2: At the 2019 Academy Awards, "Roma,"

5: by acclaimed director Alfonso Cuaron,

7: took home three Oscars.

9: -Roma.

11: -But the film's significance

13: wasn't merely measured in trophies.

15: For many, it marked a turning point

16: for the American motion picture industry.

19: -Roma is a Netflix streaming platform production,

22: one few people saw in an actual cinema.

24: -That really sparked a debate in Hollywood

26: as to what constitutes a film.

28: There's a lot of traditionalists that see a film

30: as something you go to a theater,

32: you see it on a big screen.

33: The Napster experience for the music business

36: shows the futility of trying to fight an innovation

40: that people are clearly embracing.

43: -The year was 1998.

45: Will Smith and Shania Twain dominated the pop charts.

49: Ben Affleck and Cameron Diaz

50: were the big draws at the box office,

52: and tens of million tuned in for the final episode of "Seinfeld."

56: -Why don't you just blow it out your...

58: -Okay, yeah.

61: -And in a dorm room at Northeastern University

64: in Boston, a freshman named Shawn Fanning

66: had an idea for a computer program.

68: -I first started engaging with Shawn online

71: over instant messenger, through his username Napster.

74: The conversation went something like Shawn saying,

79: "Hey, I've started creating this service

82: to help people find music."

84: He was insistent that this was gonna be huge,

86: and he might make a lot of money out of it.

89: My response to him was,

91: "You need to just concentrate on your studies."

93: -Fanning didn't follow Aydar's advice.

96: He dropped out to focus on the program

98: and partnered with fellow teenage programmer Sean Parker

100: to release a beta version.

102: As it started to spread through chat rooms,

104: they traveled to the Bay Area to grow the business.

107: -Initially, I was skeptical that,

110: "Gosh, I'm sitting across from two 18- or 19-year-olds."

114: I changed my tune once I learned

116: that there were already 40,000 people using this thing.

120: -Fanning called the program Napster,

122: after his online username.

124: Over the Internet, it allowed users to access music files

127: stored on the hard drives of fellow Napster users.

130: -40,000 wasn't a big number,

132: but it was bigger than what I thought

135: it was gonna be initially, which was zero

137: because people weren't willing to open up their hard drives.

140: What I realized was that people's emotional ties

142: to music, their general interest in music,

144: was more than enough to overwhelm any kind of security

148: or privacy concern.

150: -It was on college campuses with high-speed Internet

153: that Napster really took off in the fall of 1999.

156: -So how many MP3s do you have on your computer?

159: -About 600.

160: -Maybe like 100 or something?

162: -6,000 or 7,000.

164: -Napster. -Napster.

165: -Napster. -It's called file sharing,

167: seen by some as the wave of the future.

170: -But not everyone was cheering Napster's rise.

172: -College students are making good use of the Internet.

175: The latest software makes it a bit too easy

178: for students to access their favorite tunes.

181: -No longer do you have to go to a store and plunk down money.

185: -From '84 to 2000, the music industry

187: made so much freaking money selling CDs.

190: First it was hair bands, and then it was grunge bands,

193: and then it was boy bands.

195: -♪ I want it that way

198: -I mean, it was a great time to be in the business -- 1999.

202: You know, you had two or three records come out in one week,

204: sell 1 million records.

206: -You actually had to drive your car to the Tower Records

208: and buy a CD for $18

210: to get the one song you liked,

212: and so that was a good model.

213: It made the industry tons and tons of cash.

215: -♪ I get knocked down

216: ♪ But I get up again

217: -Selling millions of Chumbawumba albums

220: with one good song

221: was an economic boom.

224: -It didn't take long for the music industry

226: to take notice something was afoot.

228: Months after Napster's rise,

230: industry executives began a legal battle to stop it.

232: -They're waging a war in the courts

234: over who controls what artists create.

237: -To record companies whose artists range

239: from Tony Bennett to Metallica,

241: this new technology in the wrong hands is simply stealing.

244: -Napster hijacked our music without asking.

247: -A business model built on infringement

249: is not only morally wrong, but legally wrong.

251: -Illegally downloading music is the same thing

253: as going into a CD store and stealing a CD.

255: -We felt pretty strongly that digital distribution

259: was going to bring the industry closer to its customer,

263: and instead of killing it,

266: they would take advantage of the value that it brought.

270: -We've heard that we couldn't survive before

272: when we had 700,000 members

274: and when we had 17 million members.

