Digital Media

Asked whether the film industry is doomed, Big Champagne CEO Eric Garland predicts that it has more advantages in the Digital Age than music labels.

(Credit: Big Champagne)

During a visit to Hollywood last week, I wanted to talk to people who knew a thing or two about the film industry's burgeoning meltdown. One of the people I sought out was Eric Garland, CEO and co-founder of Big Champagne.

Beverly Hills, Calif.,-based Big Champagne has collected data on file sharing and sold it to media companies for almost 10 years. Garland's company has survived all that time, even while making the same sad pitch. He tells the music labels and film studios they are going to be chopped down at the knees by the Internet and online piracy--but that doesn't mean they can't survive.

As anyone might have guessed, almost everybody in media initially told Big Champagne to stick a cork in it. Back in the early part of the decade, nobody wanted to hear it, and Garland logged lots of five-minute meetings. Thanks to his persistence, though, he saw up close how digital technology buffeted the music industry. Now, some of the big labels are striking partnerships with his company.

What makes Garland an important speaker on this subject is that despite his gloomy message, he's bullish on both the Internet and movies. His interests and Hollywood's are aligned, he says, because if the studios don't survive then he loses customers. He wants them to do well but he just doesn't think that telling them what they want to hear, the "bedtime stories" as he calls it, is going to help.

In his interview with CNET, Garland predicted that the film business is in for a period of downsizing and cost cutting; that Hollywood's digital evolution will likely be similar to the music industry's but will unfold much faster; and that great wealth will still flow into the sector.

Question: Your business is watching file sharing. So is it spreading to the mainstream? Is Mom and Dad from Sheboygan pirating content?
Garland: Oh yes, particularly Mom and Dad in Munich; Mom and Dad in Seville; Mom and Dad in Paris. When we talk about video the reason I single out the European cities is because that's where people are forced to wait a long time to see content legally. In the digital world, we don't want to wait three months, six months. We're just not accepting that anymore...we want it all, we want it right now and even Mom and Pa Kettle are getting to the point where they say if it's not on, let's just fire up the computer and watch it. If they want me to wait six months, I've got other options. And people don't really have a conscious or qualms about that, or at least it's mitigated by their feeling that they are entitled to keep up with the Jones'. It is the Twitter, real-time Internet expectations.

What we're seeing is a tremendous pile-on of feature film and television content, led by TV worldwide. In terms of growth, it is eclipsing the sharing of these little music files. I mean most of the new adopter activity, most of the increase in terms of people, transactions, and downloads is coming on the video side.

That means that this year or next year is going to be Hollywood's year to really start to lose audience--not just at the fringes but in regular middle-American living rooms. They'll lose them to the other box, to the smart box.

Q: Reed Hastings (the CEO of Netflix) wants to see every TV set come equipped with the ability to access the Internet. That will only accelerate Hollywood's demise, no?
Garland: Again, I think it drives both. The winner is the one who ultimately wins on the merits, and those are ease of use. Certainly the legitimate markets should win there. It did in music. Remember, iTunes wins in large part because it works so much better than anything else. So, Reed should win. His competitors should win on ease of use. Quality of content? They should at least be competitive in terms of having great on-demand, high-definition, rich audio, video. But when it comes to depth of catalog, that's where pirate markets have the edge. They have it also in timely delivery. Sorry. Go to Hulu right now and type in 24. There's just a clipped sort of terse message that says "Sorry about season 1 and season seven...

Q: Because they want to sell me past seasons on DVD, right?
Garland: Yes, but Surfthechannel.com, (an online site where users can find links to a plethora of unauthorized shows and films) doesn't care about that. They're happy to serve up current and past episodes of "24." And just like music, Hollywood's first reaction to that will be "Well, that's just not fair. That's jumping the turnstile, that's breaking the rules. We have to shut that down, because if you remove that option then people will be more patient." You won't remove that option, and you're losing valuable time if you focus on removing that option at the expense of improving that option and bettering that option, beating that option.

The music people used to say, "How can you can compete with free?" And now you ask anybody in digital music and they'll tell you, "I'm just trying to compete effectively with free." They've embraced the very condition that up until very recently they said they would reject. I'm telling you, you are going to compete with free. Sometimes you're even going to win, once you make the commitment to living in the marketplace as it is and not as you wish it were or as it once was.

Q: That's got to be hard for people in that industry or in any industry to hear. After hearing that, I almost want to start collecting donations for Matt Damon.
Garland: But I want to be clear that I was far more bearish on music than I am about Hollywood's prospects.

Everything that the customer demonstrated that they wanted starting with the original Napster was diametrically opposed to what the music industry needed. Everything that the distributor or the (bandwidth providers) wanted was diametrically to what the music industry wanted. In other words there was no place to hammer out a marketplace that would work for both sides. Customers would say "I want MP3s" and the music industry would say "We can't do MP3s because we have to have (digital rights management)." The customer would say "deal breaker!" The customer would say "I want every piece of music ever recorded. I want access to everything, everything I can remember dancing to no matter what year I went to prom and I want it right now."

Napster said sure. The music industry said "We can't do that. We can only license these titles." Deal breaker.

