Napster with a legal assault, the recording industry is taking a different approach to online file-swapping: If you can't beat 'em, join 'em.
Recording companies have begun taking steps to legitimize the peer-to-peer technology that lets computer users share songs, video and other files with one another online.
However the
U.S. Supreme Court rules in a file-swapping decision expected as early as Thursday, the technology appears irrepressible.
In the last few months, major record labels have signed licensing deals with companies working to field file-swapping services that would block unauthorized files from being traded online. | Mac Padilla  |
"There's only two options here," said Michael Goodman, an analyst at The Yankee Group market research firm. "You either license it — and you find a way to license it and monetize it — or you don't license it and it gets traded anyway."
Some 330 million tracks were purchased online last year from online stores such as Apple Computer Inc.'s iTunes. But around 5 billion were downloaded from free file-sharing networks, he said.
Meanwhile, recording companies have sued 11,700 computer users for file-swapping. Of those, 2,500 cases have been settled, typically for about $3,000 each.
The Supreme Court is considering whether companies behind unrestricted file-sharing services —
Grokster and Morpheus — should be liable for copyright infringement. The case's outcome could speed the way for licensed peer-to-peer services.
Even so, it remains to be seen whether those industry-endorsed alternatives can attract people who now tap open file-swapping networks using such programs as eDonkey, BitTorrent and Kazaa.
"When it comes down to it, why is somebody going to pay for something they can get for free?" said Mac Padilla, 21, a student who lives in Los Angeles.
The industry may know the answer at least in part as early as next month, when Peer Impact, one of the licensed file-swapping services, is slated to launch.
Its software can be used to find and purchase tracks from an initial catalog of a half-million songs from all the major labels, said Gregory Kerber, head of Saratoga Springs, N.Y.-based Wurld Media Inc., the firm behind the service.
After a user buys a song from Peer Impact, future buyers get it from that member — or others who have gotten it in the meantime — instead of from a central server. Users have to pay for each track they download, but sharing songs they've purchased from Peer Impact earns them credits they can spend on the service.
At launch, at least, Peer Impact will not let users share songs from their own collections.
Another company to sign licensing deals with major and independent record labels is Snocap Inc., which was founded by Napster creator Shawn Fanning.
The company's software is designed to track songs being swapped online and notify record labels when someone tries to share a song that hasn't been licensed for free distribution. Snocap also has a deal with file-sharing software maker Mashboxx to facilitate authorized content distribution through its network.
Mashboxx is set to launch a beta test version next month, said Wayne Rosso, chief executive for the Virginia Beach, Va.-based company. Rosso, who once headed the company behind the Grokster file-swapping software, says Mashboxx users will be able to search for tracks across peer-to-peer networks, upload them and share those that are not restricted by record labels using Snocap's software.
Through Snocap, the labels will be able to assign usage rules for each track, deciding whether users on Mashboxx or other peer-to-peer networks can listen to a track a few times before they must purchase it, or what sort of copy restrictions each file will have, for example.
Rosso claims Mashboxx users will be able to swap millions of tracks — such as concert bootlegs and other recordings — on which record labels have not applied restrictions.
That would help unsigned bands that use peer-to-peer networks to build their audience and established acts like Wilco that encourage their audiences to record their concerts and share bootlegs.
"If the content is not identified and registered in the database, then we can't be held responsible for it," Rosso said. "It's highly unlikely that any Mashboxx user is going to be sued."
Still, Rosso adds, once a record label finds that a bootleg recording or other track is being swapped, it can move to restrict it from being shared — or set up limited listens before purchase.
Privately, record label executives say they remain circumspect over how a licensed peer-to-peer service would actually fare in the marketplace.
Mashboxx has yet to announce licensing deals with the major labels, though it's been reported that Sony BMG Entertainment has agreed in principle to license its music.
Meanwhile, Microsoft Corp. is testing file-sharing technology of its own that one day could be integrated in the company's dominant Windows PC operating system.
The project, dubbed Avalanche, is supposed to improve on the speed of other file-sharing distribution systems, such as BitTorrent, while also preventing unlicensed content from being traded. For now, the company says it has no plans to release Avalanche or include it in future products.
If Microsoft develops its own peer-to-peer software, it could help boost the number of music fans using licensed file-sharing services, said Goodman, the Yankee Group analyst.
"They have the opportunity to integrate it into the operating system ... so you get large-scale adoption," Goodman said. "That would make it attractive to content companies."
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