November 28, 2005
Volume 11, Issue 5
File-Sharing Groups Take Two Paths
Excerpted from Technology Daily Report by Randy Barrett
In a post-Grokster world, Washington's two lobbying groups for file-sharing companies have taken strikingly different approaches. One has gone fallow and the other is busy promoting companies that offer legal, peer-to-peer (P2P) computing services.
P2P United is apparently all but shuttered. The site's last posting occurred before the March 29th Supreme Court oral arguments in MGM v. Grokster. Other links on the site are dead. Sources familiar with the group said after the Supreme Court's June decision, funding lagged from its members.
Meanwhile, the Distributed Computing Industry Association (DCIA) has many of the same Members but is pushing ahead to create a legal commercial space for P2P services. "Not all open P2P companies need to go out of business," CEO Marty Lafferty said.
On November 7th, the Recording Industry Association of America (RIAA) announced a settlement with Grokster in which the service agreed to close. The company said a legal, paid version of the platform, called Grokster 3G, will be launched within the next 60 days.
"Commercial models can work for P2P," Lafferty said, even for formerly controversial services, such as Napster, which went legit after it was closed by the courts. "These brands have a lot of equity," he said.
Lafferty has been making that argument all along, but the Grokster case kept derailing discussions between P2P vendors and major labels – EMI, SonyBMG, Universal Music Group, and Warner Music Group. "We were trying to set up a peace table when the parties didn't want to negotiate a truce," he said. "It was five yards and a cloud of dust."
The mood has changed considerably in the past few months.
"Without question, P2P is a model that can work – and work well – while respecting the copyrights of the creators involved," RIAA lobbyist Mitch Glazier said. "We stand ready to work with P2P networks that seek to become legitimate and respect property rights. The same applies to the associations that represent them."
David Israelite, CEO of the National Music Publishers Association (NMPA), is equally upbeat. "We are open to licensing legitimate P2P companies," he said. "We've never had a problem with the technology itself."
So far, none of the big labels has joined the DCIA, but Lafferty is hopeful.
In the meantime, he points to legitimate file-sharing services such as Altnet and INTENT MediaWorks, which offers both music and movies and makes money by selling advertisements. The company mostly represents independent labels now, but a deal with two of the major labels will be announced early next year, CEO Les Ottolenghi said.
Other paid P2P services include iMesh and Wurld Media, Lafferty said.
Report from CEO Marty Lafferty
 The Federal Court of Australia last week granted DCIA Member Sharman Networks a further stay of the injunction originally ordered on September 5th.
During the hearing, Justice Murray Wilcox expressed anger about the record companies' technical representatives failing to attend the second court-ordered technical conference.
Justice Wilcox went so far as to say that the behavior of the lead lawyer for the firm representing the Australian music industry towards the Federal Court official overseeing the technical process was unacceptable.
A first technical meeting had been held with considerable success and paved the way for modifications to be made to Kazaa to ensure its continued availability and to satisfy music-rights-holder interests.
Sharman Networks was granted a further stay conditioned upon so modifying its software. The court also indicated that it was not prepared to order Sharman to make a security deposit for damages.
A spokesperson for Sharman said the action of the record companies in refusing to attend the second court-ordered meeting revealed that their intention was not to foster agreement about an acceptable filtering technology but rather to shut down Kazaa.
Accordingly, at the conclusion of the hearing, Justice Wilcox granted a further stay: the appeal to the full court will be heard in late February.
Meanwhile, Chairman John Kennedy of the International Federation of Phonographic Industries (IFPI) last week said on behalf of IFPI members worldwide, "It's time for services like Kazaa to move on – to filter, go legal, or make way for others who are trying to build a digital music business the correct and legal way."
The DCIA, on behalf of our Members, wishes to publicly accept and endorse Chairman Kennedy's exhortation, and offer our support, while also urging his, for expedited delivery of music licensing agreements that have until now been denied to open P2P application providers.
The DCIA pledges to do all that we can to encourage the process of accelerating a conversion of current major P2P software programs to music-industry-acceptable business models.
We view this as separate from settlement discussions to close-out litigation between the parties, which must also occur, and hopefully will be able to proceed on a parallel track.
Indeed, the DCIA has never participated, nor taken sides, in any lawsuits, except to press for continuing commercial development of the distributed computing industry.
We are now at a crossroads in that development, where it is critical to the success of those "who are trying to build a digital music business the correct and legal way," including through sanctioned P2P business models, to complete the conversion of major established P2Ps as expeditiously as possible.
Otherwise there will not be a level playing field in the marketplace.
The question for Chairman Kennedy is: what's holding up licenses from your major members? For their part, DCIA Members are fully ready to move ahead now, but how can open P2P protocols "go legal" without your help?