The customer said "I want to eat all I want at one low price that feels like free." The music industry said "No my friend, it's a dollar a track." There was no point of agreement. Hollywood conversely, is very different.

Hollywood says we like DRM, we would like to extend to you this content but on terms that we control and the customer says "Yeah, that's cool. I've always been good with that. I like renting. I'll give it back to you when I'm done." The music industry says "How come we can't we do that?" The customer says "No, because it's not my expectation. It's not the contract that we've had all along." But in video this is in the contract we've had all along. Blockbuster has always given us stuff and we paid for it and then we had to bring it back. We're good with that. There are all these places where what the online consumer is demanding is actually a workable proposition to Hollywood. There's a lot of alignment but some really some important places where there isn't any. There's no easy fix. When I tell the film studios "The good news is that you want people to rent and not just own and people are happy to do that. Check."

I say "You want some DRM--people are accustomed to DRM. There's DRM on DVDs." But when you get to one where you want customers to wait two months for a DVD, then they say that's not negotiable.

Anybody who really understands the film business will tell you that's the end of our lives as we know it. That's the end of our industry as we know it. We have to be able to preserve those windows. We have to regain at least enough control to say you can have it, but not today. And when I tell them you're never going to get that, that's when the conversation breaks off and curse words are uttered and we go back to our corners.

Q: What windows are you referring to? They have windows that allows cable channels and broadcast stations to get exclusive access to a film title for a specific amount of time. But you can't be talking about theaters too. What is Hollywood if it can't promise theaters exclusive access to films?
Garland: I think the theatrical experience is totally viable. We love going to the theater. But when we walk out to the lobby I want to be able to pick up the DVD. If I got my 3D glasses on and my kids say "Can we watch it when we get home?" The answer has to be "yes." If the answer's no, the film industry loses.

Garland: These are tough lessons. By the way, I don't want to sound like the armchair pundit. You end up sounding not very empathetic. You sound like some ass who says "This is how it's going to be and if you don't like too bad." I'm not trying to be dismissive. I'm not trying to be glib about this. I understand the implication may well be tens-of-thousands of jobs lost, billions of dollars pouring out of the industry, shutterings, downsizings...I'm not trying to make light of that. I'm just telling you that in the final accounting i think some things we now know. Some of them are very unpopular even in concept and some of them are very hard to incorporate into strategic thinking, but that doesn't make them any less avoidable or inevitable.

Q: Are paywalls one of the solutions? That's what Hulu's leaders are considering.
Absolutely not. What you have is a very effective antipiracy tool in Hulu, and I'm specifically drawing on the numbers and not just citing anecdotal evidence. People really do prefer the Hulu experience. So you actually have cannibalization, for once, of a pirate market by a legitimate market. You have a legitimate market stealing share and audience away from a pirate market. Put that behind a subscription wall and they'll just go back.

Q: But it doesn't appear that Hulu is making the kind of money that will satisfy content owners, at least those News Corp. and NBC Universal (Hulu's backers).
Garland: The cute answer, which is probably the truest answer, is that growing a sector is a privilege and not a right. There is no right size. There is no correct or God-given size for any sector. Why do we get to make movies that cost $300 million to make? Because we have found venues where people will spend more than $300 million on the result. If people spend only $50 million then the price of a movie must be $49 million or less.

I think in today's dollars no one could make "Gone With The Wind" because at the time this movie was made when everyone went to the movies. It was something like 79 percent of the population. The cute answer is that movies will get smaller.

I know people are tearing out hair and spinning in graves, but maybe "Transformers" has to be made for $75 million next time. Oh my God, what am I saying? Put the words back in your mouth. That is just a pretty plain faced observation. One outcome might mean that in the Digital Age the return on investment on a major International tent-pole franchise is not a billion dollars. It's a quarter of that or a third. Therefore we have to get our costs in line with the market value.

When we talk about this in 3 or 5 or 7 years, one thing we will all have to concede is costs have to come down. We don't have the total control over the distribution chain that we exploited so well as industries for so long. Without that you can't take advantage of the consumer in the same way.

Q: I feel like I just heard the doctor give his prognosis and the patient is a goner.
Garland: It's just "Lose weight man (laughter). Get on a treadmill, change your diet and lose weight."

Q: Has Hollywood given up on fighting piracy?
You mean has changing the name from "antipiracy" to "content protection" a symbol of a retreat or a softening? No. Not at all. It's likely that (the Motion Picture Association of America, the trade group of the six major studios) is trying to be more focused, more strategic. They are upping their game because that's how seriously they take it and that's how high a priority it is. On the contrary this is not the end, this is early days.

We now have the benefit of hindsight. We have watched an industry go through this. I think we can say with some confidence we know how this unfolds. What will happen is the studios will exhaust every available remedy and there will be a series of evolutions, meaning they will exhaust one remedy and a new one will present itself. These things will be pursued in tandem. They will pursue technological intervention on the Internet. This goes to the study at NYU that basically says this has had no effect. Ultimately, because they are spending a lot of money and not getting results, they'll become disillusioned with these vendors. They'll clean house. But something else will present itself.

