March 5, 2002 2:35 PM PST

Morpheus woes lift rival from obscurity

The surprise shutdown of the popular Morpheus file-trading software last week has thrown a spotlight on a little-known Australian company whose service now carries bragging rights as the world's largest file-swapping network.

Obscurity comes with the territory in the underground file-swapping world, where unknown upstarts with the unlikely power to shake the entertainment industry to its knees seemingly spawn and die overnight. But even in this shadowy domain, the story of Australia's Sharman Networks stands out.

The company seemingly came out of nowhere in January to buy the Kazaa Media Desktop from creator Kazaa BV, formerly known as FastTrack, which also provided the code used in Morpheus. After a silent first month, Sharman has emerged as a key player in an increasingly bizarre triangle with Morpheus' parent company, StreamCast Networks, and Kazaa BV, in which accusations of unpaid bills, user-poaching and technical sabotage are flying back and forth.

Despite its role in the high-profile fracas, little is known about the company. Sharman has hired a public relations firm and a lobbyist in Washington, but it has not provided even rudimentary contact information for its operations in Australia. The company's headquarters are in Sydney, but its business address and phone number are not listed.

Even record industry executives, who say they are closely watching the company, have had trouble tracking it down. Australian copyright authorities say they've investigated the company but haven't been able to find any evidence of its existence.

"There doesn't appear to be a company here," Michael Speck, manager of the Australia Record Industry Association's (ARIA) anti-piracy division, said in an interview late last week. "Simply issuing a press release isn't enough to capture them in our jurisdiction."

Sharman's low profile has helped it avoid some of the troubles visited on rivals StreamCast and Kazaa BV, both of which have been sued by the movie industry and the record labels. But the clock may be ticking for the company, which is being investigated by U.S. record industry executives, among others.

Sharman Chief Executive Nicola Hemming has remained silent, declining repeated requests for interviews over the past few weeks, saying through a representative that she's busy getting the company up and running. But whatever her plans, she's piloting her young company into a legal storm that will likely help define how music, video and software are distributed online around the world.

Biggest one standing
Until a little more than month ago, the Kazaa software was owned by Netherlands-based Kazaa BV, the same company that created the FastTrack peer-to-peer technology underlying Morpheus and fellow file-swapping software Grokster. All three software programs linked together to create a network that numbered in the millions or even tens of millions of people, who often used it to trade copyrighted songs, movies and software.

Kazaa BV announced in late January that it had sold the Kazaa Media Desktop software, the Kazaa.com domain name, and a FastTrack technology license to an Australian company: Sharman. Little was known about the company then, and details have emerged only sporadically.

Hemming is a former Virgin Interactive regional division head and Sega executive. A brief biography provided by the company lists her as having "experience overseeing entertainment software and leisure marketing ventures for companies including Viacom, Virgin and Sega." She last surfaced in media reports as the CEO of Sega World Sydney, an indoor theme park that closed its doors in 1998.

A Sharman representative said the company is based in Sydney and registered as a private limited company in Australia, despite what the ARIA anti-piracy division says. But no record of a "Sharman Networks" could be found in the Australian Securities and Investment Commission's (ASIC) online database of business names.

Hemming has yet to publicly explain why she became involved in the controversial world of file swapping. But in a 17-page letter to U.S. Sen. Joseph Biden, D-Del., last week, Sharman made it clear that it is girding for legal battle.

"It is time for Congress to step in and halt the 'whack-a-mole' litigation excesses of the music and movie industries," wrote Sharman lobbyist Philip Corwin. "We find this intransigent aggression to be remarkable, and lamentable, given the size of Kazaa's user base and the many ways in which the (industry) could derive substantial benefit from P2P distribution."

Man in the middle
Hemming came to the file-swapping world through the recommendation of an old U.S.-based associate, entrepreneur Kevin Bermeister. Bermeister, who was one of the founders of the Sega World project Hemming ran, is now CEO of Brilliant Digital Entertainment, a technology company that creates online 3D advertisement technology.

Since mid-2001, Brilliant Digital has distributed its software along with the Kazaa and the Morpheus software. The medium, and the wildfire success of Kazaa and Morpheus, proved to be a distribution gold mine for the struggling company, which saw its software installed on more than 40 million computers in less than a year.

When Kazaa BV founder Niklas Zennstrom and his partners started losing their taste for running a technology company along with distributing file-swapping software directly to consumers--and for the legal headaches that were coming with it--Bermeister said he suggested Hemming might step in. He wound up introducing the two, and Hemming proved interested.

"I knew Nikki and knew she was a great marketing executive," Bermeister said in an interview. "I knew she was very strong in consumer markets and thought she would be a good fit."

On Jan. 21, the sale of the Kazaa service to Sharman was announced. No financial details were given, and Hemming has not disclosed the identity of her investors.

Bermeister said neither he nor Brilliant Digital has a direct financial stake in Sharman or Kazaa BV and that he has "no intention of investing" in either one. He said his interest is in keeping the medium alive and healthy to keep his own software distribution moving.

His company or associates continued to help Hemming set up the company, however. Phil Morle, a former Brilliant Digital Web producer, registered the Sharman Networks domain name. He's now Sharman's technical director, according to a company representative.

The record and movie industries have begun taking a close look at Bermeister's involvement. The record labels and movie studios, which are suing StreamCast, Grokster and Kazaa BV, have served Brilliant Digital with a subpoena for information about its role in the file-swapping world.

The Recording Industry Association of America and Motion Picture Association of America haven't definitively said they will sue Sharman or support a similar tactic by their Australian counterparts. But the groups clearly are paying close attention to the company.

"We're not unaware that others are involved, and we don't intend to suddenly become passive about enforcing our rights," said RIAA Senior Vice President Matt Oppenheim.

Picking sides
In the meantime, Sharman and Morpheus parent StreamCast have found themselves in an escalating battle of words.

The spat was sparked by the shutdown of the Morpheus network last week. Although apparently linked to a dispute between StreamCast and Kazaa BV over software licensing fees, StreamCast CEO Steve Griffin has also trained his rhetorical guns on Sharman. His words came after Sharman released a piece of software that automatically converted Morpheus users into Kazaa file swappers.

"I'm pretty shocked and appalled that, at a moment when Morpheus users around the world have been mysteriously attacked and prevented from connecting to the network, that mysteriously a new piece of software is going to let them reconnect," Griffin said.

Late Monday, Sharman struck back. Morpheus had also been complaining of a denial-of-service attack that shut down its servers. Sharman said Monday that it too had been targeted by a denial-of-service attack--and that it had traced the attack back to StreamCast.

It wasn't immediately clear that this internecine squabbling was affecting actual computer users. Millions of people have been downloading each company's software since late last week and appear to be judging each on their technical merits in online discussion boards.

Sharman is calling for peace, even as it raises the rhetorical stakes.

"Our fight is not with another peer-to-peer system and shouldn't be," said Sharman spokeswoman Kelly Larabee. "There's no reason that Kazaa.com had any interest in seeing Morpheus go" away.

 

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