Net Music May Abandon Peer-to-Peer, Analyst Says

Even if Napster survives its current legal battle, the peer-to-peer music service and its imitators aren't long for this world--at least in their current form, according to a study released Friday by Webnoize.

"Regardless of Napster's future, the importance of peer-to-peer networks will soon wane," says Matt Bailey, analyst with the digital-media research firm. People would simply rather pay for a better way to get music, he says.

That said, peer-to-peer will stick around in some form, says Lee Black, Webnoize's research director.

"Peer-to-peer [networking] on its own won't be the business model to evolve," he says. But peer-to-peer networks will become part of larger subscription-based services that will emphasize downloads from a centralized location, he says.

Big Numbers, Big Problems

Easily the most popular peer-to-peer service, Napster has close to 15 million unique users and accommodates something on the order of 3 million song downloads each month, Black says.

But despite its large and loyal user base, Napster has too many problems to last in its current form, Black says. Chief among them is quality. "Quality is always an issue in peer-to-peer sharing," he says. Because it is all user-created content, there's no way to guarantee quality. Some users will record their songs at the low-quality 96 kilobits per second, and others will record at the high-quality 160 kbps.

Beyond quality issues, another problem for peer-to-peer services is ongoing legal issues, he says.

For example, when users are sharing content there is no way to monitor who owns what. This makes it impossible to accurately figure out how much to pay the musicians and record labels--and the big music companies won't tolerate that.

Napster is a mediated service, which means the company maintains the central servers that allow the whole process to run. But many of the other peer-to-peer services are unmediated, which means there's no one company or group accountable for keeping things running, he says. Quality and reliability are even more of an issue with those services than with Napster, he says.

What's Next

So if Napster isn't the future of Internet music, what is? Webnoize predicts a new class of services it calls digital music aggregators (DMAs) will emerge. None exists yet, but by 2003 such services will generate as much as $3 billion in annual revenues, Black says.

These subscription-based models will offer two major areas for their subscribers: an area for legal downloads of high-quality content and a peer-to-peer area. The peer-to-peer sharing will become the community-based aspect of the service. There will always be some free, bootlegged stuff, he says, but most people will get the majority of their content from the service, he says.

Ironically, Napster could very well become a part of one of the first major DMAs, Black says. The company could very well become the peer-to-peer segment of Bertelsmann AG's upcoming DMA service, he says.

Peer-to-Peer Begs to Disagree

Free music, and the ability to listen to exactly what you want, is the point of peer-to-peer, says Gavin Hall, president of SongSpy, a Napster-like service launched last August. Those capabilities ensure it will have a long life.

The main advantage of peer-to-peer over any centralized service is the ability to find exactly what you want, he says. The major record labels will always limit centralized content, he says. Peer-to-peer sharing is "not limited to what they want you to hear."

He admits that reliability has always been an issue with peer-to-peer sharing, and that a centralized server is more reliable and could offer guaranteed quality. But people are too enamored of the free content to let peer-to-peer file sharing go, he says.

Webnoize's Black argues that it's not the free content that people want from services like Napster, it's the wealth of music. And if a subscription service can offer that amount of music, people will pay for it.

"Napster's value is all those files, not just getting it for free," he says.

"You could get cable for free, but why go to the bother when it's only $30--people will pay for the service," he says.