May 19, 2002 9:00 PM PDT

Paid content comes to Kazaa

Paid content will invade the Kazaa file-swapping network Monday in a major commercial test of a service that until now has lured millions of people with free music, video and other digital files.

Along with finding search results that point to unfettered MP3s, Kazaa users will begin to see links to songs for sale from record labels and advertisements linked to keyword searches.

The move is fraught with controversy as it is the first application of Altnet, a service from Kazaa partner Brilliant Digital Entertainment that came to light amid a Web privacy storm last month. Some Kazaa users reacted with outrage when they discovered that bits of Altnet had been quietly installed on their computers, creating a network to be manipulated by a little-known company whose ambitions were unknown.

After weeks of watching for signs of Altnet's awakening, a wary file-swapping world will see the first glimpse of the service this week--an unveiling that Brilliant Digital CEO Kevin Bermeister hopes will put most, if not all, of the fears to rest.

"The surprise element was our fault," he said in an interview this week. But as Altnet prepares to go live, Bermeister said he was committed to repairing any ill feelings in the Kazaa community, which will serve as the service's core. "If you don't like me, if you aren't happy with me, then I lose you," he said.

In its first incarnation, Altnet will simply seed the results of Kazaa's 120 million daily searches, with links to paid content, drawing from the increasingly common pay-for-placement model of Web search companies such as Overture.


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The strategy is a bold test of consumer appetite for paid services and content on the Internet. Though many Web companies have sought to turn away from giveaway strategies that dominated the early dot-com race for market share, the results have been mixed.

The major music labels have launched paid online subscription services, but these have been hamstrung by crippling limits on the number of titles available and rules that restrict practices such as CD-burning and transfers of files to portable MP3 players.

Altnet's play is all the more risky in seeking to wring dollars from Web surfers on a playing field that has come to epitomize the Internet freebie bonanza: file swapping.

Peer-to-peer file-swapping services are widely blamed by content owners for fueling massive copyright infringement that they say threatens their very existence. Record labels and movie studios have waged fierce legal battles to shut down services, successfully crippling the popular Napster last year.

A softening attitude
Still, there are some signs of a softening in the attitude of some record labels to peer-to-peer networks. This week, Sony agreed to begin distributing some of its content through CenterSpan's Scour peer-to-peer network after the service relaunched with new technology aimed at blocking unauthorized files from its service.

Altnet, too, has high hopes of bridging the gulf between media companies and the rough-and-tumble world of pirate file swapping. But it must overcome the twin hurdles of big media's hostility toward Kazaa and consumers' lingering jitters over Altnet's initial stealthy approach to their PCs.

Brilliant Digital's and Altnet's sudden appearance sparked criticism among a growing number of people concerned about losing control of their own computers. Consumer fears have been fanned by news of other programs that spy on their actions, or that closely monitor Web surfers' behavior to serve narrowly targeted advertisements.

As that furor settles, however, attention is switching to Altnet's actual technology and business plan, and to its attempts to turn the anarchic peer-to-peer communities into sources of profit.

The company is starting with relatively modest goals. Beginning Monday, people downloading the Kazaa software will also install a file that serves as an index to all of Altnet's clients. It will contain information on what kind of content those customers want to share and on the search keywords they have purchased inside the Kazaa system.

From that point, when people search the Kazaa network for content, the search will also check this Altnet index file. If a customer has bought the keyword "MP3," for example, a link to that customer's content might show up in the top three search results inside the Kazaa software.

Altnet is paying Sharman Networks, Kazaa's parent company, for the rights to integrate its own service closely with the popular file-swapping software.

As it launches Monday, Altnet will have a few customers whose content will show up in Kazaa searches, including video game publisher Infogrames and EMI-distributed record label 2KSounds. For now, their content will be hosted on their own central servers, not consumers' computers, however.

This content--now, as in later stages--would be wrapped in Microsoft digital rights management, or anti-piracy, software. The content could be downloaded and unlocked in a variety of ways, including via "micropayments" that would be drawn from prepaid cards such as an AT&T phone card, Bermeister said.

Altnet has also struck a strategic relationship with software company Trymedia Systems to provide DRM technology and secure video game content.

The draw of quality
Bermeister hopes to convince media companies that putting their own protected content next to pirated works will ultimately help persuade file swappers to download the authorized, high-quality versions of content instead.

"I don't think people necessarily want to steal content," Bermeister said. "I think there's a portion of the market that will always say they don't want to pay...But there's a portion that's going to say, 'This is the credible version; I know this is the best-quality version.'"

Stage two will start in July, Bermeister said. At that point, a small number of people with powerful computers and network connections will see a pop-up box asking if they want to join Altnet as distribution points, in return for payment such as frequent-flier miles, free hotel stays or other similar items.

People who agree will download a small piece of software that will turn their computer into a node in a new peer-to-peer network, hosting content from companies such as Infogrames.

Other companies, including Kontiki, CenterSpan and Red Swoosh, are also using individual PCs to help store and distribute content. Altnet is the only company with almost immediate access to more than 20 million PCs, however--along with the skepticism that access has brought.

Analysts say the basic technological idea is sound, helping to diminish the costs of storage and bandwidth associated with distributing large media files on the Internet. But Altnet's best argument--its association with the wildly popular Kazaa--will make it a difficult sell among the media companies it wants as customers, they note.

The big record labels and movie studios are suing many of the most popular file-swapping companies, hoping to put them out of business. But Altnet's work within the Kazaa network could show that the file-swapping system has a legitimate business use--an argument that could lead a court to say the network is perfectly legal.

"It's a double-edged sword," said Joe Laszlo, an analyst with Jupiter Research. "A lot of big media companies will be very leery of giving Kazaa any legitimacy."

 

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