Napster, Spotify, and ‘Free’ Music

By Teghan O'Connell

At the beginning of the digital age in which we now live, the music industry went through a big change. Up until the year 2000, the music industry’s revenue was largely based on the sale of ownership of a copy of an album or song. This could be through the sale of a CD or record or purchasing a digital album online. As music shifted to digitization, piracy became a rising issue. Users would take music from an MP3 file and share it illegally, spreading the music without payment from the individual. Napster capitalized on this growth of MP3 pirating. [1]

In 1999, Northeastern University students Shawn Fanning and Sean Parker launched Napster. [2] Napster was a peer-to-peer file sharing software which connected users’ computers, allowing them to directly share MP3 files and search other users’ files. This software allowed users to build digital collections of popular music for free. During its time, Napster grew from 20 million users in 2000 to 80 million users in 2001 at its peak. [3] Napster was so popular that many colleges had to ban its use due to network congestion, in some cases the use of Napster accounted for about half the total bandwidth. [4]

Shortly after the release of Napster, the Recording Industry Association of America (RIAA) sued the site for copyright infringement, claiming the site facilitated large scale piracy. The lawsuit filed by RIAA asked for $100,000 per copyright protected song shared over the network. This roughly equaled $100 million. [5] A US court found that Napster was facilitating the illegal transfer of copyrighted music. Napster was told they either had to stop the illegal activity on the site (music pirating) or it would have to shut down. This lawsuit (and the others) caused Napster to file for bankruptcy in July of 2001. [6]

The heavy metal band Metallica also sued Napster for copyright infringement, specifically because of a song titled “I Disappear.” The song appeared on the soundtrack for “Mission Impossible 2” and had not been released before being shared on Napster. The band’s drummer Lars Ulrich claimed in a 2003 USA Today interview that the lawsuit was not about money but about controlling their music. [7]

While Metallica might not have thought the issue with Napster was about money, the music industry did. The digitization of music has resulted in huge losses for the US music industry. According to data from the Recording Industry Association of America, US music industry revenue went from $21 billion in 1999 to $7 billion in 2014. [8] There has been a shift from ownership of music to subscribing for access to the music. [9]

A large part of the shift was led by Spotify, which aimed to succeed where Napster failed. Spotify founder Daniel Ek sought to fill the hole Napster left behind, making free music a reality. Spotify’s success and Napster’s failure really comes down to two factors: the record labels and the revenue from their paid platform (Spotify Premium). When Spotify set out to create an accessible music platform, it included the record labels from day one. [10] The streaming app partnered with the “Big 4” recording labels, which helped the groups see the app as a potential partner, not a threat. Spotify’s free platform functions by selling ads to play between songs and using that money to pay the royalty fees associated with the use of the music. Following Spotify’s US launch in 2011, it soared in popularity in large part due to the platform’s collaboration with Facebook before its public launch. The Facebook integration netted Spotify 1 million new Facebook-connected users in just 4 days. [11]

However, not everyone in the music industry embraced the rise of Spotify. In 2014, Taylor Swift pulled most of her music from the platform. At the time, her hit single “Shake It Off” was the most played song on the platform, so it was a big loss for Spotify. Swift stated that she removed her music as she felt Spotify was a type of experiment for the music industry, one she didn’t want to put her life’s work on the line with. She removed her music in large part because she felt that Spotify did not fairly compensate artists or their team. Swift had made it clear that she wasn’t fully accepting of the rise of music streaming, releasing 3 of her albums in stores before making them available on streaming platforms (typically with a month or two in between the releases). [12]

For Swift, the core issue was having control over her music. When Swift had a similar dispute with Apple Music, the company quickly made remedies and signed an exclusive deal with Swift allowing some of her music to be available for purchase only through their app (the 1989 album). [13] The issue resolved when a raise in Spotify’s royalty rates eventually brought Swift’s music back to the streaming service, and the two parties eventually mended their relationship. [14]

References

[1] Jordan Mohler, Music Evolution: From Vinyl To Streaming and Beyond, Kill The Music (Feb. 15, 2024), https://killthemusic.net/blog/music-evolution-from-vinyl-to-streaming-and-beyond

[2] Kif Leswing, Napster pioneered music sharing over 25 years ago. It just got bought for $207 million, CNBC (Mar. 25, 2025), https://www.cnbc.com/2025/03/25/napster-pioneered-music-sharing-25-years-ago-bought-for-207-million-.html?msockid=36dfeaefdc5166f32ff8f971ddaf6796

[3] Mike Snider, It’s been 25 years since Napster launched and changed the music industry forever, USA Today (Jun. 1, 2024), https://www.usatoday.com/story/entertainment/2024/06/01/napster-music-25th-anniversary-music-industry-impact/73871612007/

[4] Mark Harris, A Short History of Napster, Lifewire (Feb. 16, 2023), https://www.lifewire.com/history-of-napster-2438592

[5] Mike Snider, It’s been 25 years since Napster launched and changed the music industry forever, USA Today (Jun. 1, 2024), https://www.usatoday.com/story/entertainment/2024/06/01/napster-music-25th-anniversary-music-industry-impact/73871612007/

[6] Dan Kopf, Napster paved the way for our streaming-reliant music industry, QUARTZ (Oct. 22, 2019), https://qz.com/1683609/how-the-music-industry-shifted-from-napster-to-spotify

[7] Mike Snider, It’s been 25 years since Napster launched and changed the music industry forever, USA Today (Jun. 1, 2024), https://www.usatoday.com/story/entertainment/2024/06/01/napster-music-25th-anniversary-music-industry-impact/73871612007/

[8] Dan Kopf, Napster paved the way for our streaming-reliant music industry, QUARTZ (Oct. 22, 2019), https://qz.com/1683609/how-the-music-industry-shifted-from-napster-to-spotify

[9] Jordan Mohler, Music Evolution: From Vinyl To Streaming and Beyond, Kill The Music (Feb. 15, 2024), https://killthemusic.net/blog/music-evolution-from-vinyl-to-streaming-and-beyond

[10] Dan Kopf, Napster paved the way for our streaming-reliant music industry, QUARTZ (Oct. 22, 2019), https://qz.com/1683609/how-the-music-industry-shifted-from-napster-to-spotify

[11] Product Habits Blog, How Spotify Built a $20 Billion Business by Changing How People Listen to Music, Product Habits Blog (accessed Apr. 21, 2025), https://producthabits.com/how-spotify-built-a-20-billion-business-by-changing-how-people-listen-to-music/

[12] Darian Lusk, Taylor Swift explains why she pulled her music from Spotify, CBS News (Nov. 7, 2014), https://www.cbsnews.com/news/taylor-swift-explains-why-she-left-spotify/

[13] Andrew Flanagan, Taylor Swift Returns To Sportify, Amends Her Relationship To Streaming, NPR (Jun. 9, 2017), https://www.npr.org/sections/therecord/2017/06/09/532238490/taylor-swift-returns-to-spotify-amends-her-relationship-to-streaming

[14] Katie Shonk, Streaming Toward Win-Win Negotiation: Spotify Upgrades Its Negotiating Strategy, Harvard Law School Program on Negotiation Daily Blog (Mar. 13, 2025), https://www.pon.harvard.edu/daily/win-win-daily/dispute-resolution-with-spotify-taylor-swift-shakes-it-off/