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Is the mood changing towards the legitimate use of P2P networks?

Smells like Teen Zeitgeist

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Analysis The mood of the media and the entertainment industry used to be very clear that file sharing equals bad and that copy protection equals good. During the past two weeks we have been told that piracy is about to be beaten and that CD sales will soon be on the rise again.

Faultline chose not to tow that party line and perhaps we have sensed in the last week that this could anyway be about to change?

Just as the file sharers are in court once more duking it out in a life or death legal battle that could see them as a permanent fixture, or eliminated from the scene forever, evidence has arisen from various parts of the industry to suggest a new lease on life for file sharing networks. The Distributed Computing Industry Association (DCIA), the association of the P2P file sharers, has proposed that a series of new business models for the legal distribution of music and film over the
networks of its members.

At the same time we have heard some praise for a new DRM lite system that does not lock out file sharing, but just makes it easy to trace back to who did any illegal file sharing. Also a UK peer to peer file sharing system has finally managed to license some major record label content and Reprise records has come up with another way around the file sharing networks, by releasing an online digital version of one of its band’s albums three months before it is in the shops. That way Reprise customers can’t copy a CD, and their only way of getting hold of the new song, during its early, most popular days, is via paid online service.

And finally this week a UK company was acquired that has technology that plugs what it calls the analog hole, stopping the swapping of music over file sharing networks without reducing playability on other devices. When a track is legally copied on a DRM controlled digital system, it allows normal copying, but when it is copied to analog devices or goes through an analog-to-digital converter or undergoes conversion to MP3, a hidden watermark suddenly becomes audible ruining the track. It strikes us that finally technology and the music labels are learning to live with P2P networks, instead of trying to crush them.

Filing suit

Just as well really, because if the appeal that began being heard this week, does not go the way of the RIAA and the MPAA, then file sharing is most certainly here to stay. This appeal was filed back in August when the Recording Industry Association of America representing the music industry and the Motion Picture Association of America, representing the film industry, jointly filed an appeal with the US Court of Appeals in San Francisco, aiming to overturn the April decision that file sharing networks such as Grokster and Morpheus do not infringe copyrights themselves and should not be shut down.

The judge at that time pointed out that it is the customers of these networks that are committing the crime, not the network or networks owners themselves.
It is this ruling that has led to the RIAA going after individual file sharers, those who actually make copyrighted material available, rather than the services that offer the file sharing infrastructure that makes it possible. At the time of the original finding, the judge compared file sharing networks with photocopiers, saying it is not their existence which is illegal, but the purposes they are put to.

The appeal has also had the weight of the National Music Publishers Association added to the original two protagonists. Grokster has always said that there is little or no new evidence for the appeal to consider, and this really looks like these organizations just want a different verdict, regardless of the law.

A statement referring to the file sharing services as “businesses that were built for the exclusive reason of illegally exchanging copyrighted works, and they make money hand over fist from it. The Court of Appeals should hold them accountable," came from RIAA president Cary Sherman as the appeals were filed. Now the courtroom argument is little different and the three-judge panel for the US 9th Circuit Court of Appeals in Pasadena are being asked for a second time to close down all file sharing networks and make them effectively illegal.

The logic is that they ONLY exist for trading copyrighted works, and that if they are allowed to stay in existence, then they should at least be made to filter out copyrighted works. The riposte from the file sharers has been that it is not possible to filter out all copyrighted works, and to refer back to what is known as the Betamax finding and be treated as it they are VHS or DVD devices. In a case heard way back in 1984 the US Supreme Court upheld Sony’s view that it was not liable for copyright infringement by selling VCRs which could be used to tape the TV. The case hinged on whether or not the devices had other, legitimate uses, which
they were found to have.

Changing the filter

If this court is satisfied that file sharing networks have other uses, then it would be powerless to overturn a Supreme Court verdict, and the RIAA and MPAA would either have to accept it or try to get leave to take it up with the Supreme Court. The ideas of putting in blocks and filters appears to be a non-starter, given that the Appeal Court would have to make an effective change in the law by precedent, and has been urged to leave that to the legislature. A new bill could be brought making it the responsibility of a file sharing network to filter the content that is shared using its software, but it is unlikely that the Appeals Court will take that on itself.

When asked why this suit was different from Sony’s case, the counsel representing the RIAA and the MPAA said that Sony had no way to prevent unauthorized copying on VCRs, but that Morpheus and Grokster, the two file sharing networks named in the suit, could apply the filters.

This is not technically true. Sony could have placed a file listing every piece of copyrighted work in existence on every VHS device and made it impossible to copy them. However this would have made the product economically impossible. But that’s what the RIAA is now asking the file sharers to do now. And we don’t think a court will impose a sanction on file sharing networks that makes it economically infeasible to carry out their business.

We don’t want to tempt fate, or pre-judge the Courts, but our guess is that the File sharing networks, in one way or another, will remain in business for some many years yet to come, so it is the other direction, that of co-existence that has become more interesting this week.

Previously media reporting almost solely focused on the unimaginative approach to file sharing that the RIAA has offered – extinguish it, don’t negotiate with it – but these other events seem to see the networks themselves growing up and beginning to realize that if they are to have a place in the universe, then they need to do some of the thinking to create a use for them and at the same time put an eventual end to illegal copying.

