Napster wildfire spreads beyond music
As the Net overcomes today's size and speed barriers, Napster-like technologies could be used to trade everything from full-length movies to entire computer operating systems--basically, anything digital.
 | Music may be only the beginning of grassroots piracy
By Evan Hansen, John Borland and Mike Yamamoto Napster has done for piracy what America Online did for the Internet: put its technology within reach of the digital masses. But where AOL has catered to middle America, Napster has opened the door to an entirely different culture, one of evolving social values that some say encourages illegal activity. So far, the file-sharing software program and others like it have been used primarily to download digital music. However, as the Net overcomes today's size and speed barriers, these technologies could be used to trade everything from full-length movies to computer operating systems--basically, anything that can take a digital form.
Moreover, opponents say Napster-like technologies are proving far more
Already transcending music, Napster's wildfire popularity is forcing whole industries to reconsider their business models. Companies are realizing that the last shelter for the digital economy may be imaginative strategies that make use of widespread file-sharing rather than fighting it, just as most content companies abandoned online subscriptions for free Web sites years ago. Napster is fighting the record industry establishment and a pair of heavy-hitting music acts in court. In a case that has drawn international attention, the small software company is desperately trying to prove that it can keep hundreds of thousands of people from pirating rock band Metallica's songs on its service. Beyond its economic consequences, the Napster phenomenon bears profound social implications. In only a few months since capturing the public's attention, the technology has raised legal, educational and even moral questions while changing the very definition of commercial entertainment and how people use it. Hollywood braces for raid Arms race in PC software ISPs fight on both sides Games may point to future Go to: Hollywood braces for raid | | | |
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pernicious than previous forms of piracy, as underground programmers work to create diffuse networks providing safe harbor for the burgeoning trade. Industry countermeasures such as encrypted locks have touched off a virtual arms race that cannot guarantee lasting security.
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| Hollywood braces for raid The roots of Hollywood's concerns over online piracy can be traced to an exact date long before Napster became a household word--April 13, 1999, the day Microsoft released a new technology that allowed full-length films to be sent over the Internet in a fraction of previous download times. That secure software, barely noticed beyond limited engineering circles at the time, represented a nightmare that has haunted studio executives ever since the Internet began to go mainstream: that digital technology would undo their hammerlock control over film distribution. "The technology shift is not on the horizon. It's in the rearview mirror," said Scott Sander, chief executive of SightSound, which recently signed a distribution deal with Miramax to offer movies downloaded from its Web site. "It started happening when Microsoft released its new codec and we sold the first feature film on the Internet."
Although music has been at center stage of the Napster controversy, the major movie studios have believed that it would be only a matter of time before they were next. Those fears are becoming a reality with the emergence of software such as a hacked version of Microsoft's video compression technology. Suddenly, a new type of high-quality pirated movie is being born. The relatively small size of song files will always make them easier to download than a full-length movie, but the underground distribution of multimillion-dollar blockbuster films could be far more costly once high-speed Net connections become commonplace. The old boys' club of studio back lots also must confront some difficult cultural issues at work behind the Napster movement, most notably the belief that people shouldn't have to pay for movies, music, books or any other media. Even if Hollywood successfully adapts to this new digital landscape, the evolution of the Internet from the office to the living room and the palm of the hand may forever alter the way the world gets its entertainment--resulting in such fundamental changes as movies much shorter than the standard 90-minute feature, an end to the half-hour segmentation of television, and grassroots-led production of independent films.
The movie business has long been a subject of Internet activity, good and bad. Years ago, some studios feared that ticket sales were harmed by amateur reviews posted on sites and newsgroups after preview showings or opening nights. Conversely, Hollywood studios also have become adept at using the Net to create a buzz of their own, as witnessed in the guerrilla marketing of "The Blair Witch Project," and have attempted to influence the process by which Web addresses are assigned. With stakes so high, the Napster phenomenon has created palpable concerns on a level not felt since Japanese conglomerates trained their sights on the American movie business in the 1980s. None of the major studios contacted for this article agreed to be interviewed about their Internet strategies, but powerful Hollywood figures such as Disney chief executive Michael Eisner are clearly wrestling with piracy issues as never before. The sense of urgency is understandable, as it is already easy to find high-quality versions of pirated Hollywood films on the Net. For example, a complete VCR-quality version of the movie "Mars Attacks" can easily be found and downloaded in less than one hour over high-speed T1 lines, where it would have taken days with earlier, dial-up connections using standard modems.
