Free vs. fee: Underground still thrives
By John Borland
Mark Ishikawa was eating dinner at the Los Angeles Hilton a few weeks ago when he overheard a couple discussing the virtues of downloading music using free services like Kazaa.
As CEO of BayTSP, a company that tracks copyright infringement on file-swapping networks for record labels and movie studios, Ishikawa had a professional interest in the subject. So when he walked around the corner, expecting to see two college students, he was stunned to find a pair of senior citizens--a sign, he says, of how far the practice has spread.
"File swapping has gotten away from high school and college kids who understand protocols," Ishikawa said. "These were completely mainstream people. The mind-set and availability has gone from someone who has a degree in computer science all the way to this couple."
This is the reality that Apple Computer's new online service and other digital music distributors face as they finally move into the mainstream. Although file sharing is less common on Macintosh computers, iTunes stores still must compete with the millions of people using ubiquitous Windows software who pay nothing for music files that have no restrictions.
Rather than fear their demise, free music services say the large music companies and e-tailers will have no choice but to work with file-swapping technology instead of against it. They say a rise in consumer awareness from paid services, a series of favorable court rulings and a shift in law-enforcement tactics all seem to signal the beginning of a new, third age of file swapping that will postdate the death of Napster and the troubles of its offspring.
"Apple and others are competing with extremely large numbers of people who are using P2P (peer to peer) and other forms of technology to get free content," said Kevin Bermeister, chief executive of Altnet, a company that distributes paid content through the Kazaa file-sharing service. "Unless this is addressed directly, which entails reaching those users, I don't see how content companies are going to get to the masses on the Internet."
With millions of marketing dollars being poured into Apple's Music Store, the major record labels are finally being tested in their long-standing theory that an easy, appropriately priced legal service can compete with file-trading networks. That hope received early support this month when Apple reported that 2 million songs had been sold in the service's first 16 days.
As impressive as those numbers may seem, however, they are overshadowed by the vast usage of free file-swapping services. On Music Store's opening day, a check of the Kazaa file-swapping service showed more than 4.2 million people online at once. The week after 1 million songs were sold through iTunes, more than 2.5 million copies of Kazaa software were downloaded, according to Download.com, a software aggregation site operated by CNET Networks, publisher of News.com. Each person who downloads the Kazaa software typically uses it to acquire many other files; estimates of the number of files exchanged using the service range in the hundreds of millions or even billions per month.
Moreover, a recent and unexpected court victory has inspired file-swapping networks to consider plans far more ambitious than they imagined just two months ago. They envision a market where free and paid services exist side by side or even in unison.
Yet such comments are far subtler than the militant rhetoric that once marked underground music movements. The change is understandable, given the embattled beginnings of the peer-to-peer phenomenon with the short but eventful life of Napster, which introduced millions of Internet denizens to the possibility of downloading hundreds of songs for free.
Although Napster gave creator Shawn Fanning a permanent place in cyberspace history, the Recording Industry Association of America (RIAA) brought the prototypical file-sharing service to a screeching halt with a successful copyright infringement lawsuit.
The post-Napster age has been marked by the rise of systems such as Kazaa, Grokster and, for a time, Streamcast Networks' Morpheus, using a peer-to-peer technology called FastTrack. Competing technologies such as the ever-present, open-source Gnutella have won some success, but Kazaa in particular has rocketed to heights of popularity far beyond even Napster's peak.
Fighting from courts to campus
The combination of litigation, warnings and education is an uphill fight, but copyright holders say they will do whatever it takes to spread their message.
"It is a long process," RIAA President Cary Sherman said. "You're talking about getting the word out to kids who have been raised with downloading, who have never had the experience of going to record stores to buy a CD. We're not going to change a culture overnight."
The next phase of peer-to-peer development will be defined in part by a different type of legal action, one that focuses on individuals instead of groups or companies. The new plan succeeds the latest surprise court ruling in favor of free services, which coincidentally was handed down just days before Apple's iTunes announcement late last month.
For the first time in the United States, a federal judge ruled that distributing decentralized file-sharing tools was legal. "Grokster and Streamcast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights," Judge Stephen Wilson wrote in his opinion.
That decision may well be overturned on appeal, but it has reenergized file-swapping companies and at least temporarily has made the recording industry's fight against the online services more difficult. Label executives concede that they will have to pursue individuals through legal actions--something they have been loath to do for fear of a public-relations backlash.
The RIAA's fight to identify a person using Kazaa software on Verizon Communication's network, along with its lawsuits against four college students who ran campus file-search tools, could be more typical of future peer-to-peer litigation than the high-profile Napster lawsuit and its successors.
"The Grokster decision is something that we may need to deal with on a legislative front, but in the short term it shifts the focus more toward users rather than platforms," one senior label executive said.
Complicating matters further for record companies are technologies that will make music files even faster and easier to trade. While today's most popular services work well for small files, newer technologies such as eDonkey and BitTorrent that are more efficient at distributing movies and other large files are drawing hundreds of thousands of fans. Those who fear legal action could also use identity-masking technologies such as Freenet.
No longer the only game in town
"People who have never experienced this type of music usage are now getting in easily," said Thomas Hesse, chief strategic officer for BMG Music. "The success has illustrated that there is potentially a lot of demand. It's just that no one had gone through the trouble of properly explaining it to people."
Some label executives are toying with ways to compete more directly with the file-swapping services. One idea has been to offer a label-sponsored free service that would allow consumers to stream or download songs without charge. If customers wanted to keep the songs, burn CDs or move them from their computers, they then would have to pay.
In some cases, paid and peer-to-peer services are growing closer Label-sponsored MusicNet included file-trading technology in the first version of its release, though not in any of its current versions.
"Everyone is looking around and open to new ways of thinking about things," a record label executive said. "The industry needs to take much bolder moves to win back consumers."
Altnet, which seeds the Kazaa network with content authorized for swapping by copyright holders, has distributed more than 20 million files, largely from video game makers such as Atari and artists who are not on major music labels. Although the legal conflicts between the labels and Kazaa make any major deals unlikely, the service illustrates the potential for using existing peer-to-peer networks for legal distribution.
Other ideas are even more ambitious. Grokster's Rosso, for example, foresees an authorized peer-to-peer service that might work with interactive TV services such as TiVo or ReplayTV, where subscribers could tap into a file-sharing network to watch programs recorded by other viewers.
All of these distribution systems, authorized or not, will rise and fall according to their ease of use and value to consumers. Apple has already shown that its simple operation and relatively low price is attractive, but skeptics say people will continue to seek free MP3 files once the novelty of iTunes subsides.
"If you steal the music it's more useful to you," said Michael Robertson, former CEO of MP3.com. "You can make as many copies as you like--and I'm not talking about peer-to-peer sharing. I'm talking about copying for your own personal needs. The majority of people will say, 'I'll just steal because then I get to use it the way I want to.'"
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