Morris really liked Carter. He had swagger, and star presence, and his nimble delivery made other rappers sound clumsy. Like Morris, Carter had an ear for hits, but also a mind for business, cultivated by his past participation in the criminal narcotics trade. He was the CEO of his own music label and spent as much time developing and promoting other acts as he did his own. He saw himself not just as a rapper but ultimately as the head of a diversified business empire. And, like Alan Greenspan, Carter understood the importance of suppressing the bootleggers. Late in 1999, when he suspected a rival record producer of leaking his new album to the street a month before it was due in stores, Carter had confronted him on the floor of a nightclub and stabbed him.
Def Jam in New York; Interscope in Los Angeles; Cash Money in New Orleans—Morris’ market corner on the rap game was paying dividends, and the first 12 months after the merger were fantastic for Universal, exceeding even the rose-colored predictions that the deal prospectus had offered to shareholders. The overall reduction in head count and the consolidation of the companies’ supply chains had brought savings in excess of projections, and the bargaining power of the combined entity pushed the average realized retail price of an album above 14 dollars per disc.
The strong pricing was aided by collusion. As the U.S. Federal Trade Commission would later reveal, for nearly six years the Big Six—after the PolyGram merger, the Big Five—had quietly worked together to convince large retailers like Musicland and Tower Records to refrain from selling discs at a discount, in exchange for access to pooled advertising funds. Deals of this sort violated federal antitrust law, and since the Big Five collectively controlled close to 90 percent of the U.S. compact disc market, the impact on consumers was substantial. The estimated cost from 1995 to 2000 was half a billion dollars—two bucks from the pocket of every American.
Everything was working for Morris. The international market presence, the streamlined distribution network, the talent on the roster, the conspiracy against the public—the resulting profits were immense. In 1999, running the biggest music company in the world during the best year the industry would ever see, Morris was not just the most powerful record executive on earth—he was actually the most powerful record executive in history.
It was a short-lived distinction. In June 1999, an 18-year-old Northeastern University dropout by the name of Shawn Fanning debuted a new piece of software he had developed called Napster. As a teenager, Fanning had fallen in love with computers, and was a participant in the IRC underground. But one thing had always bothered him about the #mp3 ecosystem: there was no easy way to find the files. Now, from his dorm room, he had hit upon an ingenious solution: a “peer-to-peer file-sharing service,” which connected users to a centralized server where they could trade one another mp3s. Music piracy, previously limited to a small sphere of tech-savvy college students, was now available to everyone. Almost overnight, the freely available Napster client became one of the most popular applications in software, and with it came a tsunami of copyright infringement.
Napster was a natural monopoly whose selection and speed only improved as more people joined. By early 2000 there were almost twenty million users, and by summer over 14,000 songs were being downloaded every minute. Every song ever produced anywhere could be procured in seconds. Download speeds were improving rapidly, even from a home connection, and songs often arrived in less time than they took to listen to. In essence, the song could be streamed. Napster wasn’t just a file-sharing service; it was the infinite digital jukebox. And it was free.
The RIAA had tracked Napster practically from the moment of its inception, but it took the major labels a few months to understand the severity of the problem. The task of informing them fell to Hilary Rosen, the RIAA’s CEO. Rosen had spent most of her career working for the association and, perhaps more than any other person in the industry, understood the perils and the promise of digital technology. On February 24, 2000, the day after the Grammy Awards, she addressed a group of music business power brokers in the conference room of the Four Seasons Hotel in Beverly Hills. The scene was later described by technology reporter Joseph Menn in his book All the Rave, the definitive account of Napster’s rise and falclass="underline"
Staffers downloaded the software and registered in front of the eyes of a couple dozen label bosses. Then Rosen asked the executives to start naming songs. Not just big hits, but tracks deep into albums, either brand-new or obscure. The record men took turns calling out more than twenty songs. The staffers found them every time, and fast. Soon no one wanted any more convincing that the threat was serious. As the crowd grew increasingly uncomfortable, a Sony executive tried to cut the tension. “Are you sure suing them is enough?” he asked. The capper came when someone suggested a hunt for the ’NSYNC song “Bye Bye Bye.” The cut had been on the radio just three days, and the CD hadn’t been released for sale yet. And there it was.
Rosen became the public face of the record industry’s opprobrium. This made her an unpopular figure. The message boards and chat rooms were filled with unflattering descriptions of her personality and her appearance, and she received numerous death threats. The irony was that, behind the scenes, she was the industry’s biggest dove. As she publicly denounced the service, she privately pushed for Napster and the major labels to cut a deal.
This accommodationist approach was shared by several of the other major label heads. Junior was interested, and approached Napster several times to negotiate a stake in the venture. So, too, did his competitor Thomas Middelhoff, the German-born head of Bertelsmann AG, who proved to be a better dealmaker. In late 2000 Middelhoff announced that Bertelsmann would enter a joint venture with Napster to develop paid, legal channels using peer-to-peer tech.
But Napster was not so attractive an investment as it appeared. Fanning, conciliatory and deferential by temperament, had no business experience. He instead surrounded himself with those he saw as talented, and mostly that meant hiring friends and family. One of his early hires was Sean Parker, whom Fanning knew from an mp3 trading channel. Parker, 19, was glib and handsome, and soon became the public face of Napster. (A similar deal with Facebook would later make him one of the richest people in the world.) But the most important early hire wasn’t Parker; it was Shawn Fanning’s uncle John.
Shawn was in thrall to John Fanning. Much of what he knew about programming came from his experiences hanging around at John Fanning’s previous business venture, Chess.net. As CEO of that company, John had appeared to be the model of a successful Web entrepreneur, and was a generous benefactor to his nephew. He had spent years paying Shawn for good grades, and while Shawn was still in high school, had bought him a purple BMW.
But it was all based on credit. John had a habit of not paying his bills, and this made his life a lot of fun. In 1999 alone he lost a judgment over a $17,000 bank debt, lost another judgment over a $26,000 credit agency debt, and his former lawyer filed an affidavit saying John owed him $94,000 in unpaid legal fees. That same year his wife lost a $13,000 judgment over a credit card debt, and she was being sued by her condominium board over nonpayment of fees. Despite appearances, John’s business ventures were struggling—his previous company, Cambridge Automation, had been dissolved, and Chess.net was falling apart, with employees grumbling about not being paid. Worst of all was the felony assault charge John Fanning was facing for beating up the maintenance man of his apartment building. (The charge was dismissed in 2002, after Fanning served six months of pretrial probation.)