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"What we don't want is a society where people no longer respect the value of copyrighted material," said Rep. Robert Goodlatte, R-Va., one of many legislators 
"Once the technology catches up with them, the film industry is going to have a real problem," said Bruce Eisen, executive vice president of CinemaNow, the online wing of Trimark Pictures. "Once the genie's out of the bottle, it's hard to put back in."
According to some in the software and entertainment industries, the official uncorking occurred when Microsoft released its so-called MPEG 4 video compression last year, which some have called the movie industry's version of MP3. With little loss of data, the compression software makes video files much smaller than those possible with earlier technologies--1/450 of the size, to be exact--allowing them to be transferred at far faster speeds.
Such multimedia developments have coincided with a proliferation of new search and file-sharing programs that have lowered the bar significantly for would-be copyright violators. These products allow mass piracy by putting sophisticated copying tools into the hands of even the most technically pedestrian consumers.
Appropriately enough, the origin of the best known of these file-swapping programs is itself the stuff of which movies are made. "Napster" was the childhood nickname of 19-year-old founder Shawn Fanning, who created the program while in school and then dropped out to continue developing it as a business. The company has declined to comment on many of the issues raised by its technology, citing pending legal action.
Since its humble beginnings, Napster has become the subject of a copyright lawsuits by the recording industry and some major artists, and a related tool dubbed Wrapster now allows the trading of movies and any other kind of digital files. But many similar programs with names such as Gnutella, Scour Exchange and Hotline also permit easy search and copying of everything from music and video to desktop PC software.
In fact, Gnutella has gained notoriety as the most dangerous threat. Using what are known as "distributed networks," the program links individual PCs directly without requiring a central controlling computer, as Napster does--making it infinitely more difficult to police.
"Gnutella is peer-to-peer. That's the worst," said Jonathan Taplin, co-chairman of Intertainer, which develops digital technology for the entertainment industry.
Created secretly by software engineers at America Online subsidiary Nullsoft, the Gnutella project was officially terminated when it came to the attention of senior managers, who sources say were particularly embarrassed in light of AOL's newly approved merger with media conglomerate Time Warner, long a target of piracy.
But before the action was taken, Gnutella was copied and posted on other sites around the Internet. The program has since become an "open source" project, owned by no one and therefore beyond the immediate reach of the courts.
"Instead of one bad-quality videotape for sale on the street, we could soon be talking about unlimited numbers of high-quality copies available on the Internet," Disney's Eisner said recently in an industry speech. "And new technology is making it faster and easier for users to download this kind of material."
Eisner outlined the industry's counterattack strategy, which includes such standard tactics as lobbying Congress for stronger copyright laws and developing more potent encryption safeguards. But others in the movie business and other industries wonder why it has taken the studios so long to address online piracy despite full knowledge of its devastating potential.
These critics say the industry has been obsessed with "old media" copyright violations through illegal videotapes and more recently digital video discs, not even attempting to gauge abuse on the Internet that could eventually prove far more damaging. "The entertainment industry is playing catch-up. Internet time is moving faster than they thought," a source in the software business said.
Until now, Hollywood had been operating on borrowed time because Internet movie piracy was limited by slow Internet connections and poor viewing technologies. But those barriers are starting to fall quickly with progress in video compression, fast Internet connections and powerful file-swapping technologies such as Napster that allow people to find and anonymously trade copyrighted works online.
"The main reason you haven't seen movie piracy alongside MP3 piracy is that feature films are a massive bandwidth hog," says Mika Salmi, co-founder and CEO of AtomFilms, which distributes short video and animation clips over the Internet. "The movie studios have taken some comfort assuming it'll be
some time before movies can be swapped online. But no one in Hollywood should assume they're immune."
