The case that pretty much set the precedent for the fight against piracy was mp3 downloading through peer-to-peer software such as Napster. Essentially, what happened was that a new format of audio came out that was equal to CD quality and compressed to a small file size. Couple that with the tech and internet growth of the 90s and the ability to share files from user to user and, presto, you have the explosion of mp3 sharing.
Now, why did mp3 sharing become so popular? Well, CDs aren't exactly the best way to distribute music. Most people don't really feel like putting down $18 for a piece of plastic that contains maybe 3 or 4 good songs. The majority of that money didn't even go to the artists, few people actually cared about having a physical CD and album artwork, and there were high costs associated with trying new music.
So, because the market was providing an inferior product (CDs), mp3 sharing took off. And the music industry collectively freaked out. It spelled the end of an industry, the death of music as we know it... if you listened to them. (Coincidentally, TV folks said the same thing about the VCR back in the day). Then along came Apple and iTunes.
Mp3 players were already around at the time, what Apple developed was a common marketplace where the files could be purchased - legally and without all the inconvenience of the CDs. One could buy only the songs they want, whenever they want, and for a reasonable price. And Apple took off and made a killing on the pairing of iTunes/iPod.
But here's the rub - would Apple's legal operation have been successful if not for the illegal Napster operation? The availability and community built around peer-to-peer file sharing made the mp3 a hugely popular file type. In the course of a few years it nearly instantly penetrated the entire market.
Because the market for illegal mp3s had become so large so fast, it became only reasonable that there would be a subset of folks who would purchase legal mp3s. Given that the industry was taking a big hit with the free mp3s, it made instant economic sense for them to embrace a new distribution chain, give greater control to the consumer, and reduce the price point.
Would this have ever happened without illegal downloads? Perhaps, but certainly not this quickly. The disruptive technology of mp3s + peer-to-peer file sharing may have created a boon for us consumers that would not have come about in any other way. It essentially gave audio listeners a voice in the market, much like a strike or protest. Who knows, without illegal file sharing, we might all be using minidisk players.