276: -A chorus of studies show that Napster users

278: buy more records as a result of using Napster.

281: -We wanted it to be an industry-supported service

283: that would be a successful business.

284: We tried to make sure that the record industry

288: could understand how this could beneficial to them,

291: but it was very clear to me from the early going

295: that they were really loath to license Napster.

298: -Anybody with enough money could go and make a record,

301: but that didn't guarantee you getting into stores,

303: which was the only place that you could actually

305: buy that record.

306: That was the power of the music business --

309: the distribution. The industry went wrong,

310: in trying to hold onto that distribution channel

313: and those chains and not trying to find a solution

316: to what was obvious was coming in the future.

319: -In July of 2001,

321: after more than a year of legal battles,

324: the record industry got its wish.

325: -The free music service run by Napster

328: was ordered to stop the music.

330: -Napster, which at its peak

332: had about 70 million registered users,

334: was shut down due to court orders.

338: But while the industry may have defeated Napster,

341: the idea had taken hold.

343: -A flurry of other downloading services took its place.

346: Desperate to stem the tide,

348: the labels upped the stakes

350: and sued almost 20,000 people

352: for using illegal downloading software.

354: -Do you feel like you're being made

356: some sort of a test case here?

358: -Yeah.

360: -But CD sales continued to plummet,

362: shuttering record stores across the country.

365: -An industry in turmoil.

367: -So, when Steve Jobs came to the table

369: with plans for a new online music store,

372: the major labels finally surrendered.

374: -You had only two choices.

375: Either you don't do a deal with Steve,

377: in which case people continue to just e-mail

379: the MP3s to their friends, or you do a business with him.

382: And he has a store, and then you can sell things.

386: -And as online streaming services like Spotify

388: and YouTube gained popularity, the music industry realized

392: it was better to partner than fight them.

394: In recent years, streaming revenues have provided

397: the industry's first real sign of positive growth

400: since the pre-Napster days.

402: -Streaming is rapidly changing how media is bought,

404: how it's consumed, who profits from it,

407: and even how much is made.

409: -But for mid-tier artists

410: who once benefited from album sales,

412: the payouts from streaming can be slim.

415: -The top 1% generate most of the revenue.

419: Hopefully more will be able to earn a living

421: as time goes on, but it is ever more challenging.

424: -And as for record labels,

426: the opportunity for them to be leaders in online distribution

429: had long passed.

430: -They didn't take the time

432: to really understand what was going on

433: and think about the future implications of it

436: 'cause it was clear to us if we didn't exist,

439: something else was gonna exist.

440: The whole reason why there are

442: so many people using this service

444: is because this is how people want to access their music.

449: -The lessons of Napster are resonating today

452: as another established industry --

453: television and film --

455: faces the same existential challenges.

457: -When the music industry was in the depth

459: of the legal fight with Napster,

461: smart people were looking at the film and TV industries

465: and saying, "You're next.

467: Just wait till the Internet speeds

469: and capabilities get fast enough

471: so that you can distribute a movie or a TV show."

474: -That day is here.

476: Nearly 70 million American households

478: now stream movies and TV shows

480: from an Internet-connected device.

483: -What Napster introduced America to was the idea

485: that you could have a very large menu

488: of content at your fingertips,

490: and you could hit a button and get that delivered.

492: In Hollywood, the move toward direct-to-consumer

495: business models has been incredibly disruptive.

500: You're talking about an industry that has functioned

502: basically the same way for about a century.

505: -And a new study predicts revenues

506: from online streaming services like Netflix and Hulu

509: will outpace movie theater box office receipts in 2019.

513: -There's a tendency to be so engrained in an industry

517: that you don't see the potential for innovation, for improvement.

521: Right now Hollywood is in the throes of a very,

524: kind of, fast and furious reaction

527: to what's clearly been embraced

529: by consumers about the Netflix model.

531: -Disney is taking on Netflix with its own streaming service,

534: and it's called Disney+.

537: -Today with TV and film companies

539: navigating the Internet revolution in real time,

542: Napster's impact on the music industry

544: is a reminder of the peril

546: of taking too long to embrace the future.

549: -We've had a massive change, massive.

551: I mean, we haven't seen anything like it since,

553: you know, the invention of the printing press.

554: There are gonna be many, many new and wonderful ways

559: to exploit, enjoy, distribute creative works.

563: We just have to be open to them.