June 27, 2005 12:38 PM PDT

Grokster case: Winners and losers

Monday's ruling in the Grokster case is likely to have a profound impact well beyond the record labels, movie studios and peer-to-peer services that were parties in the case.

Here's a list of potential winners and losers based on early reactions to the decision.

Winners
• Apple Computer: The company's iTunes music store could see a boost as consumers look for legal ways to download music. But the real moneymaker in Apple's music business is the iPod, and users can fill that with authorized or unauthorized music--it doesn't matter.

• Napster: The company's subscription service might be a more appealing way to try out new music than file-swapping sites, which are likely to become harder to find and more limited in the wake of the Grokster ruling. The company expressed those hopes in a statement, saying that "the Supreme Court's decision should encourage even more music fans to sign up for paid services such as Napster and begin to experience a state-of-the-art music discovery and sharing experience while knowing that the artists they enjoy are being properly compensated."

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File-swap fallout
Read all of News.com's stories on the Supreme Court's landmark decision and how it affects companies such as Grokster.
• RealNetworks: Likewise, the market for its services could gain from a decline in the easy availability of freely shared music. "We do not expect the illegal exchange of content via P2P networks will ever be completely wiped out, but we do see a scenario where 'mainstream' file-sharing networks are slowed, which may be enough to have a positive impact on content owners and distributors," Piper Jaffray analyst Gene Munster said in a research note.

• eMusic: As a seller of licensed MP3 content, the company could also benefit from a decline in unauthorized swapping sites. David Pakman, managing director of eMusic parent company Dimensional Associates, said he was generally pleased with the ruling. However he said he was somewhat concerned that the ruling wasn't clearer about technology and services that have both infringing and non-infringing uses.

"Are you still liable as the manufacturer?" Pakman asked. "This is obviously one of the central questions of the case that appears still unresolved to me."

• Yahoo: The Internet company could get a boost for its recently announced Yahoo Music subscription service. A representative said the company is "comfortable" with the ruling, which it said offers a balanced approach that "recognizes that there are legal avenues available under existing law without going after technology itself."

• SBC Communications, Comcast and other Internet service providers: ISPs could see less strain on their networks. A significant portion of all Internet traffic has been going to peer-to-peer sites.

• America Online: In addition to the benefits to its Warner Music and Time Warner corporate brethren, AOL could face a better market for its AOL Music efforts.

• Netflix: As an easy source of legal movies, the technology could gain if movies remain comparatively hard to get via online file swapping.

• Snocap, Peer Impact and Mashboxx: These companies, which are trying to use peer-to-peer distribution as a means for authorized song sales, stand to gain from the ruling. Shawn Fanning's Snocap is working on the underlying technology, while Peer Impact and Mashboxx plan services. Peer Impact is in beta testing, while Mashboxx has not yet launched.

• Madonna, Metallica and other big-name musicians who have been deeply critical of file swapping.

• Colleges and large businesses: To the degree that peer-to-peer traffic declines, schools and businesses benefit because their system resources have been taxed by students and workers swapping music and other files.

Losers
• eDonkey, LimeWire, Kazaa and others of their ilk: Unrestricted file-swapping sites could face a new wave of litigation following the ruling, which appears to place the burden on them to show that they are not encouraging the subversion of copyright laws.

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• MP3-only devices: Although devices like the iPod that support protected audio formats should continue to thrive, the long-term outlook for devices that only support the MP3 format could be bleak as sources for unprotected content start to shrink. The Grokster ruling could limit the availability of such content over peer-to-peer networks, while record labels are starting to limit the ability to rip CDs into unprotected formats.

• Discount music and movie lovers: The era of free music and movies will not come to an immediate halt with the Grokster ruling, but it does make it harder for such services to exist without risks to the operator.

Unknown Impact
• Mercora: The Internet radio and file-swapping service says it stands to gain substantially from the decision. Mercora's service lets users serve as radio broadcasters and the company pays the licensing fees, typically a fraction of a cent for each listener. (Mercora makes its money by advertising.) Depending on where the broadcaster is located, listeners can legally record music played on the service, said CEO Srivats Sampath, previously chief executive of McAfee.com and an early executive at Netscape. However, Mercora's business model has not yet been tested in court.

• Makers of CD burners, DVD burners and other computer hardware: The technology community has largely assumed that these devices, nearly ubiquitous in PCs, passed the Betamax test of having "substantial non-infringing uses." While CD and DVD burners have substantial uses outside of piracy, Monday's decision introduces an element of vagueness to the exact standard of conduct because it says courts need to examine the motives of the manufacturer.

"We hold that one who distributes a device with the object of promoting its use to infringe copyright...is liable for the resulting acts of infringement," Justice David Souter wrote in the majority opinion.

Companies may start to tailor their marketing or pen warnings about piracy. The iPod, for example, has always come wrapped in a clear plastic label that warns, "Don't steal music."

• Consumer electronics of the future: The ruling also places in question future innovations from the technology industry. One Supreme Court justice has already raised the question of whether something like the iPod would be developed in an environment without the Betamax restrictions.

"Legal clarity has decreased, and the risk of litigation has increased," said Michael Petricone, vice president of technology policy for the Consumer Electronics Association. Petricone also said the decision could hurt U.S. companies against international competitors who may not face the same limitations.

CNET News.com's John Borland and Michael Kanellos contributed to this report.

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money gets more money
Have you ever noticed how those with money always get the courts to agree with them?
I mean really folks, how many times must I buy the Beatles White Album? I bought the vinyl, 8 track and the cassette.
Not to mention the numerous titles I have bought over the years. Now the producers of albums are over charging to sell a cd with maybe 1 song that anyone likes. 24.99 for a CD I can produce one in my house with better mixing than most studio engineers are capable of for a lot less.

Maybe if the music companies produced better music and had real artist signed to their lables they may stand a better chance of making money.

Long live P2P.... it will always be out there on the perimeter.
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