The stunning popularity of Napster, a web-based music trading service, has caused many to predict the recording industry’s imminent collapse. But doomsayers ignore the innovative process that spawned the predicament. The status quo may die, but the industry will live on.

The emergence of Napster highlights the Internet’s threat to copyright protections. Using Napster’s free software, Internet users can locate and copy MP3 song files stored on other user’s computers. Hundreds of thousands of copies are made every day, usually of songs that have been illegally uploaded from copyrighted CDs.

Law enforcers are powerless against this piracy. Millions of people are making illegal copies, rendering prosecution logistically impossible. And current law provides no clear precedent under which Napster can be punished.

Recording industry leaders fear that, as consumers stop paying for songs they can download free, profits will plummet. Bands depend on royalties for income, making them particularly vulnerable. Hoping to protect their earnings, companies and artists alike have filed a barrage of lawsuits against Napster. But even if Napster falls, existing alternatives are better insulated against the law and its enforcers.

Freenet, for example, performs a similar function but is totally decentralized, challenging police with a perpetually moving target. Unlike Napster, Freenet allows users to trade in near-complete anonymity. The system is even programmed to take evasive action, thwarting attempts to identify individual computers.

In a New York Times interview, Freenet creator Ian Clarke called his program "near perfect anarchy," predicting that copyrights would soon seem as preposterous as "witch burning." Clarke assumes his program is a final breakthrough, but innovation is progressing on all fronts. Neither police nor record companies will go down without a fight, and history is on their side.

For years, computer hackers have claimed an ability to launch damaging attacks with impunity. But police captured Mafiaboy, accused of launching denial-of-service attacks in February. And it took only days to trace the I Love You virus to a student in the Phillipines.

Despite this progress, law enforcers are not yet well equipped to handle many computer crimes. But, for better or worse, courts, governments, and police worldwide are expanding their power to counter the threats. Industry is also investing heavily in innovative responses.

The Secure Digital Music Initiative is testing intriguing technologies that render it difficult to store or reproduce copyrighted songs. While neither police nor industry has developed foolproof responses to the changing Internet landscape, they are clearly arming themselves against the most modern threats. The impact of rogue technologies such as Freenet, therefore, will likely be less dramatic than currently anticipated.

But even assuming intellectual property protections are significantly weakened, it is doubtful that record companies and others dependent on copyrights will collapse. In a more likely scenario, new business models will emerge. Napster itself is pioneering such a model.

In return for the support of rock group Limp Bizkit, the company gave $1 million in sponsorship of the band’s summer tour. This suggests that, in future, music companies may compete not based on their copyrighted catalogues but on how they make these catalogues available.

The public’s thirst for music will constantly push it towards delivery services that guarantee clarity, reliability, and security, something not promised by rogue programs such as Freenet. Because such services will only flourish if they deliver what the public wants, companies will have an incentive to pay emerging bands that attract site traffic, such as like Limp Bizkit.

The failure to recognize the promise of such alternatives reflects an ironic similarity between the advocates and opponents of MP3. Both sides underestimate the ability of the innovative process to create solutions in addition to problems.

When demand for a product exists, businesses will discover new ways to profit from that demand. Instead of banking on the courts, the recording industry can best undercut doomsday predictions by spending more time cultivating music the public wants to hear.

*Justin Matlick is a Senior Fellow in Information Studies at the Pacific Research Institute. To learn more about PRI and the Center for Freedom and Technology, see www.pacificresearch.org.