"Well, maybe we were focused on trying to disrupt the networks and we should have focused on a technological solution to mass notification." Well be on to the next thing. Well spend some number of months--I'm just essentially recounting the music industry's journey--filing vast numbers of infringement notifications, letting everybody and their granny know you're infringing our content. They'll take the temperature and they'll do surveys and collect data and they'll try to convince themselves that this is having a real effect in reversing the tide and then after some period it will just not have been convincingly demonstrated to have worked. And they'll realize that by any number of measures the piracy problem has only grown worse. But they will have to exhaust all of those things and more. They will have to chase legal remedies, legislative agendas, all the way to what they view as being the end of the line before they say "OK, so this really is the landscape we're stuck with. As much as we didn't want it, this appears to be it. Now we have to just dive in and make businesses that work here."

And that's where music has only just arrived in this country and note it hasn't even come close to arriving in a lot of European countries. If you ask Universal Music Group in the U.K. "Are you going to win this war on piracy?" They will say "Oh yes, swiftly and decisively and soon. The rate of peer-to-peer infringement will be down 70 percent in the U.K. in the next few months. They have specific targets. Not here. We've exhausted all of those paths. There's a big gap. If the music industry in this country just now sort of arrived at the conclusion where they say "We just have to play on this field even through it ain't home court and there isn't a lot of advantage." And in some territories, music hasn't even gotten there yet, then how can Hollywood be there? This is early in the journey. I do think it's going to be a quicker path. It has to be. The economics are going to come down faster.

I spent years when everyone ignored what I was saying because I know it's not pleasant to hear. But my job is to help businesses all over this landscape to get from point A to point B with the least amount of pain. But that means getting smart and getting ready for the transition before the competition. I want them looking in the mirror now and not when it's too late. It's tricky. I want these guys to do well but l don't' want them to tell themselves bedtime stories. That's what the music industry did.

They spent a lot of money going back to antipiracy and spent a lot of emotional dollars on vendors who sold them panaceas and told them everything is going to be okay. "Don't listen to Eric Garland," they said. "He's a gloom-and-doom guy. He gets off on telling you things are going to be terrible. Spend a few million dollars over here and we'll clean up the Internet for you. Hey, I understand that. I want to open up my wallet for that guy too. It's comfort food.

But my message to media companies is they don't have that kind of time anymore.

Latinas sometimes have a way of explaining to you in short, telling words just how things stand.

So it is something of a bracing breeze in the desert to hear Shakira, the rather wily Colombian singer, declare herself to be in favor of file sharing.

If you've ever seen Shakira perform, as she did very recently on "Dancing with the Stars," you'll know that she is the kind of woman who would be rather upset if she didn't make your body move and your mind slip a little from its normal axis.

So please try to keep still when I tell you that for this pulsating performer, who has sold 50 million albums worldwide, file sharing represents "a democratization of music."

According to the Daily Mail, Shakira is rather fond of the somewhat piratical idea that downloads might be illegally shared amongst her fans.

The lady doth not protest at all.

(Credit: CC KindofaDraag/Flickr)

"I like what's going on because I feel closer to the fans and the people who appreciate the music," she told the Mail. "And music is a gift. That's what it should be, a gift."

Unlike singers such as Lily Allen who appears, in a philosophically similar vein to John Kerry, to have been for file sharing before she was against it, Shakira has an instinctive feel for the fact that the practice cannot be stopped.

The relentlessly positive conclusion she takes from this is that the more people hear her insistent, consistent tones, the more people are going to like them and the more people will pay substantial sums to go to her concerts. At these concerts, they will sweat to the verge of passing out, after which they will need a clean Shakira T-shirt in which to go home in.

Naturally, it is easy for Shakira to support file sharing when she is so colossally, deservedly and humongously wealthy.

However, sometimes people get wealthy by appreciating precisely the mood of the people.

And Shakira, which happens to mean "thankful" in Arabic, is a woman who seems to know just how people's minds, bodies, and pockets truly work.

The U.K. government has made new proposals that would see Internet users disconnected if they are suspected of illicit file-sharing.

The proposals (PDF) were announced on Tuesday by Lord Mandelson's Department of Business, Innovation and Skills (BIS). They arrive in the middle of the department's own public consultation on legislation on the misuse of peer-to-peer (P2P) technology, which is scheduled to end in September.

"Our thinking on the process supporting the objectives and the obligations [of the consultation] has developed, and we thought it would be helpful to share these thoughts with stakeholders at this point, so that they can take them into account when responding to the consultation," the government said in a statement.

The new proposals make two major additions to the initial plans. The first is a new sanction against illicit file sharers, which calls on the ISP to suspend the suspected subscriber's account. Lord Carter discounted this measure as unnecessarily harsh in his Digital Britain report, which kicked off the P2P consultation in June. However, the government now says it is "considering the case for adding suspension of accounts into the list of measures that could be imposed."

The second addresses the amount of time it will take for the ISP industry to start cracking down on file sharers. The original consultation set out a year-long trial of a scheme under which ISPs send letters to suspected file sharers, asking them to stop their activities. At the end of the trial, if at least 70 percent of these people had not complied, technical measures would be introduced.

The government said on Tuesday, referring to the year-long trial, that "the previous proposals, whilst robust, would take an unacceptable amount of time to complete in a situation that calls for urgent action."