We are reaching out to IFPI, as well as the Australian Record Industry Association (ARIA) and the RIAA, to step-up the pace of music licensing negotiations associated with the ongoing conversion process for open P2Ps. We are more than willing to collaborate with these groups and their members to complete this phase of industry advancement.
Separately, we were heartened last week by the joint announcement from the Motion Picture Association of America (MPAA) and BitTorrent (please see related article below), and look forward to such indications of détente from the music industry and open P2Ps. Share wisely, and take care.
Search Terms on Kazaa to be Blocked
Excerpted from ZDNet Report by Steven Deare
Justice Murray Wilcox ordered the owner of Kazaa, Sharman Networks, to modify the file-sharing software to block a list of search terms – primarily artist and song names – to be supplied by the record companies.
The Australian Federal Court has ordered Sharman to release a new version of Kazaa by December 5th that includes a non-optional keyword filter, restricting users' ability to illegally access and swap copyrighted music.
The record companies may update the list of search terms every two weeks. Once Sharman receives the updated list, it has 48 hours to act on the changes.
"On one hand I want to protect the applicants as well as I can, but without damaging the respondents," Wilcox said.
The record companies have a list of 10,000 keywords they want Kazaa to block user access to, according to counsel for the record companies.
The Sharman parties' legal team claimed audio fingerprinting technology from United States company Audible Magic would provide more effective filtering. They cited Wilcox's judgment in September, which allowed that the modifications to Kazaa could include more effective solutions than keyword filtering.
Audio fingerprinting works by capturing characteristics of songs that can be compared with files on a P2P network, rather than relying on file name or format.
"Audible Magic involves getting the fingerprints for all songs," said Sharman representative John Ireland. "You put a black box between two peers and if someone wants to copy something on the list, you can't do it," he said.
However, the record companies' legal team described the technology as "ineffective."
Justice Wilcox acknowledged the remarks, saying, "Reading what the registrar from an earlier hearing said about it, this sounds like the solution to all the problems."
Sharman would have to persuade the court that Audible Magic was more effective than keyword filtering in order for it to become the required modification, said Wilcox.
Big Media Loves BitTorrent
Excerpted from Forbes Report by Peter Kafka
It sounds great: the guy behind the software that moves a good portion of illegally swapped movies and TV shows through the Internet hooks up with the studios that make the movies and TV programs.
That is what Bram Cohen, creator of BitTorrent software, and the Motion Picture Association of America (MPAA), Hollywood's lobbying arm, said Tuesday afternoon.
"The announcement today is historic in that two major forces in the technology and film industries have agreed to work together."
If Hollywood is looking for a gesture to demonstrate that unlike the music business, which was dragged kicking and screaming into the Internet age, it is ready to try to innovative approaches to the Web, the deal is a nice olive branch.
But unlike the original Napster, which used a centralized server to connect file-sharing song swappers, BitTorrent is open-source software, meaning that anyone who chooses can produce their own version of the program. And they have – there are at least a dozen popular versions of the software, with new ones popping up constantly.
Even folks who use Cohen's official software – his company claims some 50 million downloads since 2003 – aren't necessarily affected by the agreement. Only users who use a search engine Cohen installed earlier this year will notice a difference.
And while BitTorrent software may be popular, Cohen's site itself doesn't get much traffic: DCIA industry data resource BigChampagne says BitTorrent.com doesn't crack the list of the top 20 sites that specialize in BitTorrent files.
So what does the deal really mean? For Cohen, who recently transformed himself from a programmer with no interest in business into an entrepreneur who has received $8.75 million from venture capitalists Doll Capital Management, it means he can operate his company without being sued by a Hollywood studio. Given the aftermath of the Grokster case, that's no small thing.
And for the MPAA, which represents studios such as Disney, Sony, NBC Universal, Paramount, Fox, and Warner Brothers, the deal isn't entirely symbolic. As Hollywood moves more rapidly into electronic distribution – witness Disney's deal to distribute television shows via iTunes, for instance, or Warner Brothers plan to distribute some of its TV catalog through AOL – P2P software like Cohen's could be a useful way to move big files to paying consumers.
NBC Universal, for instance, has already struck a deal to begin using P2P software to distribute some of its films beginning next year. This presumably won't be an enticement to file sharers who don't want to pay anything for a copy of "Meet the Fockers."
But because the method uses less bandwidth than a centralized distribution system, P2P delivery could ultimately mean that consumers could pay less for an Internet download than they would through other outlets.
So give Cohen and the MPAA some credit. When they say that their agreement is "an early experiment in using technology to assist in solving the problems of piracy," they are half right.
Turning the BitTorrent site into an authorized distributor won't stop people who don't want to pay for content. But it may help Hollywood figure out how to sell their wares on the Web. Some money is better than none.
