Napster serves as crystal ball

After rapidly signing up millions of people for its service, Napster has seen its audience melt away just as quickly under a stringent filtering policy and, more recently, a week-old file-trading blackout. Nevertheless, legal experts say that experiments aimed at controlling the distribution of content on Napster's network may have an effect beyond the company. They added that the record industry is closely watching Napster's efforts as a possible template to be applied in future lawsuits against rivals that have risen in its wake.

"Certainly it's a sign that the industry has moved to a place where peer-to-peer can be filtered," said Ken Freundlich, a Los Angeles intellectual property lawyer. "Another court could find that Napster was able to filter and so rule that filtering techniques can be implemented."

Napster's filtering woes come as the record industry prepares to unveil its own online music services, incorporating secure digital formats that aim to prevent unauthorized copying. In the meantime, major labels are eager to develop technology that blocks trades of unsecure MP3 files changing hands by the billions on Napster and a host of alternatives such as Audiogalaxy, Kazaa and Morpheus.

Napster's technology promises to identify songs by their audio "fingerprint"--literally matching the sound of musical tracks to a list of copyrighted tunes banned from the service. The technique avoids the pitfalls of filters that block songs based on file names, which can be easily changed. But it carries its own uncertainties, including significant logistical barriers in building a database of banned songs.

Complicating an assessment of Napster's filters are legal issues, which cloud a clear view of the underlying technology. Sources close to the case say that court documents still under seal have deeply influenced the company's actions over the past few weeks--including its decision to go dark rather than allow filtered trading on its service. Until it's known which problems were technical and which legal, it's difficult to say how well Napster's experience could be applied--perhaps forcibly--to its rivals.

"Napster is more than a little affected by the court injunction," said Matt Bailey, an analyst with analysis company Webnoize. "I think (the service's problems) are a combination of the (technical and legal) factors."

A silver bullet?
Napster introduced fingerprint filtering to its service two weeks ago, promising it would reverse the decline of music being traded as the filters focused specifically on songs that should be blocked.

In fact, the opposite happened. Almost all the music that remained on the service vanished. According to Webnoize, the average number of files shared by people online dropped to just one. But a few days later, the company pulled the plug altogether, saying some copyrighted songs were still getting through and an "upgrade" to the database was necessary to make the new filtering technology work perfectly.

More than a week later, people who are still paying attention to Napster are still waiting.

The delay highlights the extraordinary logistical hurdles Napster and any other company must go through if it implements audio fingerprinting, which has been touted as one of the most surefire ways of blocking unauthorized trades of songs.

In theory, the fingerprinting technology takes a snapshot of the actual audio characteristics of a given song and sends this to Napster's central servers. This is compared against a master list of fingerprints and either given the go-ahead or blocked.

But this master list does not, and has never, existed. A company called Loudeye Technologies has rights to much of the music created by major and other North American music labels and is creating "fingerprints" from these files for Napster. These files must then be independently matched to the lists of song titles and artists that have been identified by the record companies.

Napster itself has said that the file-identification technology works and that just a few details are holding up the decision to restart the service.

"Because it's important to identify files accurately, we decided to clean up the database before resuming file transfers," the company says in a note to its users. "Please note that the problem was with the database, not with the file-identification technology."

Other people in the peer-to-peer industry aren't happy with what they're seeing, even as they're facing some pressure from the record industry to begin filtering themselves.

"It's not a path we're going to go down," said the CEO of one of the other leading file-trading services. Audio fingerprinting "is not perfect and can be way off," he added.

Moreover, some of the leading services would find any filtering difficult to accomplish. In the case of the Gnutella network and the software distributed by MusicCity and Kazaa, no central server exists where filters could be installed. Searches are instead distributed around a network of tens or hundreds of thousands of people acting independently, and these networks could exist even without the companies that are distributing the software.

Fallout from the mess
After more than a week without service, Napster itself is in danger of losing whatever tenuous loyalty its one-time audience has left, a risky way to start a new subscription venture.

Napster is chafing as it sees its members flow to services that offer options as broad as or broader than its former incarnation--without laboring under their own court orders.

"Now it's not a level playing field," said Napster CEO Hank Barry. But he added that he expects those other companies to follow the trail Napster is painfully blazing. "Eventually it will be a level field, and then I think Napster will be able to compete very well."

Between 100,000 and 150,000 people have remained logged into the service throughout the outage, which analysts say indicates that many people are simply using it as a music player rather than a file-swapping application. Although this isn't the service's chief goal, this at least keeps the Napster name in front of those people.

Bertelsmann, Napster's chief partner in the subscription service planned for launch this summer, says it is "unfazed" by the ongoing service and filtering issues that have decimated the service's popularity.

"We are pleased with their progress, regardless of the changes they are making," said Patrick Reilly, a Bertelsmann spokesman.

Many Napster users are in wait-and-see mode, even as they try other services. Analysts say any of the planned paid services, whether from Yahoo, Napster, America Online or RealNetworks, will have difficulty competing if these free services exist.

But some people are keeping open minds. They'll want perfect files and ease of use as a high bar for any service to clear.

"I don't have any problem paying for downloads of excellent quality, record-company-produced downloads," said John Quincey, a former Napster user who said he switched to LimeWire a few weeks ago. "But I'm not going to spend money to swap files where...quality may or may not be up to professional standards...Who wants to pay to have the privilege of downloading that stuff?"