college towns that had a
large number of Napster users (Balaban, 2001). A majority of the music that was distributed via
Napster was being distributed illegally and in 2001, the courts ordered Napster to shut down
(Case Study: A&M Records, Inc. v. Napster, Inc., 2013). Similar services arose in the next few
years, though they also faced a slew of lawsuits. As one service would shut down, another would
arise to fill its place. Although it was short-lived, Napster showed how quickly a technology
could enter a network and drastically modify relationships. These changes will be discussed
more in the following section. It also became clear that traditional music industry structures were
struggling to adapt to the changing times.
Until 2003, the main sources of music industry revenue were recordings, publishing
activities, and live performances, in that order. Since 2003, live performances have become the
dominant revenue source for artists (Bielas, 2013). This shift is due, in large part, to the 2003
launch of iTunes. iTunes struck distribution deals with major labels and in its first year, sold 70
million songs for $0.99 each (Taintor, n.d.). Instead of buying an entire album, individuals were
able to just purchase their favorite songs. This solved the main issue that drove individuals to
piracy and piracy numbers began to decrease. Since individuals were able to buy just their