RadioShack 1st US Retailer to Offer Skype
DCIA Member Skype and RadioShack last week announced an agreement to distribute Skype-certified hardware and software in approximately 3,500 RadioShack stores. This makes RadioShack the first US retailer to offer this new Internet phone service.
Skype has successfully brought free Internet calling to over 66 million people around the world since its launch in 2003, with an average of 175,000 new people joining each day.
People with Internet connectivity can load Skype's free software enabling unlimited, high-quality voice calls to other Skype users anywhere in the world.
Unlike other Internet phone services, Skype's unique software resides directly on a computer or mobile device to facilitate communications. Skype runs on Windows, Linux, Mac OS X, and Pocket PC platforms.
Skype also offers premium services providing enhanced functionality for its users to make calls to regular phones for as little as two cents a minute.
This agreement with RadioShack supports Skype's growing presence in the US market as a leading Internet communications company.
RadioShack's convenient network of neighborhood stores staffed by knowledgeable sales associates will help expose Skype's unique worldwide free call service to a broad new audience of potential customers.
Further, these retail stores will provide consumers with a place to shop for new Skype-certified products such as the Motorola Wireless Headset and Internet Calling Kit – the world's first Skype-certified Bluetooth offering.
Music is Listening to Him
The record business once spurned tech geeks like Ted Cohen. But he's now a guru in an industry desperate to adapt to digital tastes.
Music's love-hate relationship with technology is as old as the recording industry itself.
It began in the early 1900s, when songwriters, fearing for their jobs, begged the federal government to outlaw what they called "ungodly machines:" player pianos. Instead of criminalizing the new invention, Congress created the copyright system that exists today, and songwriters relented when they began receiving royalty checks.
It was the start of a pattern: innovation led to panic, which slowly turned to celebration when profits soared. In the '50s, recording executives said FM radio would kill the music industry. Then they discovered that broadcasts helped sell albums. In the '70s, record companies warned that cassette tapes would make piracy rampant. Then Sony released the Walkman, and music sales hit new heights.
In the 1980s and '90s, some insiders cautioned that the compact disc would make it easier for listeners to steal perfect copies. But when sales skyrocketed, the industry embraced the new format. By 1999, music corporations were larger than ever, shipping $14.6 billion worth of albums and growing at 6% a year.
But disaster loomed. As computer users began trading illegal copies of songs online, music sales began a free fall that has yet to hit bottom.
Ted Cohen was about to find himself in the right place at precisely the right time.
Cohen spent much of the 1990s working on interactive videos at technology giant Philips Consumer Electronics, then became an independent consultant, helping computer companies such as Microsoft, Amazon, and Liquid Audio sell music online.
Then in 1999 he was offered the CEO position at a new P2P music company named Napster. He accepted a job at EMI instead, but the message was clear: being a techie had suddenly become an asset.
Since P2P music-sharing networks became popular in 1999, US shipments of recorded music have dropped by more than 30%, according to the RIAA, and US music sales have fallen or remained flat every year.
Which is why there are now so many Teds.
Music's technology visionaries include Larry Kenswil and Rio Caraeff at Universal Music; Thomas Hesse at SonyBMG; and Alex Zubillaga and Michael Nash at Warner Music Group. Kenswil, Hesse and Zubillaga are among their companies' top policymakers. Techies are entering the music industry at every level.
In 2001, Cohen urged EMI to be the first company to make its entire repertoire available to newly created digital music services.
The next year, Cohen helped EMI cement distribution deals with nine Internet firms, more than any other major company. EMI was also the first among its rivals to allow listeners to download permanent copies of songs, transfer tunes to portable music players, and make copies to blank CDs. Cohen helped work out the licensing agreements upon which the iTunes Music Store was built.
"The only way we win is if we're willing to try everything," Cohen said.
Many of Cohen's efforts have worked. iTunes has sold more than 500 million songs. In the last year, US digital music sales have grown by more than 300%.
But technological enthusiasm hasn't been a magic bullet. The music industry's rush online has created bewilderingly incompatible formats. For example, Internet music vendors sell at least four versions of EMI's songs, each of which requires a different player.
EMI's operating profit has declined in each of the last three years. And although US digital music sales are growing, they still have not offset the decline in CD purchases. No company has provided an online service compelling enough to drive most music fans away from file-sharing networks that offer free, illegal downloads.
But to hear Cohen talk, the future has never been brighter.
Just a few years ago, EMI's Wilshire Boulevard headquarters housed several litigation "war rooms," where executives discussed lawsuits against P2P networks and other companies invading their turf.
Now Cohen makes a habit of hosting the very people the music industry once sued.
