Legal P2P opens for business

iMesh relaunches Tuesday as the first formerly unregulated peer-to-peer network to turn itself into a paid music service. iMesh reopens with 'label approved' P2P

For a few fearful minutes in late 2004, iMesh co-founder Talmon Marco thought Garth Brooks had sunk his company.

Marco was in New York, showing off the technology behind the new iMesh peer-to-peer music service slated for release this Tuesday. The software was supposed to identify and block virtually any copyrighted song being downloaded from peer-to-peer networks. But this time, a Garth Brooks song picked at random seemed to download without any problem.

Bracing himself while sitting in a conference room with a team of lawyers from the EMI Group record label, Marco pushed "play." The song started, and it was indeed the country crooner's voice. But it was quickly interrupted by a burst of noise. The file was a fake, a "spoof" planted on the file-swapping networks to discourage pirates, and it turned out that Marco's software had correctly let it through its filter.

"That was a moment," Marco said, shaking his head during an interview with CNET News.com last week. "I thought, 'Of course, the one time it doesn't work is the time it needs to work.'"

After a year of such near-disaster moments, skeptical record executives have finally declared themselves satisfied with the new iMesh, which will relaunch Tuesday as the first unregulated peer-to-peer network to turn itself into a paid music service. But now it faces an even tougher audience: 5 million iMesh users who are used to free music.

iMesh is the first of several "label approved" peer-to-peer networks hitting the market this year after long delays in their development. Mashboxx, created by former Grokster President Wayne Rosso, is also slated to go live this fall.

Marco's company may provide a real test of file swappers' loyalty. In the last week alone, more than 1.5 million people have downloaded the old iMesh software, according to Download.com, a software aggregation site operated by News.com parent CNET Networks. Many of those people were seeking free access to music and video, which will be sharply curtailed under iMesh's new life as a $6.95 per month music subscription plan similar in many ways to those offered by Yahoo or Napster.

"If it's trying to pull people over from the P2P world, it's an important first step," said GartnerG2 analyst Mike McGuire. "But meeting the basic bar that's been set by legitimate services like iTunes or Rhapsody is going to be a real challenge."

Limbos' end
iMesh has occupied a unique role in the digital world for more than a year. Created by Marco and a handful of others in Israel, with work starting on the project as early as 1998, the company settled a lawsuit with the big record labels in July 2004. At that time, it agreed to turn itself into a paid music service similar to Napster or RealNetworks' Rhapsody.

However, record labels agreed to let the old iMesh continue operating--even with millions of copyrighted songs being traded online--while the new service was being developed. In return, iMesh agreed to pay labels $4.1 million.

Chalk those unusual settlement terms up to two factors. First, when iMesh agreed to settle, it was long before the U.S. Supreme Court had tipped the legal balance back in favor of copyright holders, and record labels jumped at the chance to shut down another popular file-swapping network.

imesh

Also, iMesh had a secret weapon in Robert Summer, a former head of the Recording Industry Association of America who agreed to act as a consultant for the file-swapping company during settlement negotiations, and ultimately joined iMesh as executive chairman.

The alliance between the 70-year-old former record mogul and the scrappy Israeli technology company may be one of the oddest in digital music's history of odd bedfellows. But Summer said he was convinced that iMesh was serious about becoming a copyright-respecting company, and it was his voice that helped convince his former colleagues to trust the technologists.

By the time a year had passed, and the copyright-friendly iMesh still hadn't launched, those former colleagues were losing patience. iMesh has spent considerable time over the past year showing off incomplete versions of its software to show its progress, but Summer said the company was feeling intense pressure to get something out the door.

"There was a bit of a whisper campaign that was encouraging us to get it going and get the product out there," Summer said. "But while we never ignored that or took it lightly...I understood that in an ultimate sense to be encouraging, to be a genuine interest in seeing us get it out there."

Label executives say they're happy with the results.

"There's genuine excitement about the offering," said Mitch Bainwol, CEO of the Recording Industry Association of America. "We're hopeful that that P2P becomes a legitimate part of the distribution of music."

Meet the new iMesh: iTunes plus MySpace
The new iMesh looks and acts a bit like the old file-swapping service, but it's designed more with the successes of Apple Computer's iTunes and the explosively popular MySpace social network in mind.

As before, the core of the service is searching for music. The vast majority of songs that are returned by any search are from

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