Last Updated on August 11, 2025 by Dave Farquhar
On September 24, 2001, Napster settled a lawsuit with the RIAA for $26 million. This effectively ended Napster as an MP3 file sharing service but other similar services soon appeared in its place. Attempts to turn itself into a subscription-based service failed and it liquidated less than a year later.
What was Napster?
Napster was the first dedicated peer-to-peer file sharing service. It specialized in sharing MP3 files. Before dedicated file sharing, people shared MP3 and other binary files over other means, including Usenet and other message boards and IRC and other chat protocols. The first known warez-style MP3 piracy happened over IRC.
But retrieving and decoding the files took some skills, or at least a lot of determination to learn those skills if you didn’t previously have them. The files were encoded in a message, which you then had write to a text file and then decode into a valid MP3 file. Frequently it involved text mode command line tools. It took time for GUI-based front ends to appear that would make saving a file attachment as easy as saving an e-mail attachment is today.
Napster brought this activity from obscure corners of the Internet into something mainstream. You fired up its proprietary app, searched for what you were looking for, and it gave you a list of matches. As long as someone was online and was sharing the song you were looking for, you could download it. It made pirating MP3 files about as easy as buying one today.
And it brought the topic of piracy to a far larger audience than computer software piracy ever had. By February 2001, Napster had more than 26 million users.
The RIAA sued Napster on December 6, 1999.
Artists’ feelings toward MP3 file sharing
Some artists hated Napster, saying it devalued music. Others liked it because it helped people discover new music. And different artists landed anywhere in between those two extremes. Metallica sued Napster on April 13, 2000. Radiohead was an example of a band who benefited from Napster, having never achieved a Top 20 hit in the United States. But after their album Kid A was leaked on Napster, it topped the Billboard 200.
Generally speaking, the more commercially successful and more mainstream the artist was, the less they generally liked it. At least some niche artists found the publicity from file sharing ended up outweighing the lost sales.
I had a very candid discussion with musician and producer Andy Breslau about the topic way back in February 2001 which I published as a 3-part series.
Napster’s shutdown and liquidation
The court issued an injunction March 5, 2001, ordering Napster to prevent the trading of copyrighted music on its network. When Napster told the district court that it had developed a technology to block the transfer of 99.4 percent of identified infringing material, the district court said 99.4 percent was not good enough. Napster had to push the infringements ‘down to zero.’
On July 11, 2001, Napster shut down its entire network to comply with the injunction.
A little over two months later, on September 24, 2001, they partially settled. Napster agreed to pay music creators and copyright owners a $26 million settlement and pay future licensing royalties of $10 million.
But Napster didn’t have that kind of money. It tried to shift from a free service into a subscription system, but that didn’t go well partly because it had significant trouble obtaining licenses to distribute major-label music.
On May 17, 2002, Napster announced that its assets would be acquired by German media firm Bertelsmann for $85 million. As part of the agreement, on June 3,2002, Napster filed for Chapter 11 bankruptcy protection. On September 3, 2002, an American bankruptcy judge blocked the sale to Bertelsmann and forced Napster to liquidate its assets.
Stamping out Napster did little to eliminate MP3 piracy, however. Other services like Kazaa sprung up in its place, monetizing themselves with spyware. That led the RIAA to resort to suing individual users rather than the company, an unpopular tactic that didn’t lead to the outcome the RIAA wanted.
The theory all along was that if people could buy MP3 files just as easily as they could pirate them, and the price was reasonable, people would buy them. That’s why you can browse and buy MP3 music on your phone today. MP3 piracy still happens, but it’s much less common now that buying music is easy and relatively inexpensive.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.