January 26, 2004
Volume 3, Issue 5
SNL Counterclaim Moves Ahead
Sharman Cleared to Bring Lawsuit Against Entertainment Industry
A US federal court last week denied the entertainment industry's motion to dismiss DCIA Charter Member Sharman Networks Ltd.'s (SNL) counterclaim against motion picture and recording industry plaintiffs in the MGM vs. Grokster case.
SNL's lawsuit alleges that the entertainment industry engaged in anticompetitive behavior and unfair business practices against it and its joint enterprise partner, DCIA Charter Member Altnet, Inc., and against P2P technology.
The suit will now proceed and may be expanded pending resolution of a related appeal to include claims for antitrust law violations.
In his ruling, Judge Stephen Wilson acknowledged that SNL is entitled to pursue its claims that the plaintiffs have infringed SNL's copyrights and breached the End User License Agreement (EULA) for the Kazaa Media Desktop (KMD) software application.
SNL's antitrust counterclaim details entertainment industry actions to keep SNL, Altnet, and P2P technology out of the market for licensed digital content distribution.
SNL CEO Nikki Hemming said, "There have been a number of encouraging developments recently, from the Federal Appeals Court ruling in the Verizon case to the Dutch Supreme Court endorsement of P2P's legality, as well as damning public reaction to the RIAA's (Recording Industry Association of America) most recent tactics."
"Their actions have been lambasted by members of the US Government, including Senator Norm Coleman who stated: 'The decision by the RIAA to rely primarily on the fear of the courts and litigation to pummel P2P users is unfortunate and misdirected.' Sharman concurs wholeheartedly with the Senator's view."
Pepsi Joining the Revolution?
Super Bowl Ad Winks at Music Downloading
A new "Pepsi Generation" is set to premiere on Super Bowl XXXVIII: P2P music file-sharers, depicted as young victims of RIAA lawsuits.
About 20 teenagers sued by the RIAA, which accuses them of unauthorized music downloads, will appear in Pepsi-Cola's new sixty-second (0:60) spot from BBDO Worldwide NY, launching a two-month giveaway of up to 100 million downloads from Apple's iTunes.
The commercial identifies them as a "few of the kids sued for downloading music free off the Internet," while a Green Day remake of the 1966 Bobby Fuller Four hit "I Fought the Law" plays under.
The ad will be telecast to the Super Bowl's 88 million viewers on February 1st, probably during the first quarter, intending to make light of the P2P issue and to connect with teens, a demographic Pepsi has missed lately, showing that Pepsi "gets it."
Annie Leith, a 14-year-old from Staten Island, NY, appears in the ad, sipping a Pepsi and intoning with bravado, "We are still going to download music for free off the Internet."
Then the announcer says, "Announcing the Pepsi iTunes Giveaway."
About one in every three Pepsi 20-ounce and liter bottle caps will have a winning code redeemable at the iTunes site for a download, which typically sells for 99 cents. Of the 100 million winning codes, Pepsi expects no more than 25 million actually to be redeemed.
Leith, her older sister, and younger brother downloaded about 950 songs in three years. Their parents settled their suit with the RIAA for $3,000 rather than going to court. Leith said she would use some of her undisclosed ad fee to help repay the costs of the settlement.
Report from CEO Marty Lafferty
 There's no question that the flurry of media coverage that follows each new batch of alleged music copyright infringement lawsuits helps raise awareness of the unresolved issues regarding misuse of P2P technology, while overlooking the enormous business opportunities that this technology offers.
After more than three such flights, however, the issue of media fatigue also arises. Will news outlets indefinitely continue to disseminate this message of deterrence on behalf of music rights holders: that redistributing copyrighted musical works without authorization is wrong?
Not to mention consumer fatigue. Will the public become tone-deaf to the repetition of this particular admonition sans variation when significant commercial opportunities for P2P distribution are not given equal air time? Empirical measurements of P2P traffic levels suggest that this may already be the case.
It is more encouraging that licensed music is now increasingly available for downloading on the Internet - and that this is also receiving media attention.
The International Federation of Phonographic Industries (IFPI) last week reported that there are now 80 licensed online music services globally, offering up to 300,000 tracks in Europe with up to 500,000 in the US. Sales of downloads at market-leading iTunes came in at $30 million for 2003.