A spokesperson for BIS said that responses to its consultation indicated that "rights holders, ISPs and consumer groups" are among the many respondents who had found the trial period to be unacceptable.

However, the ISP Association (ISPA) said in a statement that it was "concerned that amendments have been proposed without consultation with the Internet Industry and that the decision was made to publish changes to the consultation before stakeholders had been given the opportunity to respond."

"ISPA intends to raise these concerns with the Government and is currently considering the appropriate action," the industry body added.

BIS's spokesperson denied that the government was pre-empting the results of the department's consultation, which was initially scheduled to end on Sept. 15, but has now been extended to Sept. 29 to allow for response to the new proposals. The government is bringing out new proposals because it wants "those who didn't think of these ideas" to have a chance to consider them before they submit a response to the consultation, the department's spokesperson said.

In the Digital Britain report, Lord Carter put forward a variety of technical measures, such as bandwidth throttling and protocol blocking, that could be used to address piracy. In its statement on Tuesday, the government said that "since the issue of the consultation, some stakeholders have argued strongly that none of those technical measures is powerful enough to have a significant deterrent effect on infringing behavior."

Asked to identify the stakeholders in question, the BIS spokesperson said it was "safe to assume they would be rights-holders."

The government acknowledged the need to make sure that innocent people, such as those sharing an Internet connection with suspected copyright infringers, were not affected by any technical sanctions. If disconnection is introduced, for example, "it would be important to ensure as far as possible that innocent people... would retain access to the Internet services they need, including online public services," BIS said in its statement.

Asked how this could be done, BIS's spokesperson declined to give details, but said the government "wouldn't put something in the statement unless we knew it was possible."

The government also said it wanted to make accommodation for any developments in P2P, such as when one file-sharing site is closed down and another automatically replaces it. "We cannot know how P2P technology might develop in the short to medium term, and we want to ensure that [the regulator] Ofcom has a full tool-kit from which to select the most appropriate measure should technical measures be deemed necessary," BIS said in its statement.

"It's very possible the technology will change again," the BIS spokesperson said.

David Meyer of ZDNet UK reported from London.

A federal judge ruled late Thursday that Joel Tenenbaum, a 25-year-old Boston University graduate student, has violated copyright infringement laws by illegally downloading and sharing music on the Internet.

Tenenbaum could end up owing the recording industry millions of dollars in damages for swapping music online. The jury is considering monetary damages on Friday. The question the jury must consider in assessing the damages is whether his infringement was willful. This will help determine how much in damages should be awarded to the four recording labels that sued him over the illegal file sharing.

The music studios are entitled to $750 to $30,000 per infringement according to federal law. But the law also gives the jury discretion to raise that to as much as $150,000 per track if it finds the infringements were willful. This means that if the jury gives him the maximum punishment, Tenenbaum could owe as much as $4.5 million.

Tenenbaum admitted on the witness stand Thursday that he downloaded and shared hundreds of songs. The studios suing Tenenbaum have only focused their case on 30 songs. Tenenbaum's lawyers said after he testified that he did not understand the implications of his admission, according to a story on the Boston Globe's Web site.

But the judge didn't buy it. U.S. District Court Judge Nancy Gertner said in her ruling that "Tenenbaum's statement plainly admits liability on both downloading and distributing, does so in the very language of the statute...and does so with respect to each and every sound recording at issue here."

While the music industry has taken legal action against file-sharing Web sites and other file sharers, only two cases involving individual file-sharers have gone to trial.

Jammie Thomas-Rasset from Minnesota also fought her case in court. Last month, a federal jury in Minneapolis ruled she must pay nearly $2 million for copyright infringement.

Most complaints against people sharing music illegally have been settled out of court, with defendants paying a total of about $3,000 to $5,000.

Updated at 4:10 p.m. PDT: The Boston Globe later updated its story to say the jury ordered Tenenbaum to pay the RIAA $675,000, or $22,500 for each song.

The Pirate Bay, a file-sharing site entangled in a court case over pirated music, will be bought by a Swedish software company.

Global Gaming Factory X (GGF) announced the deal Tuesday. The company, which provides digital distribution tools for Internet cafes, will buy The Pirate Bay for cash and shares amounting to $7.76 million. The acquisition is expected to be completed in August.

The Pirate Bay, a BitTorrent tracking site, is involved in a legal battle with major copyright holders, including Warner Brothers, MGM, and Columbia Pictures. In April, the Web site's founders were convicted by a Swedish court of copyright infringement, ordered to pay nearly $4 million, and sentenced to a year in jail. The defendants appealed the decision and were denied a retrial last week.

Hans Pandeya, chief executive of GGF, said in a statement that his company is looking for a business model that will pay copyright holders for content downloaded from The Pirate Bay.

"The Pirate Bay is a site that is among the top 100 most visited Internet sites in the world," said Pandeya. "However, in order to live on, The Pirate Bay requires a new business model, which satisfies the requirements and needs of all parties, content providers, broadband operators, end users, and the judiciary. Content creators and providers need to control their content and get paid for it. File sharers need faster downloads and better quality."

Also, GGF said Monday that it will acquire Peerialism, a peer-to-peer distribution and storage software company, for cash and shares equivalent to $12.9 million. Peerialism's technology will be incorporated into Pirate Bay's site.