Many film executives say their industry has learned from their music counterparts and are better prepared for the coming onslaught. As a result, established studios and online start-ups have begun offering films on the Internet, they say, and thousands of movies are available online at dozens of legitimate sites. iFilm.com, for one, claims an Internet library of some 4,000 clips.
That, of course, doesn't mean that they're happy with everything about the Internet. Like the music executives before them, movie moguls appear to be embracing a love-hate relationship with the new medium: On one hand, a full transition to digital moviemaking and distribution could mean huge cost savings; on the other, the same technology that creates this opportunity can be used against them in the form of piracy.
"There's an old saying that Hollywood is driven by fear and greed," Salmi said. "In this case, there is a fear of missing out, of staying on the sidelines."
It is here, however, where the studios could prove to be their own worst enemies. Steeped in a protectionist tradition that borders on paranoia, movie executives have long fought bitter and sometimes self-damaging battles against any attempts to copy and distribute their works without consent. Rather than adopt new business models that accept some piracy as a way of life, as have the PC software and gaming industries, many in Hollywood believe that the only way to address copyright violation is to hunt it down and kill it.
While entertainment companies are investing substantial resources to develop strong encryption and security features to thwart piracy, experts in this technology say such efforts will likely never rise above the level of limited deterrence. They say the movie studios will be forced to follow the music industry, which has begun experimenting with new business and distribution models as an antidote to rampant piracy of MP3 files.
"At the end of the day, any system can be hacked. It will be hacked--I guarantee it. The issue is less an issue of security procedures and more a question of business models," says Vincent Pluvinage, chief executive of Preview Systems, one of the leading online security services. "The end goal is not to have something so secure that hackers can't break through it. You want just enough to keep honest people honest."
That direction poses a deliciously ironic question for an industry not known for high-minded ethical behavior: What price honesty?
According to one rough economic analysis by entertainment attorney Schuyler Moore, Internet pay-per-view movies can't fall below $2.50 a pop to maintain viable revenues. Although that price is competitive with home video rentals, it may prove too high given the notorious frugality of online consumers--particularly in a market where free alternatives are only a few clicks away.
"If you make it easy to digitally download for a reasonable price, most people won't do something illegal," Intertainer's Taplin said. "Do you pay 25 cents for a newspaper and take all the copies out?"
But the obscene amounts of money unique to the production of today's movies allow for much less pricing flexibility in Hollywood than in other industries. For instance, an album can be produced for well under $1 million, while a blockbuster Hollywood film can approach $200 million.
Accurate figures measuring piracy in either business remain elusive at best, but the movie industry's stratospheric numbers are worthy of a George Lucas script. Even without wide distribution on the Internet, the Motion Picture Association of America estimates that global movie piracy cost $2.5 billion in lost revenue last year, of which $250 million took place in the United States. The recording industry says it loses about $4.5 billion a year, including $1 million a day in U.S. offline piracy.
Such numbers make it difficult to imagine a business model that could thrive alongside easily accessible, free-pirated versions of the same products. Though advertising and pay-per-view models have worked well on television, it is not certain they will translate as readily to the Internet.
"If you're going to distribute on the Net, it's instant distribution worldwide, and it's archived so you can watch it any time," explains Allen Weingartner, Internet contracts administrator at the Screen Actors Guild. "There is no afterlife for the product, no supplemental market to make up the cost. Where are the economies here?"
Rather than providing new muscle for Hollywood blockbusters, the Internet might more plausibly become a platform for promoting and distributing independent productions or even as a source of whole new categories of entertainment.
Craig Grossman, the head legal counsel for Scour.net, believes that fears over the new technologies have been overblown. His own company recently released its own file-swapping service, Scour Exchange, which allows audiences to find music, video, pictures and text on the Web, then trade them online.
"The movie industry came up with a model and a way of monetizing the VCR," he said. "The fact that the movie industry opposed that technology is, in retrospect, ridiculous. I'd put Scour in the same bucket."
But others believe that Gnutella-like programs will force deep changes on the industry well beyond the battle over copyright protection by forever shifting the balance of power among entertainment companies, artists and consumers.
