Wall Street’s Napster Moment
If you asked me on Monday what kind of essay I’d write this week, “a financial op-ed” wouldn’t have crossed my mind. But what a week it’s been, the news cycle dominated by the story of a group of Redditors (/r/Wallstreetbets) who utilized readily available technology to access and profit from an institution that is famously exclusionary (Wall Street). Precisely because of its exclusionary nature, I’ve never made much of an effort to follow the stock market or learn about trading. That is, I am no financial expert even in a sociological sense. But I do have a decade of experience in another industry once beleaguered by technology, and a knack for spotting patterns. So I feel pretty confident in saying: I’ve seen this before. The GameStop Squeeze is looking a lot like Wall Street’s Napster.
Wall Street has been a symbolic lynchpin for America’s exploitative brand of capitalism for as long as it’s existed. The Stock Market is complicated, and indeed there’s an entire industry built around this very premise. The financial industry supposes that the average person is either unable or unwilling to maximize their earning potential and should thus rely on experts to make financial decisions for them. For a long time, most Americans either believed this messaging, or were too daunted to attempt to refute it. But then came a bridge.
“Consumer friendly” investment sites and applications have existed for the better part of the 2000s, but there was still a barrier to mass adoption: ease of use. Investing was daunting, the potential for catastrophe seemingly too high, and the initial entry capital required unrealistic. But in the late 2010’s, a series of services touted a concept called micro-investing, promising that for only a small amount of money, you too could participate in the stock market. Of course, many of these were actually run by powerful existing players within the financial sector. But in further attempts to attract a wary audience, a number of these services released apps marketed specifically to millennials, promoting themselves as a simple way to bridge a vast socioeconomic divide. Millennials were already banking on their phones, now they could invest on their phones too. Stocks could be purchased no matter what your income and monitored on an interface that focused on graphical overviews more than numerical analysis. Suddenly, investing was easy.
In early 2020, global catastrophe created an environment in which — for the average young American — two things were true. The majority were experiencing both increased economic uncertainty and idle time. An app named Robinhood had gained popularity due to its no-fee approach to investing; rather than charge the consumer for a transaction, they simply sold consumer data to financial institutions. History had proven that millennials are unfazed by the idea of “signing away” their browsing and purchasing histories. No one reads the user agreement. So the app continued to grow. It was a perfect storm: a restless working class wanted a solution to increasingly dire financial straits, and Robinhood might just be the ticket to long-term stability. And if it wasn’t, who cared? It didn’t require much money, and it’s not like childless millennials had much else to do while stuck at home.
In the late 1990’s, the music industry was revolutionized by a new file format that allowed for audio samples to be compressed to sizes small enough to store on the average computer without sacrificing sound quality. While the format took a while to catch on — mainly because the technology required to create mp3s was prohibitively expensive — in 1999 a college student gained illegal access to encoding software that allowed for CD’s to be uploaded onto computer hard drives. He then distributed this widely over the internet. Suddenly, an entire music catalog that once existed on multiple physical disks could be collected in a single location and accessed at any time.
The record industry had been a profit-generating behemoth for the majority of the 20th century, controlled by a small number of labels who locked artists into contracts that ensured their own success over that of the musician. Record sale profits went almost entirely to the record labels themselves. With physical records (or tapes, or CDs, all of which were prone to damage or overuse) being the only means of hearing one’s favorite song, they had a stranglehold on one of our great cultural currencies. The mp3 changed all that. One was no longer encumbered by record-flipping or scratched disks; keeping a music collection was easy. Then in 2000, it became collaborative.
The creation of Napster allowed for passionate, and even passive, music fans to share audio files amongst each other. Information and insight passed from one user to another, a kind of cultural camaraderie. The average person could become an amateur musicologist, no longer limited to the inventory at their local Tower Records. They say music is the universal language of love; the internet—and Napster in particular—allowed for people from all walks of life to speak and share their passion.
The music industry reacted to this new impassioned consumer behavior by declaring them the enemy. The early 2000s gave rise to lawsuits and legislation designed to scare the average consumer away from peer-to-peer file sharing, using the threat of an FBI raid as a deterrent to entering this new cultural conversation.
In January 2021, the subreddit /r/WallStreetBets, a collection of both seasoned and amateur investors, many of whom utilized apps like Robinhood to conduct micro-trades, saw an opportunity to have their voices heard. A group of Rinvestors rallied together to buy shares of GameStop, which prominent financial analysts had recently bet against in a practice known as short selling. (I am no expert on this subject, but here’s a great Tweet that explains “shorts”. And here’s an even better thread for you fashion-minded readers.) The sudden purchase of large amounts of stock by a committed group — who saw it as more of a risky wager than an anticipated windfall — drove the price up exponentially. This in turn caused a number of establishment analysts to lose a lot of money on their own bets, which were hinged on the opposite expectation of a price decrease. As of Friday, it’s estimated that certain hedge funds have lost over $10billion as a result of this event. While this type of Rinvestor rally wasn’t unprecedented — /r/WallStreetBets has made trading news several times in recent years for similar stunts — the size of establishment losses certainly was. The passive micro-investor had collaborated, played the big bad stock market, and won. The financial industry thus identified their own enemy.
The reasons behind the proliferation of these two phenomena are different, though they both exist at the intersection of accessibility and emotion. The digital music revolution was fueled by passion, whereas the digital financial revolution seems fueled largely by resentment. But the economic and cultural repercussions are likely to be much the same. (Though, granted, the financial industry’s yearly GPD share far exceeds that of the music industry’s, even in its heyday.)
The music industry took 10+ years to learn what any teen with a Napster account could have told them: we need to be met halfway. Potentially unlimited access to music became technologically viable, and rather than try to find a way that they could profit in conjunction with it, they fought for years to spite it. In the end technology triumphed, and the music industry begrudgingly restructured its profit-making models. But that resistance came at a huge cost, the delay in offering their own catalogs as mp3’s resulting in countless amounts of lost revenue for labels.
The financial industry now has a choice. They can accept that technology has advanced to the point that allows the average consumer to participate in the market, and find ways to not only profit in conjunction with them but also to mitigate their own potential losses. Or they can clutch their kingdom’s keys, insisting “This isn’t the way we do things” while a generation of young, passionate, and fed-up people move the tides in spite of them. Technology begets discovery, and we’re at a flashpoint. Millennials were given technology that was supposed to make the current market more accessible. It worked.
Investment apps like Robinhood — backed by the very institutions they purport to circumvent — panicked as a result of the week’s events, blocking transactions and attempting to curtail their consumer’s behaviors by force. We’ve seen this all before… and I can’t imagine the financial industry will be any more willing to adapt than the music industry was.
What remains to be seen is if or how the government will react. Will they behave similarly to the early 2000s, take the side of lobbyists, and attempt to keep the exclusionary status quo of the stock market? Or will they learn from past mistakes, and encourage rapid innovation and inclusion to mitigate loss?
Time will tell. I’ve got popcorn at the ready until then.
Mikayla Moyer is a music industry veteran who ran a music blog when they were a big deal, worked at several independent labels, and promoted some of the world’s biggest live tours. She is not a financial expert. The above article is only an opinion, though she would love to write a longer researched piece with supporting evidence. She’s got theories.