"Peerialism has developed a new data-distribution technology which now can be introduced on the best known file-sharing site, The Pirate Bay," Peerialism Chief Executive Johan Ljungberg said in a statement. "Since the technology is compatible with the existing (technology), it will quickly allow for new values to be created for all key stakeholders and facilitate new business opportunities."

A blog post on the Pirate Bay site said that the organization was being sold for a "great bit underneath its value" to ensure it went to "the right people with the right attitude." The four Pirate Bay founders will be kept on as staff in different capacities. They said that they will still have some input into running the site and that users should not expect radical changes.

"If the new owners will screw around with the site, nobody will keep using it," the founders said the blog post. "That's the biggest insurance one can have that the site will be run in the way that we all want to."

Despite the apparent influx of cash, Pirate Bay co-founder and spokesman Peter Sunde told Swedish Radio, SR, that it won't be used to pay their fine.

"We are not getting the money, so we cannot pay any fine," he said.

Tom Espiner of ZDNet UK reported from London. CNET News intern Erik Palm contributed to this report.

Correction at 8:45 a.m. PDT: The purchase price for Peerialism has been fixed.

The U.K.'s Virgin Media could start suspending persistent file sharers on a temporary basis, using information provided to it by Universal Music.

The ISP announced on Monday that it would, before Christmas, launch an all-you-can-eat music download service for its users, based on a monthly subscription fee. The tracks will all be DRM-free.

"In parallel, the two companies will be working together to protect Universal Music's intellectual property and drive a material reduction in the unauthorized distribution of its repertoire across Virgin Media's network," a statement read. "This will involve implementing a range of different strategies to educate file sharers about online piracy and to raise awareness of legal alternatives. They include, as a last resort for persistent offenders, a temporary suspension of internet access."

Virgin pointed out that "no customers will be permanently disconnected and the process will not depend on network monitoring or interception of customer traffic by Virgin Media."

A spokeswoman for Virgin told ZDNet UK on Monday that the suspensions "could be as little as five minutes, an hour or a day." She said the idea of suspensions was very much in the process of being worked out -- they may not even happen -- and would only be launched on a "trial" basis.

As for how Virgin will know which persistent file sharers it should be suspending, the spokeswoman said this knowledge would be derived from information coming from the record company.

Universal will use technology from the Danish antipiracy firm DTecNet to scour file-sharing networks -- not Virgin's own network -- and log the IP addresses of "persistent" file sharers, along with the time of the transfers in question. That information will go back to Virgin, who will use it to identify the file sharer and begin warning them of possible action that could be taken against them.

DTecNet has already been working with U.K. content companies for some time to do much the same thing, and is also working with RIAA in the United States.

Virgin's spokeswoman did not give any further details of the number of warnings a persistent file sharer would get, the exact pricing of the music service (although ZDNet UK understands it will be somewhere around the cost of two CDs a month) or which other record companies Virgin is in talks with regarding a similar service.

For the latest on the the furious debate going on about file sharing and Net neutrality in Europe right now, check out this story we posted last week.

David Meyer of ZDNet UK reported from London.

Last December, the music industry's message to song writers, publishers, and musicians was that antipiracy help was on the way. Hopes soared after the major labels announced that they had convinced a group of telecoms to work with them.

Filing lawsuits against individuals accused of illegal file sharing was, for the most part, a thing of the past, said the Recording Industry Association of America, the trade group representing the top music companies. The new strategy was to enlist Internet service providers, the gatekeepers of the Web, to issue a series of warnings meant to increase pressure on alleged pirates in what the RIAA called a "graduated response." Under the plan, those subscribers who refused to heed warnings could eventually see their Web connection suspended.

Six months later, the music industry is still waiting to hear from the RIAA which ISPs have explicitly agreed to work with the association. When the RIAA first announced its new antipiracy project, it didn't name partners. Behind the scenes, industry insiders assured the media that the group would disclose the names of partner ISPs "within weeks." Six months later, however, not one ISP has publicly acknowledged working with the RIAA on a "graduated response."

RIAA CEO Mitch Bainwol

(Credit: Declan McCullagh)

That there are still no announced deals--and there's no guarantee the RIAA can sign any of the major broadband companies--indicates that at best the big recording companies may have spoken too soon when they said broadband providers would help, says one ISP executive. Ironically, at a time when many figured the RIAA had finally hit upon a compelling way to go after music piracy, the association's copyright protection efforts may be more toothless than ever.

"(The RIAA) has tried various ways to turn ISPs and other intermediaries into their own Internet cops," said Cindy Cohn, legal director for the Electronic Frontier Foundation, an advocacy group for Internet users. "What the ISPs appear to be saying is that this isn't our job."

To be sure, the RIAA continues to pitch its plan to ISPs, numerous sources have told CNET News. AT&T has launched tests of a graduated response--everything, that is, but service interruption. The telecom said it would never shut off a customer's service without a court order. The recording companies may soon announce some kind of agreement with one of the ISP trade groups. But this won't bind the group's members and the RIAA will still need to strike deals with individual companies.