"We're going from a linear medium, which is unidirectional and where only a few people control the pipes, to a networked medium, which is a many-to-many relationship," said Jim Banister, who recently left his job as president of Time Warner's Entertaindom site to create a new media company. "There's a whole different math to that. It's the reason AOL was able to buy Time Warner."
Go to: Arms race in PC software 
| Legal experts explain potential troubles for Napster fans By Evan Hansen As lawsuits pile up against Napster, individuals who trade MP3 files using the company's swapping software could be the next major targets for an angry music industry. This week, Napster blocked thousands of members whose screen names were identified by Metallica as belonging to potential music pirates. The hard-rock band and rapper Dr. Dre have filed separate lawsuits threatening to name specific university students who they allege have illegally downloaded their music. Napster also is being sued by the Recording Industry Association of America for contributing to vast amounts of music piracy allegedly taking place with the aid of its software. The legal action against individuals raises a new flag in the battle over MP3s. Is it possible for people who use Napster or similar music-swapping software to get caught and be held liable for damages that could run close to thousands of dollars? CNET News.com asked attorneys Judy Jennison and Kurt Opsahl at law firm Perkins & Coie for a road map to copyright infringement, Napster and you. Next: Can I be held liable? |
| Arms race in PC software Although Napster-like technologies have been used largely to share entertainment files, they don't know the difference between music and any other kind of digital material. That has led a troubled software industry to ask what it can do to stop these programs from being used to trade valuable computer products. The answer is still more disturbing: nothing. Already, software companies say, the Napster revolution has quietly begun spreading into the desktop computer market. Particularly vulnerable are smaller firms that depend on a limited number of products--sometimes one--and have scant time or power to prevent piracy.
Yet at least some software executives, while fully acknowledging the gravity of the situation, are surprisingly sanguine. The reason: They've been down the piracy road before, and they believe they'll survive again. True to their mathematical stereotype, many in the high-tech industry view the Napster issue with an almost clinical pragmatism. Large software companies are relatively unfazed by the prospect of another hacker insurgency, having spent years engaging the enemy in a digital arms race where encrypted protections are routinely written and broken. Unlike Hollywood, Silicon Valley has learned to live with a relatively high rate of piracy--estimates usually fall around 30 percent, conservatively--and have built their businesses assuming those damages as a fact of life. Some even consider piracy a necessary evil that helps spread product awareness in this age of branding-saturated marketplaces.
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| Sources: News.com, company sites |
"It's beyond a mere threat. We've been out on file-sharing services ourselves, and it's already being employed not only for MP3 files but also software programs, including operating systems," said Bob Kruger, vice
president of enforcement for the Business Software Alliance. "In office
software, you can expect to see Microsoft, Corel, Lotus. In presentation
programs, you're likely to see Adobe, Companies can take security measures such as strong encryption to fight piracy, but simple practicality comes into play here too: Such measures irritate consumers by making them jump through hoops before they can use the products, and even the highest levels of encryption are eventually cracked anyway.
"The software industry has been experiencing piracy for a while. Folks had to make a decision: whether to focus attention on usability or protection," one veteran of the business said. "You can make things easier to use or add more bells and whistles that are more able to protect."
That's why many believe that entertainment and other businesses will learn valuable lessons from the history of their software counterparts. Because of the unique pace and nature of their industry, software companies had grown accustomed to reinventing themselves in the face of rapidly evolving technologies long before the Web became the phenomenon that it is today.
Though Napster presents a serious threat to some companies, it could also provide the incentive to push many industry players to new business models that have long been planned but have yet to take off. Specifically, software companies could venture beyond the confines of desktop publishing and further onto the Web with services that essentially rent software applications as needed rather than sell them.
"There's lots of talk about 'apps on tap'--application services," a Silicon Valley source said. "There is room for creative people to charge for more services involving content that has already been available. Is it possible to invent a business model to license what has traditionally been sold through the back end with some kind of service? Sure."
Such a move could theoretically allow for more protection of copyrighted material because stronger encryption and other security measures could be used to protect a master copy of software that "can reside on some superserver," he said. "The issue of those who are able to load or abuse the permission to load ceases to be an issue. The distribution mechanism is really what we're talking about."
