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| ISPs fight on both sides
At the close of a recent television ad for Qwest Communications, a bored motel clerk captures the dream of the modern communications industry while barely lifting her eyes from the pages of a paperback book: "We have every movie ever made, in every language, any time, night or day," she deadpans to a startled guest.
The hope of delivering on that promise is driving telephone and cable TV companies to invest billions of dollars in fast Internet services for the delivery of music, films and software to homes and businesses. As all of these products turn digital, the communications companies see themselves becoming latter-day video stores and record shops, reaping new profits as gateways to online entertainment.
At the same time, however, these high-speed thoroughfares can carry a less-welcome byproduct: the risk of unprecedented piracy of copyrighted material that had been too large to be spirited away in older, dial-up connections. That could make them unwitting accomplices in the illicit mass distribution of the very products they are planning to sell in their expanded businesses.
"No one would deny (piracy) could be one source of competition," said Mike Luftman, vice president of corporate communications for Time Warner Cable, which already offers some video-on-demand services. "I think we're going to be successful. But we've just got to evolve our way into this."
This is an unfamiliar role for most communications companies, which have long acted as a kind of Switzerland of cyberspace in the fight between online pirates and copyright holders.
Communications companies have staunchly resisted a direct role in blocking piracy, fearful of being held legally responsible for content flowing through their networks. They successfully won a "safe harbor" provision shielding them from liability in 1997's landmark digital copyright law, over the vehement objections of the copyright owners.
But that neutrality is breaking down, as communications companies align themselves more explicitly with movie studios, record labels and other copyright holders.
The most dramatic example of that shift is the pending merger of America Online and Time Warner. The joint company will have more Internet subscribers than any other Internet service provider, as well as the ability to offer them all of the content produced by Time Warner's music, film and entertainment divisions.
For this reason, Time Warner's disbelief when it learned that America Online employees had created Gnutella, one of the most potent piracy tools on the Net, was particularly acute.
Such paradoxes are not exclusive to AOL Time Warner. AT&T, too, has had a mixed relationship with the content business.
The communications giant created the a2b digital music division and, in the two years since striking a deal to take over TCI, has refashioned itself as a cable TV conglomerate, with a financial stake in dozens of production studios.
But the execution of its cable strategy at times seems unclear. For example, as it plans to offer video-on-demand services, AT&T is also pushing its cable Internet affiliate Excite@Home away from content.
Among the Baby Bells, US West is probably the most advanced, offering video on demand and a cable TV-like service on telephone lines as it cuts content deals with entertainment companies. Other local phone companies are also moving along this path, if more slowly.
Yet none of this means that the communications companies will suddenly start rooting out the pirates using their networks. Firms large and small are unanimous in saying they don't want to be in the business of policing customer email, newsgroups or other online communications.
Still, there may be other ways they can diminish the effect of piracy and boost their own role as content players in the process.
"Our content providers are our partners," said Audrey Thomson of US West. "If they were to come to us and ask us to do something, as long as it's legal we obviously would consider it."
What form this "something" would take is still up in the air. Most major studios and record companies have barely made forays into the digital age, much less worked out complicated distribution deals with the communications giants. But some smaller, tech-savvy companies are already serving as middlemen for the studios, and they say that dealing with the network companies can be a critical part of the anti-piracy effort.
"You have to have strong security in place all the way down to the PC or the set-top box," said Taplin of Intertainer, which works with US West and other carriers for video services. "That's a level of security beyond just putting things on the public Internet."
The communications companies also have the ability to place their partners' content in locations that are physically close to individual consumers or even download it in advance to designated TV set-top boxes or PCs. That potentially improves the quality of service and almost certainly the speed of downloads, making pirated alternatives less attractive.
Because these businesses are still in their early stages, the communications companies have barely begun to weigh the issue of piracy as a threat to their own services.
Time Warner may be further along than most since the AOL merger and the wake-up call provided by Gnutella. Companies that don't have a background in content have not yet approached the issue in any concerted way, sources say.
"I don't think it's a topic that has received a good deal of contemplation," said one recently departed Baby Bell senior executive.
Whatever the outcome of the Napster-related controversies, the networks and their high-speed connections will be needed by those on both sides--whether it be copyright-holding content companies or individuals using Gnutella to share their files.
That translates into profits for the AT&Ts and Bell Atlantics of the world, regardless of whether they're making money with their own content services. The unique position in some ways lessens the urgency in addressing piracy issues for the carriers, whose high-speed technologies give them far more business options than other industries--some of which have nothing to do with entertainment.
"These are infrastructure plays. These things give the platform flexibility," said the former Bell executive. "If it's not music videos tomorrow, then maybe it will be video monitoring of the home."
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