"We have been working slowly but surely, directly and through the offices of (New York Attorney General Andrew) Cuomo, with virtually every major ISP on common approaches," said Jonathan Lamy, an RIAA spokesman in an e-mail. "During the past six months, a number of different ISPs have forwarded nearly half a million RIAA notices to P2P infringers. They had not done that before last winter. A number of individual ISPs now argue that notices alone are proving to have a sufficient deterrent impact."

What the RIAA seems to be suggesting here is that it doesn't need a threat of service termination for a graduated response to be effective. This, however, conflicts with what music executives say in private. They want a carrot and stick approach. They know they have to offer the public inexpensive and easy-to-use alternatives to illegal peer-to-peer sites. They also believe chronic abusers won't stop without the threat of a serious punitive consequence.

So, why did the RIAA announce the ISP-based program without any ISPs on board so many months ago?

Some RIAA critics have speculated that the December announcement was a smokescreen to cover the music industry's retreat from the 5-year-old and highly controversial strategy of filing copyright lawsuits against individuals accused of copyright violations. The theory goes something like this: the RIAA needed a face-saving way to walk away from the litigation, which resulted in more than 30,000 people being sued, a fortune in legal fees, a huge public relations black eye, and didn't do all that much to stop piracy.

Ernesto, founder of the blog TorrentFreak, which focuses on file sharing, was always skeptical of the RIAA's announcement. He noted that some telecoms have voluntarily sent warning notices to subscribers accused of illegally downloading songs for years, while other companies refused. He says he sees nothing new.

"Yes, the RIAA, MPAA and other outfits do plan to send copyright infringement warnings to ISPs," Ernesto wrote in March, "but they've been doing so for at least half a decade. Every other month these Hollywood lobbyists pitch their antipiracy efforts to the public...this doesn't mean, however, that something is about to change."

According to the ISP executive who asked for anonymity because he's involved in negotiations with the music sector, the RIAA's tactics in dealing with the ISPs have been too heavy handed.

The executive complained that the RIAA has tried to use Andrew Cuomo to push the ISPs into helping. But Cuomo doesn't have the kind of political muscle to sway the major ISPs when they are acting well within the law, the executive said. There's nothing in the Digital Millennium Copyright Act that requires ISPs to send their own warning letters to subscribers.

And some ISPs say the DMCA is unclear about when they must terminate service of repeat offenders. AT&T executives say they won't cut off someone's Web access based solely on evidence supplied by the recording industry and will only do so after receiving a court order.

"We keeping hearing about how (Cuomo) is supposed to make this happen," said the executive. "You don't see much changing, do you?

So if Cuomo isn't enough, why don't the music labels appeal to Congress to legislate the ISPs into submission? That's easy. The ISPs have much more influence in Washington than the music sector. There's also little public sympathy for recording stars, who are often perceived to be rolling in money--even if this is a reality for a tiny fraction of working musicians.

In an interview with CNET last week, Paul McGuinness, manager of the rock band U2, says that ISPs have for a long time profited from selling broadband to file sharers and have little interest in taking action without seeing financial reward. But he sees some progress around the globe.

"Perhaps broadband subscription sales are saturated in many territories and the ISPs are belatedly but realistically now turning to building revenue collection businesses with the content owners," McGuinness said. "I just hope it's not too late."

Cohn, from EFF, sees it differently. To her, cutting off someone's Internet connection for file sharing is like refusing to sell shoes to someone accused of jaywalking.

"Every day that passes we realize how important Internet connectivity is to people's lives," Cohn said. "The RIAA looks so out of step with what most people think is a reasonable response to (copyright) infringing behavior. Even to the people that believe we're locked into this 19th century view of copyright law, the RIAA looks hysterical."

There's hardly a corner of the entertainment business John Doe hasn't explored.

John Doe has gone from punk to folk, and says technology helps and hurts.

(Credit: Autumn De Wilde/Yep Roc Records)

He's not one of the people who waxes on about rights and wrongs in the music and film industries without any hands-on knowledge. The band Doe formed, X, was part of the first wave of punk rock bands that stormed Los Angeles in the late 1970s. The band's 1981 "Wild Gift" was named Album of the Year by Rolling Stone and The New York Times. Doe is also an actor and has appeared in dozens of movies and TV shows, including "Boogie Nights," "Roadhouse," and "CSI Miami."

Thirty years after founding X, Doe is churning out well-received country and folk albums on indie label Yep Roc Records, and has developed a love-hate relationship with technology. He appreciates how it can help simplify the recording process, but isn't a fan of the sound quality on many digital music players.

He also complains that file sharing hurts musicians. He thinks artists deserve to make a living.

Just weeks after the debut of his latest album, "Country Club," recorded with The Sadies, Doe agreed to speak with CNET News.

Q: How has technology changed the music industry?
Doe: Everything is more immediate and you can do things remotely. Anytime you can look backwards, you think everything was so naive back then. People still have vinyl. I think CDs are going to become more collectible because they hold a lot more information and they sound better than most of the files that you can get from iTunes and from people sharing stuff.

Doe, second from left, in his punk days with fellow X members.

