Look at that.
That is the biggest crowd MTV has ever, ever had.
Why?
Two words, Backstreet Boys.
In the '90s, it was a great time
to be in the music business.
Things were booming.
And as a result, expensive parties, big launches.
Yeah, that was part of the culture.
This was the era of NSYNC and the Backstreet Boys.
This was the era where a single hit
could sell you 10 million albums plus.
They were just printing money.
You had the great sales of CDs over that period
dwarfing whatever had happened in the industry before.
The profits coming in were massive.
It was a hell of a lot of fun.
From my viewpoint, we were gonna get
better and better all the time.
We really didn't foresee the change in the technology.
We'll be telling you tonight about a method
of compressing audio data called MP3.
And that was the end of everything we know.
The birth of the MP3 was a seminal moment
for all of media and entertainment.
It would completely change the music industry.
Completely disrupt it.
It opened up people's minds to what the future would be.
Don't steal our music!
Its music is free for downloading.
The music industry is not viable.
Movies, books, television, nothing creative
has any value anymore.
The music industry simply did not embrace
the magnitude of the change and it failed.
You can't fight progress.
You can't fight technology.
The MP3 totally changed people's relationship
to the internet, to culture, to how society works.
It's a fact that was so much bigger than
just the music industry.
Would you say that you love audio?
You just love it?
Oh sure, oh sure.
I have to admit I got older, so I'm not as critical
in listening as I've been some decades ago,
but I definitely love music and love audio.
And I have to say with all this great
reproduction technology, the best is still
to sit in a concert hall to hear real musicians.
When people call me the father of MP3,
I always have to add, "No, no, I was, as you sometimes say,
"standing on the shoulders of giants."
But my original contribution is really
some of the basic ideas to MP3.
The story of the MP3 really begins in West Germany
back then in the early '80s and even late '70s.
People started trying to compress music,
including my own thesis adviser, Dieter Seitzer.
Dieter Seitzer was a visionary who came up with the MP3.
He was seeing the original digitization of music
with a compact disc and thinking,
instead of manufacturing millions upon millions
of plastic discs, why don't we store all the data
in one centralized computer and then stream it
to people in their homes.
So he applied for a patent to use the phone system
to transmit music.
1982, that's when they first had this idea.
But they had a huge problem.
The compact disc took about a million bytes
of information to store one second of audio.
And the pipe they were trying to send it through,
the telephone, could only do about 128,000 bytes.
For this to work, they somehow had to magically shrink
the size of the compact disc by 90% or more.
The patent examiner looked at it and said,
"No, it's not possible."
Essentially, almost everyone thought this was impossible.
There's no way to do this.
But around '87 or '88, Dieter Seitzer's
brilliant graduate student, Brandenburg,
made a breakthrough by taking advantage
of this sort of obscure academic discipline.
Psychoacoustics.
The human ear has a lot of inherited flaws.
For example, two tones that are close together
in pitch will begin to cancel each other out.
And therefore he realized much of the information
in the compact disc was irrelevant.
The ear couldn't actually hear it.
So he devises a series of mathematical models
to eliminate all of those inefficient bits of data
that you will never hear.
And in so doing, he was in fact able to shrink
the music by an extraordinary amount.
What was done in the end
exceeded the expectations of everybody.
The functionality of what they put up
was relatively limited.
You had to go and get a serial number where you paid
and licensed it to unlock full functionality.
But the way the software underground worked
in the '90s is that, practically,
these serial numbers were available anywhere.
We tried writing, "Look, this is stolen software.
"We will send the public prosecutor after you."
Which of course doesn't really work these days.
It starts to percolate out of the academic audio
and computing sphere into the broader public.
And by '96, the pirates find out about it.
The year's about 1997, 1998.
I'm in seventh grade.
A school friend of mine said, "Hey there's a way
"you can listen to music for free on your computer.
"Check this out."
After I discovered my first MP3,
it blew the floodgates wide open.
That's all I did every single day, every single night.
I was the founder of the MP3 piracy group
known as Audio Punks.
We specialized in everything from punk rock,
to ska, to hardcore and heavy metal.
We had downloaders from Indonesia, Japan, or Russia,
you name it, people are downloading.
Back then in the late '90s, if you wanted to find MP3s,
you would go into IRC channels.
It was a series of chat rooms that were
hidden and invite-only.
I eventually found these great little channels
that have membership solid by enforcing a upload ratio
where you had to upload three songs, or two songs
or whatever number, in order to download one song.
So I would pool money together with my friends
in order to get a CD.
Rip a CD, and then compress that into an MP3.
And then we would spend all night uploading the album,
putting it out on the internet.
We were eventually able to keep repeating the process
and have almost an assembly line structure.
And in our prime, we had probably close to
a thousand albums in our catalog.
Man, it was almost like a full-time job
just dedicated to these song files.
Did you ever think like,
wow, this is kinda like I'm stealing from these artists.
Did that ever occur to you?
You know, in the late '90s we were idiots.
We were kids.
You know, I started this when I was 12.
I didn't know what I was doing.
It wasn't called piracy back then.
