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| Games may point to future
Behind the bloody legal battles over online music piracy are a few optimistic signs that the long-term danger to the entertainment industry and its copyrights could be limited. And those kernels of hope can be found in the unlikely place of the gaming realm.
As record companies and movie studios scramble to find ways to protect their works online, the game industry--long wracked by a highly organized network of piracy--has already pioneered a subscription model that has both protected profits and proved extremely popular.
The idea is simple but carries broad consequences for consumer entertainment: People might steal individual products. But if given new services for a relatively low price, such as access to the entire music industry's catalog at once, they may be willing to pay subscription fees that could render piracy almost irrelevant.
A few music companies are already beginning to test this subscription system. Some in the industry predict that most online entertainment will eventually gravitate in this direction if legal attempts fail to thwart Napster and its clones.
"These are growing pains, part of the move from being a product to being a service," said Jim Griffin, CEO of entertainment consulting company OneHouse.com and the original technology director for Geffen Records. "TV was the same thing. Was Jerry Seinfeld nuts? Nobody remembers paying him, but he still made billions."
The computer game industry has long been a kind of stepchild to both Hollywood and Silicon Valley, viewed as an industry with enormous potential but without the clear mass-market appeal of movies or music. Nevertheless, the market for games has exploded in recent years as a buying public dominated by young, tech-savvy males spends billions of dollars annually on new titles and hardware to play them.
But with these free-spending fans has come a curse. This group of aficionados overlaps strongly with the demographic characteristics of people most likely to be interested in and able to pirate the works and distribute them online.
A highly sophisticated, competitively organized system of game piracy has flourished for years online, using technology such as private FTP servers, Internet Relay Chat (IRC) and, to a lesser extent, short-lived Web sites to distribute illegal copies of titles. A thriving "Zero Day" culture awards status to people who can crack the copyright protections on games and distribute them on the day of their release.
The Interactive Digital Software Association estimates that hundreds of millions of dollars in annual revenues are lost this way, though no precise figures are available. The industry trade group predicts that today's new file-swapping programs could worsen the problem as they simplify wide distribution.
"I think Napster and Gnutella are pretty serious threats to the games industry," association president Doug Lowenstein said. "As you get to more broadband, I think they become even more dangerous."
But the new "massively multiplayer games" that are sweeping the gaming landscape--with titles like "Ultima Online," "EverQuest" and "Asheron's Call"--have successfully created one niche where subscriptions keep revenues flowing, even from players who might have pirated the game itself.
These games create virtual worlds online, where thousands of people at a time can log on and fight, bargain for goods, go on manufactured adventures or even create their own games within games. Bringing all of these people together becomes a valued service--and therefore becomes the product itself.
"As far as piracy goes, it's practically impossible," said Hunter Luisi, the producer for Sony's "EverQuest." "'EverQuest' is a service--you have to supply a credit card and be billed monthly to play the game."
The mainstream entertainment industry, which has traditionally made its money by charging per ticket, per package or some other kind of unit, has a lot of adjusting to do before music and film companies accept this idea. But a few signs show that the concept is beginning to take hold.
Just last week, Sony and Seagram's Universal Music Group said they would jointly develop an online subscription service for their music, and other smaller companies are making similar moves.
This kind of evolving business will certainly be supported by the cable and telephone companies who will take over the distribution role now served by video stores and record shops. But resistance from those old-world retailers, who hold considerable sway over the movie and music industries, could slow the online transition.
Central to these new online businesses will be greater reliance on copy protection--so-called digital rights management technology that keeps would-be pirates from copying and distributing their wares.
These kinds of services, however, have had only mixed success in the continuing struggle with hackers. The recent release of Stephen King's new work on the Web, whose copy protection was broken in just a few hours, is a good indication of how difficult this may be.
The companies also are faced with making their protection systems as easy and convenient to use as free online swap meets like Napster and Gnutella. That's a tall order, according to those in the industry.
"That's much harder to do than say, given that what we're competing with as a group of companies is a pretty seamless experience," said Larry Miller, president of rights management firm Reciprocal's music division.
The brief life span of the much-maligned Divx video player, devised as a way to prevent unauthorized copying of DVDs, provides clear warning that consumers are skeptical of schemes that limit the way they can use their own possessions.
"Napster and its clones have really opened the valve on the idea that information should be free, and it's not the nature of the Net to restrict that notion. This goes for all media, not just MP3s," said Wayne Chang, a high school student in Haverhill, Mass., who administers Napster's conversation boards. "The RIAA is trying to turn that valve back to closed, or at least try to tap it so that it's profitable for them."
But the optimists predict that industry will offer services that easily overshadow Napster and other swapping programs.
"If you could pay $10 a month for access to all the music in the world, why would you open your hard drive to other people?" Griffin asked.
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