(Credit: Xtheband.com)

What do you think of file sharing and how do you think it impacts music?
Doe: I think that the music industry was asking for it and that's why they got smacked down. But I don't believe in music just being free because everybody deserves to make a living and it is intellectual property and you have to pay something for it. I think people that just share files and don't care and think "That's bull**** man, they're making plenty of money," never wrote a song and they never were proud of that song and feel as though they should get paid for it and things like that.

What did you mean that the music industry had it coming?
Doe: They stuck their heads in the sand. They spent too much money foolishly. A CD costs a $1 to make. Cassettes were $10 and CDs were $20...You sort of deserve it.

What do you mean music can be made remotely?
Doe: I get (drunk) and sort of put the whole process on remote...It's the drugs (laughter). I got to keep myself as heavily medicated as possible...really, The Sadies and I played a festival and we had a great time. They backed me up on a few of my songs. Kathleen Edwards was also there. I thought "Oh my god, this was a country record I could make." It wouldn't sound weak or too polished. My voice is sort of...it's a good voice but it's not a weird or distinctive voice so me with Nashville country backing would be a snooze. But me with The Sadies is exciting. A year later I went to Canada. We cranked out about 20 songs in maybe 10 days. I took files back to California, added a couple of people (to the tracks)...added some overdubs and (inaudible) mixed it in Toronto and sent me YouSendIt files, which I downloaded and then could play in Bakersfield, where I live, on my stereo through the computer.

It was a big file, just like the mix. I could play it on my stereo so I know what it sounds like and could call up and say, "Hey this is great. What if this thing here was better?" After a conversation or two, we could form four or five mixes and everybody was happy. And I didn't have to hang out in Toronto, which is a lovely city, for two weeks or 10 days while they mixed it.

And you wouldn't have been able to do that a decade ago?
Doe: Well, I guess you could have five years ago. You can do all kinds of things while they're mixing at the same time. You can go to a recording studio and sing to a track as it's being mixed across the country. There is all kinds of crazy stuff you can do. This was a poor man's version of that.

Some people argue that all music should be free and they have a right to music. Are they rationalizing or are they...
Doe: That's exactly what they're doing. I think they are foolish and young and haven't experienced what it's like to work for something and haven't suffered the pain, hardship it takes to create something. There is a really great movie that goes back to the 1970s called the "Festival Express." There was this visionary guy from Canada that took The Band and Janis Joplin, The Grateful Dead and maybe Gram Parsons on a train to Canada. This is right after Woodstock. And everyone at the gates was saying "This is bull****, $10?" And they broke down the gate and everybody got in for free and they did that at every one of these shows because a precedent had been set.

This guy lost his ass. He had a vision, an incredible vision, and because people were selfish and didn't want to spend $10 and said, "The man is sticking it to us..." Yeah the record companies have been sticking it to the public for a long time but it doesn't mean that the artist shouldn't get paid.

It's just the reality and you can't bitch about it even though I am a little bit. I think file sharing is great to expose people to music but eventually you should pay for it. I do.

What do you think of the efforts by Trent Reznor and Radiohead to find a new model for the music industry?
Doe: I think they're dozens and dozens of people who are doing that on a small level and on a big level. It's catering to the super fan. All the value-added stuff is worthwhile. I don't have the discipline or the organizational skills to have my own label but I take my hat off to anyone who does. Radiohead does that. Aimee Mann does that. Dozens of punk bands do that. It's a good idea, especially if you have a fan base that's going to pay for that stuff.

Tell me about your experience with record labels?
Doe: They do serve a purpose. But they need to have business skill as well as a love of music. That's kind of rare. I'm still really happy with Yep Roc (recording label). The only thing I would change in any label is to have their accounting practices more transparent so when they send you an accounting you can actually follow it. No, labels aren't bad. But I think major labels in the past were foolish and did take advantage of their artists.

Do you think that will change?
Doe: I don't think it has, no. I think they are still trying to get the super home run, "Thriller," Britney Spears, bazillion selling records...I'm just glad I don't have to deal with that anymore.

Update 2 p.m. PDT: Billboard is reporting that X may release some new songs.

For years, digital technology and the Internet have provided a virtual buffet of digital content from which millions have feasted for free.

Whether it be downloading movies illegally found with the help of the Pirate Bay, ripping a movie rental from Netlix to a computer hard drive, republishing an unauthorized copy of a news photograph to the Web, or sharing music on peer-to-peer services, the people who create this content have begun to send a message: "no more free lunches."

Copyright owners around the globe have gone on the attack. They're backing antipiracy legislation in France and Sweden. They're lobbying Internet service providers in the United States to crack down on customers who download files illegally. They're pressuring hardware and software companies to prevent their products from being used as "pirate toolboxes." They're threatening legal action against Google and other sites that aggregate news without permission.

Perhaps the most dramatic example of the new resolve of copyright owners came on Friday, when a court in Sweden found the operators of the Pirate Bay, likely the best known hub for file sharing on the Web, guilty of violating copyright law. In a case that is sure to be appealed, the four men were sentenced to a year in jail and fined the equivalent of $3.6 million.

"There might be just a point here where the culture is changing on what's legitimate behavior online," said Mike McCurry, the former White House press secretary under President Bill Clinton and co-chairman of Arts+Labs, a collaborative group of technology and media companies. "I think perhaps something of a tipping point has been reached where people are finally saying that activity we thought was just okay or skirting around the edge has tipped over into something both dangerous, criminal, and unfair."