It was just file sharing.
In the late '90s, my staff started monitoring
the online space and we really did see
a significant amount of interest in MP3 all of a sudden
because of its ability to compress a music file.
The latest advance, called MP3, comes via the internet.
It's the future of music and audio.
I'm sure that there are millions of you out there
who not only understand what digital
downloading technology is about,
but who use it daily to great personal advantage.
I think there really wasn't any sort
of panic in the industry in the early days.
My team did look at it and see it as not really
as much of a threat as an opportunity.
We used to call it the celestial jukebox.
Celestial jukebox was a theoretical
construct at the time.
Every song ever made was gonna be
in what we call the cloud right now,
and would be instantaneously available
to anyone on the planet simply by
pressing a button on your gizmo.
But the industry really did not embrace that opportunity.
I think when we first heard the term MP3
we didn't really know if that was important
or how it might be important.
And even if it was important, how'd it affect us?
But there was an awareness that the digital revolution
was coming and anybody who was in a senior position
had to say how do we make this work for us?
We began trying to find a way to legitimately
sell music on the internet.
What systems do we develop?
How do we deal with how we sell it?
How do you price it?
Sony Music said today it'll be the first
major recording company to sell
new releases through the internet.
These virtual singles will be released
at the same time as CDs go into the stores.
We were working at it.
But the senior executives, they still had
the mentality of you needed a hard good.
And that was the basis of their business.
The music industry was making
gobs of money selling CDs.
That's the bottom line.
So companies like mine, mp3.com,
that went to them and said,
"Hey, we wanna work with you.
"Let's figure out something that gives
"the consumer some value and gives you some value."
They didn't want to hear any of that.
They tell me, "No, the computer is for
"word processing and spreadsheets."
They couldn't see it.
We had meeting after meeting after meeting
with companies with proposals for new
technological ideas.
Generally who knew absolutely nothing
about how the record business works,
which made it difficult for them to express
how it was good for us.
So basically all of this stuff was for naught.
And then peer-to-peer came along and changed everything.
I just stopped going to school.
I left my dorm room.
I didn't tell any of my friends.
I just stopped going.
I knew that if I had told them what I was
planning on doing, they would have
convinced me not to do it.
Or they would have questioned my decision to leave.
In 1999, observing that file sharing was fun,
but was not easy,
Shawn Fanning and Sean Parker come around
and create Napster.
They were two teenagers hanging around
an IRC chat channel swapping MP3 files.
Now at the time, there were all these MP3 files
being created, but there was no sort of
central index where you could go download them easily.
And so Fanning said, "Why don't I create
"a new technology that will connect
"all these files together?"
Something called a peer-to-peer server.
My computers appear, and your computers appear.
The files that are on your computer,
I have access to them and vice versa.
So it was like the ultimate file trading tool.
And it facilitated really low friction
sharing of music.
Parker's role was essentially
the face of the organization.
Fanning wrote the code.
Fanning kind of did all the technical
and computer side stuff.
I was spending two or three days in a row
sitting at a machine writing code.
I'd pass out on the desk or on the floor.
It was just a blur.
This is a guy who just sat in the basement
and cranked for six months.
It was the first computer program he ever wrote.
He went out and bought a Visual Basic book,
knew what he wanted to get to and just kept at it.
He was not to be deterred.
And, of course, it took off.
My head of anti-piracy, Frank Creighton,
came into my office and said, "I've just found
"the most fascinating thing."
It was Napster.
I put in, you know, Madonna's "Holiday."
I was like, "Whoa, that's pretty amazing."
That's like the celestial jukebox.
We've been talking about this for years.
We immediately contacted them and said,
"Ya know, really cool system, but you're
"infringing on copyright."
"Well, if you send us a list of all of your songs
"we'll make sure that none of them are on there."
I said, "All right, just start with
"the Billboard Top 200 songs.
"Take those off."
They said, "Okay, fine, we'll try that."
Well, they didn't.
And it just grew and grew and grew.
It's called Napster.
And it's by far the fastest way
to download music from the internet.
It allows anyone to copy
thousands of musical selections for free.
And it's spread so quickly
that it's clogging computer networks
on hundreds of campuses.
So this became hugely popular overnight basically.
It was really one of the first viral apps.
The hysteria over Napster culminated in,
I would say, an RIAA board meeting in February of 2000.
It was in Los Angeles at the Four Seasons Hotel.
I will never forget this day.
All of the heads of the labels,
literally the titans of the music business,
were in that room.
I had somebody wheel in a PC and put some speakers up
and I started doing a name that tune.
Give me your last five biggest hits.
Every single song that somebody named
was available on Napster.
Well, give me some old ones, like what,
you know, name older artists.
That was on there.
Okay, now tell me what you're releasing next week.
And sure enough, you know, 20 of the top new
yet to be released songs were on there as well.
We used to have this line in the record business
that there was sort of nothing a good hit couldn't fix.
There was no screw up a good hit couldn't fix.
There was no amount of money lost on a deal
that a good hit couldn't fix.
I think that was the moment when people said,
"Ooh, maybe a good hit can't fix this one."