The DCIA is backed by Kazaa parent Sharman Networks, and its close ally Altnet and its new business model projection may have some legs. Take a look at the P2P Music models presentation at http://www.dcia.info.

It begins its pitch acknowledging that sales of CDs are going down at 2.1 per cent per year and yet it should be going up in line at least with US Gross Domestic Product, at around 2.7 per cent - a discrepancy of 4.8 per cent. It asks why the music industry is resisting overtures from P2P networks and yet encouraging online music services and asks why the RIAA hasn’t courted a marketplace that has 80 million active music lovers. Embracing it would lead to sales going up by 10 per cent per annum for the next four years, the presentation says.

What the DCIA wants to see happen is that Digital Rights Managed files are made available over the file sharing networks for purchase, that they could have pride of place in a file sharing environment a little like paid advertisements on Google are the first that anyone sees.

Initially, customers would buy these by credit card billing which is already in place at the file sharing networks, then later through their phone bills or better still their monthly ISP charges for convenience. In this environment, presumably with a cut going to the delivering network, the file sharers would promote the benefits of legitimacy and quality of content to users and the result would be 600 million legitimate paid downloads a month rising to 1.7 billion representing $900 million a month.
If those figure are right, then they would dwarf the online music sales of Apple and Rhapsody and would just about mean that P2P sales were bigger than retail sales.

By using the ISPs to bill for the service, a cut could be extracted for allowing their networks to be used for delivery, the DCIA argues, perhaps an additional monthly ISP fee for anybody having downloaded a P2P, making everybody happy. But the DCIA warns that without a micropayments billing system in place, this won’t take off. And places the responsibility for that with Telcos and ISPs.

To backfill over the existing collections that individuals have built up over the years, the DCIA asks for the labels to offer some kind of conversion of the legacy file shared music to authorized copies, carried out automatically via software so that it doesn’t involve anyone being identified or prosecuted.

Of course in order to do all of this, a Digital Rights Management regime has to be brought into play that doesn’t rely on locking down music. The one that has been suggested by the DCIA is a watermarking system.

You're all lightweights

It just so happens that such a system was described this week by the Fraunhofer-Institute, in Germany. The Light Weight DRM (LWDRM) relies on locking tracks to a PC at the stage that it is downloaded, but then using LWDRM compatible software to convert tracks into any codec of their choice including MP3. But at the same time an inaudible signature is placed on the track, in effect what we call a watermark. This watermark can be traced back to a particular PC or copy of the LWDRM software easily and if it is found on the internet, prosecution would become a formality.

The nice thing about this simple system is that personal copies can easily be made, and as long as they are not distributed over the internet, then they are ok. Even the most ardent rip and burn fan is going to think twice about even cutting a CD for his best friend, if he knows that the tracks can be identified immediately with him.

Content holders would have to have a permanent ear on file sharing content, but that could be managed by a central administration system out of a central fund, and this type of system would only be effective in countries where the local authorities could be relied upon to act when a pirated watermark is identified. But it would certainly decimate file sharing without locking down music. Locked CD protected music is not something that has not yet appealed to US purchasers of CDs, who so far have point blank refused to buy copyright protected music.

Another form of copy protection also emerged this week, with SunnComm’s distributor arm Quiet Tiger, buying UK based DarkNoise Technologies. This is a similar system to the one described above, which places watermarks on CDs. But in this system, when the tracks are illegally copied it makes the watermark audible, ruining the track.

We don’t think this approach will be quite so popular with users as the one from the Fraunhofer-Institute, because it will lock down the music so that there are no personal use copies, but it shows that the copy protection companies are at least thinking about the problem. SunnComm plans to use the technology inside its own CD copy-protection system, going to beta in just 60 days.

Wippit up

Along the same lines, EMI made headlines this week when it licensed Wippit, a UK based P2P file-sharing service to carry most of its portfolio, to start in February. EMI is the first major label to sign up, but Wippit has over 200 independent labels signed already. It hopes to license its service for just $50 per year and allow customers to download any of Wippit's tunes and save them in as many places they like. Wippit also reckons it has the ear of a further four major labels and expects to sign at least two of them. But that word, file sharing, may still scare them off.

And finally, just to throw a note of caution into anyone that thinks that perhaps Grokster and Morpheus will lose their court case and never be heard from again. Streamcast networks, distributors of Morpheus, has released a new version of the program that connects to other file sharing networks. In effect this is middeware for P2P. So requests to share files can now be picked up on other networks and the results of their search transferred back, effectively melding the entire global P2P community into a single community.

So if the law closes one down, then its customers can still link to another, and another, and so on. So far the networks included are just Kazaa, Grokster, eDonkey, Gnutella, LimeWire, iMesh and Overnet, but that should do for now.

The new version of Morpheus also includes Voice over Internet Protocol software like Skype, that lets its users place phone calls over the Internet for free, so pretty soon too, VoIP traffic will move freely between all the networks.

A chilling thought if you are thinking of using a courtroom to suppress either file sharing or VoIP piggybacking.

© Copyright 2004 Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of events that have happened each week in the world of digital media. Faultline is where media meets technology. Subscription details here.

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