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Will ISPs, PC makers feel Napster's pain?

As music fans mourn the disappearance of songs from the music-swapping service, hardware manufacturers and high-speed Net providers may also be shedding a few tears.

As music fans mourn the disappearance of songs from Napster's music-swapping service, hardware manufacturers and especially high-speed Net providers may also be shedding a few private tears.

Napster has been the undisputed king of online music over the last year, with 64 million registered users trading billions of files a month. But the company hasn't been the only beneficiary.

To download, store and listen to MP3-encoded files, consumers have purchased an array of hardware and software: decent speakers, a CD burner, a large hard drive, and possibly software for compiling play lists and converting audio tracks from standard CDs to the MP3 format. Many consumers have also bought pricey MP3 players to bring their tunes on the road.

To get the songs in the first place, many customers considered a high-speed cable modem or DSL (digital subscriber line) connection as standard equipment.

Now that Napster is beginning to filter songs from its service and is fighting for its survival, some analysts are wondering whether its woes could trickle down to hardware makers and broadband access companies. Broadband demand would appear to be at particular risk because music-swapping is considered a "killer app" for high-speed Net access.

The answer, at least for now, is that hardware sales will not hit a sour note but that broadband demand could be at risk. But even within broadband, the impact will be muted.

Napster "has been one of the few applications that's really used broadband," said Telechoice analyst Mike Guertin. "The cool flash and streaming media Web sites are nice, but they aren't really driving demand."

No bang, just whimper?
One of the reasons the impact may be limited is that Napster is clearly not going away anytime soon. The company is in the process of filtering out songs that have been identified as infringing by the record companies. That means that while the service will still be active, considerably less music will be available, and it will likely be slower to operate as the filters scrutinize each search.

In addition, the music-swapping phenomenon is not likely to disappear overnight. Alternatives such as Gnutella, iMesh, OpenNap and Hotline are operating sans filters, though with fewer consumers and a slimmer selection of downloads.

What is likely to happen in the short term is a slow cooling of the music-swapping enthusiasm, some analysts say. Napster's greatest strength was in its massive numbers of consumers online sharing songs at any given moment--averaging 1.67 million people at any given time last week, according to research firm Webnoize.

If this huge number of people finds that Napster is less useful than in the past, they may go to other services. But without a single collection point like Napster, the phenomenon is not likely to keep the momentum it has gained in the last few months, some analysts say.

"I would definitely say that (music swapping) could have driven some major growth that might not be there now," said Guertin of Telechoice. "But I don't think the DSL providers are going to lower their numbers based on Napster not being there."

Although it may be difficult to track a direct correlation between the decline of Napster and PC or device sales, it is clear that digital music has energized the industry.

When the topic of digital music comes up, nearly every analyst and PC executive relays a personal tale about downloading music. One analyst praised a Pentium 4 computer because he found it could download music at a much faster rate than other machines. A hardware executive said that he bought his dad his first computer, and in a few short days the father was already burning his own CDs.

Meanwhile, Dell Computer, Compaq Computer and Gateway have all come out with MP3 players as complimentary products to their PCs. In contrast, "with the Walkman, there was no connection to the PC," said Anand Chandrasekher, vice president of the Intel Architecture Marketing Group.

As early as last summer, analysts said that Napster and other digital download services were helping drive new demand for MP3 players and rewritable CD drives with which to burn CDs of songs downloaded online.

Nevertheless, analysts now say Napster's legal difficulties will have a modest effect on PC sales, which are already experiencing a severe downturn. People buy PCs for many different purposes, and multimedia equipment is also driven by use of other applications such as gaming or making copies or compilations from consumers' own CDs.

"It's not like the only thing people do with their CD-RW drives is write CDs from MP3s," PC Data analyst Stephen Baker. "More than 90 percent of PCs sold with CD-RW drives also go out with a second optical drive. Most people are copying from their own CDs and making their own greatest hits collections."

News.com's Joe Wilcox contributed to this report.