Any discussion about software must inevitably involve Microsoft, ruler of the land. The Redmond empire long ago made its peace with consumer piracy, viewing it as a relatively small price to pay while making the bulk of its money by licensing its products to businesses. Hardware companies, for example, pay enormous sums to sell their computers loaded with the Windows operating system and related products.
And that hegemony may have the interesting, if not unintended, effect of limiting the impact of the Napster revolution on PC software. Because so much of the landscape is shaped by the Microsoft business model, the thinking goes, software companies have come to expect a certain level of piracy as a normal part of business--as opposed to the zero-tolerance philosophy of the music and movie studios, where no single player has anything that approaches a Windows-like dominance.
"I think that Napster has a more direct impact on the music industry, more of a direct wake-up call," Microsoft attorney Tim Cranton said, though he stressed that piracy issues are a "prime concern" for his company and others.
In addition, from the consumer's perspective, the importance of quality and authenticity are very different issues when comparing software and entertainment.
"Copyright aside, you're not in danger of losing much by downloading a song from somebody halfway around the world. If the sound quality is lousy or the song stops halfway through, you just try another site," said Andy Oram of technology publisher O'Reilly & Associates, speaking as a member of Computer Professionals for Social Responsibility. "But would you trust software that you downloaded from some random site halfway around the world? Two years from now you may have a disk crash because of a flaw introduced maliciously or by mistake."
Nevertheless, few are confident enough to assume that Napster will be just a blip for PC software, especially after witnessing its geometric proliferation in music. Adding to the uncertainty is the specter of sweeping changes in business strategies if Microsoft is divided as proposed by the Justice Department.
Built solely for music files, Napster can tell the difference between songs and software--but only up to a point. The recently released Wrapster software allows would-be pirates to trick the Napster program and trade other types of files though the service.
In the near term, vast numbers of smaller software companies could be
immediately vulnerable, especially if their products are sold directly to
consumers and in files small enough to download with relative ease over
standard Internet connections. In years ahead, far more companies may be at
risk as high-speed connections allow larger and potentially more valuable
products to be pirated in just a few minutes, as opposed to several hours.
"It scares the hell out of us," said Tim Starback, general manager of Emigre, a small font software company in Sacramento, Calif. "We're basically a five-person shop. To devote any time at all to fighting piracy takes up resources that people don't realize."
He and many others find irony in the fact that the very medium high-tech companies helped create is now threatening their livelihoods.
"It's ironic that information technology software programs have in general fueled the protection of intellectual property rights. We wouldn't be here today without these advancements," Cranton said. "This phenomenon has come about because the Internet is so new and has so many freedoms. We want to capture that and capture e-commerce without sacrificing long-term gains."
That, however, may not be so easy for many as it is for large companies with the options and resources, such as Microsoft.
"New models are popping up all the time. But it's too new to jump on the bandwagon--first you're a portal, then a service provider...We're different, much smaller," Starback said.
He and others say many of those responsible for copying and sharing their works are teenagers who stop their mischief once they're caught and learn the gravity of their actions. But it's a Sisyphian task.
"With them, there's a three-month window," Starback said. "Then a whole other group comes along and needs to be educated."
Go to: ISPs fight on both sides
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Q&A (continued)
CNET News.com: Could a court hold me liable if I copy one song off Napster? How about 100 or 1,000 songs? What is my potential exposure in each case? Perkins & Coie: The Audio Home Recording Act (AHRA) allows for the use of digital audio recording devices for personal, noncommercial recording of copyrighted music--without liability. However, it is unclear if a computer would qualify for the exception, since at least one court has held that a computer is not a "digital audio recording device." That same case found that the main purpose of the AHRA was to permit home recording and noted that copying a song from a computer to the Rio MP3 player was paradigmatic fair use. If a court found that the exception did not apply, you may have fair use defense for copying, but the ability to raise that defense would diminish with a larger number of copied songs. If you were ultimately found liable, the Copyright Act provides for significant monetary damages--up to $150,000 per work infringed, if the infringement is willful. Beyond the letter of the law, is there a practical threshold of activity
that divides safe copying from actionable piracy? Is it worse from a legal standpoint to make illegal copies for myself or to
help others get them? Can I be held liable if people make illegal copies of files on my computer
through a program like Napster? Next: Should I delete my MP3s? |
| ISPs fight on both sides At the close of a recent television ad for Qwest Communications, a bored motel clerk captures the dream of the modern communications industry while barely lifting her eyes from the pages of a paperback book: "We have every movie ever made, in every language, any time, night or day," she deadpans to a startled guest. The hope of delivering on that promise is driving telephone and cable TV companies to invest billions of dollars in fast Internet services for the delivery of music, films and software to homes and businesses. As all of these products turn digital, the communications companies see themselves becoming latter-day video stores and record shops, reaping new profits as gateways to online entertainment.
