Napster is a famous buccaneer of that modern Spanish Main called intellectual property.  Bertelsmann is one of the galleons sailing those same seas, holds stuffed with treasure.  Its BMG unit is the world’s fifth biggest music publisher, and other ventures include Barnes & Noble books, CDNow online CD sales, and Bertelsmann Broadband, which is working to develop distribution networks. 

Yesterday, the two companies announced a “strategic alliance.”  The details are unspecified.  Napster says only that it will be transformed into a membership- (i.e., fee) based service that rewards artists for their work while maintaining an “element” of  “free, promotional file sharing.”  Bertelsmann will put up decamillions of cash in exchange for a serious equity stake. 

The deal has several important ramifications.  It provides deep pocket support for Napster in its legal wars, and the jump in the company’s prospects for survival puts pressure on other record companies to compromise their copyright infringement claims and join the new party.   

More importantly, the deal marks the beginning of a return to sanity after the Napster free-music binge.  Despite the fantasies of the modern day utopians, intellectual property cannot and should not be free.  The argument that “the marginal cost of production is zero, and economic theory teaches that prices should be set at marginal cost” is a total misunderstanding of the issue, of economic theory, and of the true interests of consumers. 

In the end, pipers must be paid.  One way of doing this is by membership, whereby the consumer pays a fee and gets a package of material.  Another is to pay per download.  Each of these is workable, and either is much to the advantage of both producers and consumers, all of whom desperately need sophisticated markets for intellectual property.  Only through markets can the subtle trade-offs among price, quality, mass appeal, and high art be made, and the infinite variety of consumer choices satisfied.  (See Do You Really Want to Be a Product?.) 

Besides, the Napster model of “just take it” from artists and owners is not workable for long.  Its ethos was already breaking down as the music-sharing community realized that most people were taking far more than they were giving.  And many counter-measures are available to enraged artists.  These were already responding with downloads that claimed to be hit songs but in fact produced nothing but noise.  If Napster keeps operating, how long will it be until a few artists get really mad, and seed the Web with versions of their music containing nasty viruses? 

So, let's say farewell to the utopian fantasy, and good riddance.  Now we can all get on with the real job of working out ways to fulfill the fantastic promise inherent in Internet distribution of intellectual property through good old-fashioned markets.