Texas Sues SonyBMG over Copy-Protected Discs
Excerpted from Digital Music News Report
The messy fallout for SonyBMG continued Monday when Texas attorney general Greg Abbott filed suit against the label. The lawsuit alleges that SonyBMG violated a new Texas law that prohibits the dissemination of spyware (Consumer Protection Against Computer Spyware Act).
Meanwhile, Abbott pointed the finger at SonyBMG for creating other serious security breaches on consumer computers, including vulnerabilities related to outside viruses.
"Sony has engaged in a technological version of cloak and dagger deceit against consumers by hiding secret files on their computers," Abbott said in a statement.
"Consumers who purchased a Sony CD thought they were buying music. Instead, they received spyware that can damage a computer, subject it to viruses, and expose the consumer to possible identity crime."
Adding fuel to the action was the discovery of several XCP-protected discs in various Texas retail outlets, even though SonyBMG has put a recall in motion. That raises the thorny question of just how many retailers will actually comply with the recall, especially considering the gaps in product that will result.
Separately, the Electronic Frontier Foundation (EFF) has announced a lawsuit of its own in the Los Angeles County Superior Court, accusing SonyBMG of not addressing the issue thoroughly enough.
Part of that action will include SunnComm, which also delivers content protection to SonyBMG. "SonyBMG is to be commended for its acknowledgment of the serious security problems caused by its XCP software, but it needs to go further to regain the public's trust," said Corynne McSherry, an EFF staff attorney.
"It is unconscionable for SonyBMG to refuse to respond to the privacy and other problems created by the over 20 million CDs containing the SunnComm software."
The EFF action is part of a growing level of scrutiny surrounding SunnComm MediaMax discs, though so far it does not appear that the company has created any serious security vulnerabilities for consumers.
Coming Events of Interest
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The Digital Entertainment & Media Expo (DEMXPO) – November 30th-December 1st at the Century Plaza Hotel in Los Angeles, CA. Join over 1,500 senior-level executives at the premier event for the digital entertainment and media Industries. Over 150 featured speakers cover the key issues you need to know in digital music, mobile, digital video, gaming, and digital advertising.
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The Future of Broadband – December 1st, presented by the Forum on Technology and Innovation, 12:00-2:00 PM at the Senate Dirksen Building, Room G50, Washington, DC. Recent reports have cited the importance of a robust broadband network to support innovation in the United States. How will this network be built and financed? What incentives and impediments exist? Who will be the major players and what services will they offer?
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Intelligent Selling of Internet Media – December 5th at the Board of Trade Downtown Center, Toronto, CA. Topics include terminology, metrics and measurement, ad serving, rich media, targeting, how buyers evaluate and buy, proven tips and techniques for increasing revenue from new and existing advertisers and how to creatively package and sell awareness and lead generation programs, maximizing site sell-through.
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Search Engine Strategies Conference & Expo – December 5th-8th in Chicago, IL. Real-time actionable information to grow your business through search engine marketing. Ins-and-outs from top search experts and the search engines themselves. Access to the world's most comprehensive gathering of search engine marketing & optimization-related solutions providers and potential partners. Please click here to learn more about this event.
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Copy Protection Technical Working Group (CPTWG) Meeting – December 7th at Sheraton Four Points Hotel, Los Angeles, CA. If you are interested in offering a presentation at this meeting, please as soon as possible so that CPTWG may schedule the agenda accordingly. Presentation guidelines can be found on the CPTWG website at www.cptwg.org.
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FutureMedia 2005 – December 8th in London, England. This C21 Media event is a must-attend one-day conference that brings attendees face-to-face with the players shaping the future of entertainment. FutureMedia 2005 is the meeting place for the converging media industries, where producers, channels, rights owners, technology suppliers, and advertisers come together to discuss the fast-changing environment.
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Digital Hollywood at CES – January 5th-7th at the Las Vegas Convention Center North Hall. The Consumer Electronics Show will have over 140,000 attendees; 2,500 exhibitors; 4,000 press representatives; and keynotes by Bill Gates, Chairman, Microsoft; Howard Stringer, Chairman & CEO, Sony; Paul Otellini, CEO, Intel; and Terry Semel, Chairman & CEO, Yahoo. The DCIA will moderate the "Next Generation P2P" panel on January 7th.
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MidemNet Forum at MIDEM – The World's Annual Forum for Digital & Mobile Music January 21st-22nd, Cannes, France. Confirmed keynotes to date are EMI Group Chairman Eric Nicoli; Ken Lombard, President of Starbucks Entertainment; Patricia Langrand, Senior EVP of Content for France Telecom and Nokia's EVP and GM of Multimedia Anssi Vanjoki. MidemNet forum will welcome the world's leading digital music experts and global authorities on mobile music.
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