The outcome of all the antipiracy efforts may be that jobs are spared and investor value is preserved. It might also mean information and digital entertainment becomes more expensive and less accessible. What the content creators have yet to prove is whether these moves will make any difference. They have little to show for previous efforts.

"It's not that they might not obtain their short term aims," said Danny O'Brien, International outreach coordinator for the Electronic Frontier Foundation, a group that advocates for Internet users and technology companies. "But what is the long-term goal? What is the end game? You take out The Pirate Bay and people will still make copies of movies. People will continue to share music online...It's been five years since Grokster. How has that helped the music industry?"

The $3.6 million the Pirate Bay was fined is only a fraction of what copyright owners say they are losing each year as a result of copyright infringement.

(Credit: Mats Lewan/CNET)

O'Brien is referring to the U.S. Supreme Court decision that peer-to-peer file-sharing services Grokster and Streamcast could be sued for encouraging copyright infringement. The decision effectively forced Grokster out of business and set a legal precedent against peer-to-peer services. Yet, such services continue to operate and illegal file sharing, at least by most measures, has only grown.

Nonetheless, copyright owners aren't waving any white flags.

Layoffs, ISPs, and Kindle
There aren't supposed to be any free lunches, say executives from media and entertainment companies who spoke with CNET News. The tab for all that so-called free content is being picked up by stunt men, makeup artists, secretaries, sound engineers, editors, truck drivers, and lots of other people who work for media and entertainment companies, according to the executives. They maintain that at a time of massive corporate cutbacks and layoffs, media and entertainment firms have to cut a little deeper because of piracy.

So, the stakes are higher now for content creators. They say they will prevail for that reason and because they understand technology better, are marshaling more resources and enjoy more support among International lawmakers than ever before. The most recent endorsement came Friday, when British Prime Minister Gordon Brown told a gathering of techies in London that his government "will support the legal framework that enables the private sector to create content."

Copyright owners also point to other important, if hard-won, victories.

•  YouTube once swelled with pirated clips of movies, TV shows, and music videos. In the last year, however, the site has begun filtering out illegal content. The move came after media conglomerate Viacom filed a $1 billion copyright lawsuit and as YouTube began partnering with Hollywood in a bid to offer premium TV shows and films.

•  Amazon handed over control of the Kindle 2's text-to-speech application when the Authors Guild claimed the function violated copyright law and could cut into sales of audio books.

•  In cooperation with the film and music industries, AT&T has begun testing an escalating system of warnings or graduated response. The ISP says it would never terminate service without a court order. Apparently, not all ISPs are as squeamish (go here to see a copy of a warning letter from Charter Communications).

One important finding from AT&T's test is that the company said it sees a drop in illegal downloading from people who have received a warning. With more experience, copyright owners and ISPs will only get better at discouraging illegal file sharing, said Rick Cotton, NBC Universal's general counsel.

"What's important is all the creators of the broadband Internet be working together to reduce pirating activity," Cotton said. "What needs to be clear is that accessing copyright content illegally is simply not acceptable. We need strong messaging, in the form of technology barriers and speed bumps that make it difficult to access pirate sites. There does at some point need to be some consequence (in graduated response by ISPs). My expectation is that there will continue to be dialogue but ultimately the test is effectiveness."

The end of free?
As for the motivations of media and entertainment companies, there is perhaps one more reason for drawing a line in the sand against piracy now. So far, free hasn't turned out to be a very profitable business model.

The decimated newspaper industry, which has given away stories on the Web for years, is talking about charging for content--again. Digital music services that depended on advertising sales to support themselves, such as SpiralFrog and Ruckus have gone bust. Imeem, an online social network that focuses on music, has staggered recently and has asked financial backers for more support.

Even YouTube, with its 100 million users, has struggled to generate cash. Google CEO Eric Schmidt said last week that he expected the site to one day charge for some content. The statement is a startling revelation coming from the chief of the world's mightiest advertising company, and seems to underscore YouTube's struggles to squeeze profits out of ads alone.

This is not the first ad-market crunch the tech sector has seen. During the dot-com bust in the early part of this decade, ad-supported companies scrambled to charge for services that they once gave away free. Most of those companies disappeared.

Jonathan Zittrain, professor of Internet law at Harvard Law School and author of the book "The Future of the Internet and How to Stop It," says it's too early for free services to be written off.

"I wouldn't say (this is) the end of free yet," Zittrain said. "There is a vibrant set of activities to occupy people's leisure time that isn't fee-for-product. Whether blogging, video making, tweeting, or interacting on social networks, the number of things to do while staring at a screen that require no monetary investment at all has climbed significantly.

"In a down economy," Zittrain continued, "one might surf for an hour rather than spend $15 at a multiplex."

Author's note: I recently asked a public relations executive at a major entertainment conglomerate why, if piracy is hurting everyone, more celebrities aren't speaking out against it. "I've got two words for you," he said. "Lars Ulrich." Apparently comedian Jack Black was willing to risk condemnation from cyber-groovies. The video above is an antipiracy message he made two years ago.