The DCIA's first P2P music business model postulated in part that authorized online redistribution of popular music tracks, with assured quality at attractive prices, would be an effective tactic in displacing unknown content, and serve as a contributing element to a more robust solution for P2P.
Growth in sales at the still relatively low-volume but numerous centralized non-P2P music sites augurs well for this theory to prove itself to be correct.
But what is still missing is a way for consumers to receive and redistribute licensed musical content from the major labels via P2P.
While important content providers other than major labels have embraced licensed distribution via P2P, the absence of major label participation is an enormous deficiency in achieving the potential of P2P distribution and dissuading those who might misuse this technology.
In short, file-sharers - who comprise the greatest online marketplace, by several orders of magnitude - are still largely untapped and grossly underserved by the largest music rights holders.
What is needed now is to create a level playing field on which the numerous online music offerings, including P2P software applications, can compete and thrive. To do that, we must finally find the ways to license and monetize major label content in P2P distribution.
RIAA CEO Mitch Bainwol's statement last week that, "The debate isn't digital versus plastic. It isn't old versus new. Here's what it is: legitimate versus illegitimate," unfortunately exemplifies the rhetoric that leads away from a profitable solution for all interested parties.
By focusing solely on the fact that, like many technologies, P2P can be used for illegitimate purposes - while ignoring the undeniable fact that P2P is a powerful and legal consumer-driven distribution mechanism - this statement misses the critical point that P2P does not exist in opposition to other online methods of distribution, but rather along side of them, providing content owners another axis for promotion and revenue generation.
Importantly, the "debate" referenced in this quote no longer lacks empirical data: an increasing number of licensed P2P content transactions already demonstrate the commercial power of P2P and the way that cooperation between content providers on the one hand, and technology providers on the other, can lead to beneficial solutions for all.
It is time for the major label RIAA members to join the emerging and established artists who have already recognized the power of P2P distribution to reach millions of music fans across the globe. P2P users every day are demonstrating that they are willing to pay for copyrighted works.
Clearly, our next major steps need to be adding P2P as a method of distributing major label content to centralized online music services and fostering an environment where licensed file-sharing, download stores, and traditional retail outlets can reasonably compete and help realize the full potential of our digital future.
DCIA Winter Meeting and P2P Music Model C
Media Summit
The DCIA's Winter 2004 Quarterly General Meeting, taking place in conjunction with the Media Summit New York, will be held in the NY Hilton and Towers at Rockefeller Center from 6:30 PM to 9:30 PM US ET on Monday evening February 9th. A very special after-meeting event is also being planned and will be announced shortly.
Our meeting schedule will include a demonstration of new DRM technology, consumer security and privacy protection updates, and a discussion of potential legislative activity taking place in early 2004. The main focus of this meeting, as previously announced, will be on which aspects of three alternative P2P music distribution models should be further developed for possible implementation by involved parties. A light buffet dinner will be served.
The DCIA plans to announce and distribute our third alternative P2P music distribution model on Wednesday February 4th. This will enable attendees of our Winter Quarterly General Meeting to have the opportunity to review it beforehand. We're very grateful for input from our key constituencies over the past few months in developing this model. We believe that, taken together, the three models span a range of possibilities for music rights holders, P2P software companies, and broadband ISPs to begin moving towards a workable business solution.
DCIA participants will also be interested in the Media Summit New York on February 9th and 10th.
DRM Technology Innovation: Content Integrity in Music, Film and Mobile, for example, in which we are participating, will examine new developments in DRM. Content is what entertainment and media companies produce, and the viability of their futures rests on their ability to manage that content and control its distribution, while at the same time making it available to an ever larger customer base. And that is the job of DRM technology firms, to make the film, music and mobile technology delivery systems safe for mass use. This session will explore, from the point of view of the technology companies, the possibilities and potential of DRM in the evolving content landscape. From CDs and DVDs to broadband and wireless delivery, DRM and content protection represents the bottom line of the future of these entities.
Please suggest additional agenda items and register for the DCIA Winter Quarterly General Meeting by e-mailing info@dcia.info. Information regarding hotels and joint registration with the Media Summit will be provided upon request. Space is limited so please sign-up at your earliest convenience.
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