The Emergence of Digital Music Streaming

It’s hard to envision a time when music wasn’t instantly accessible through streaming. Before digital music became mainstream, consumers had to rely on physical media—vinyl records, tapes, and CDs. However, the late 1990s saw the advent of MP3 technology, enabling high-quality music to be stored in compact files, revolutionizing how music was consumed.

Recognizing the potential of this new format, Robertson acquired the domain "MP3.com." His intent was not to enter the music industry but to utilize the growing popularity of MP3s to drive traffic to his existing file search engine, Filez.com. Upon launching MP3.com, Robertson was astonished by the immediate response:

"I simply activated the MP3.com website without any prior promotion, and it drew 10,000 unique visitors on the first day. In contrast, Filez.com, which I had heavily marketed for years, only attracted around 15,000 unique visitors. That was a pivotal moment; something significant was brewing with MP3s. I had to decide how to capitalize on this opportunity."

Ultimately, Robertson built a platform that allowed users to stream their music collections online—an innovative concept for its time, as no other music streaming service existed.

MP3.com's Innovative Approach to Legal Challenges

Many believe that the absence of streaming music services in the early Internet era was due to bandwidth restrictions. However, the real barrier was the music industry's greed. The industry was profiting immensely from CD sales, often charging consumers $16 to $20 for albums, leading to resistance against streaming models. As Robertson noted:

"The major record labels were threatened by MP3.com because they were making substantial profits from CD sales. Users wanted just a couple of songs, but they had to buy entire albums. The emergence of MP3 technology and the Internet alarmed them, prompting an adversarial stance."

With no opportunity to partner with the recording industry, Robertson and his team took the initiative. They purchased hundreds of thousands of CDs, digitizing their content. They created a system that allowed subscribers to verify ownership of physical copies by scanning their CDs. Once verified, users could stream the digitized versions of their songs.

This innovative workaround, however, was met with fierce legal opposition, as the recording industry claimed it infringed on their intellectual property rights.

The Legal Battle and Its Aftermath

In the end, the courts favored the record labels over MP3.com. Because the lawsuit involved music, the potential damages were staggering. Robertson explained:

"The music industry has a specific law regarding statutory damages, which allows them to claim up to $150,000 per copyright infringement without having to prove actual harm. My argument was that users would buy more CDs to access streaming, but this reasoning fell on deaf ears. The industry opted for statutory damages, which led to billions in claims against us, given our extensive music library."

Facing astronomical legal liabilities, Robertson was on the brink of bankruptcy when an unexpected offer came to buy MP3.com from Vivendi Universal, one of the very record labels that had been pursuing legal action against him. This revelation highlighted the true motive behind the lawsuits—they sought control, not just the shutdown of MP3.com.

At a celebratory dinner following the acquisition, the CEO of Universal Music, Edgar Bronfman Jr., candidly told Robertson:

"Michael, do you understand why we sued you so aggressively?" Surprised, Robertson replied, "No, why?" Bronfman responded, "Because we believed you were becoming too powerful."

Lawsuits as a Tool for Power Dynamics

Robertson’s narrative underscores the lengths to which companies will go to protect their interests, often blurring the lines of fairness. In the business landscape, legal disputes frequently serve as strategies to maintain dominance. As Robertson states:

"The lawsuits against MP3.com illustrate how corporate conflicts often revolve around power dynamics. I don’t blame them for pursuing legal action; if I were in their position, I might do the same. It’s a ruthless game."

Yes, as Robertson articulates, the business arena can be merciless. Startups must remain vigilant, especially since established players possess significantly more resources. Although you may not be able to counter their tactics directly, understanding the landscape through stories like Michael's can prepare you for the inevitable challenges.

To dive deeper into Michael's experience, tune into the full interview by searching for "Web Masters" on your favorite podcast platform.