At the same time, however, these high-speed thoroughfares can carry a
So what will these companies do if every movie, song or software title is suddenly available for free, through point-and-click programs like Napster or Gnutella? They're not sure. "No one would deny (piracy) could be one source of competition," said Mike Luftman, vice president of corporate communications for Time Warner Cable, which already offers some video-on-demand services. "I think we're going to be successful. But we've just got to evolve our way into this." This is an unfamiliar role for most communications companies, which have long acted as a kind of Switzerland of cyberspace in the fight between online pirates and copyright holders. Communications companies have staunchly resisted a direct role in blocking piracy, fearful of being held legally responsible for content flowing through their networks. They successfully won a "safe harbor" provision shielding them from liability in 1997's landmark digital copyright law, over the vehement objections of the copyright owners. But that neutrality is breaking down, as communications companies align themselves more explicitly with movie studios, record labels and other copyright holders.
For this reason, Time Warner's disbelief when it learned that America Online employees had created Gnutella, one of the most potent piracy tools on the Net, was particularly acute. Such paradoxes are not exclusive to AOL Time Warner. AT&T, too, has had a mixed relationship with the content business. The communications giant created the a2b digital music division and, in the two years since striking a deal to take over TCI, has refashioned itself as a cable TV conglomerate, with a financial stake in dozens of production studios.
Among the Baby Bells, US West is probably the most advanced, offering video on demand and a cable TV-like service on telephone lines as it cuts content deals with entertainment companies. Other local phone companies are also moving along this path, if more slowly. Yet none of this means that the communications companies will suddenly start rooting out the pirates using their networks. Firms large and small are unanimous in saying they don't want to be in the business of policing customer email, newsgroups or other online communications. Still, there may be other ways they can diminish the effect of piracy and boost their own role as content players in the process. "Our content providers are our partners," said Audrey Thomson of US West. "If they were to come to us and ask us to do something, as long as it's legal we obviously would consider it."
What form this "something" would take is still up in the air. Most major
"You have to have strong security in place all the way down to the PC or the set-top box," said Taplin of Intertainer, which works with US West and other carriers for video services. "That's a level of security beyond just putting things on the public Internet." The communications companies also have the ability to place their partners' content in locations that are physically close to individual consumers or even download it in advance to designated TV set-top boxes or PCs. That potentially improves the quality of service and almost certainly the speed of downloads, making pirated alternatives less attractive. Because these businesses are still in their early stages, the communications companies have barely begun to weigh the issue of piracy as a threat to their own services. Time Warner may be further along than most since the AOL merger and the wake-up call provided by Gnutella. Companies that don't have a background in content have not yet approached the issue in any concerted way, sources say. "I don't think it's a topic that has received a good deal of contemplation," said one recently departed Baby Bell senior executive. Whatever the outcome of the Napster-related controversies, the networks and their high-speed connections will be needed by those on both sides--whether it be copyright-holding content companies or individuals using Gnutella to share their files. That translates into profits for the AT&Ts and Bell Atlantics of the world, regardless of whether they're making money with their own content services. The unique position in some ways lessens the urgency in addressing piracy issues for the carriers, whose high-speed technologies give them far more business options than other industries--some of which have nothing to do with entertainment. "These are infrastructure plays. These things give the platform flexibility," said the former Bell executive. "If it's not music videos tomorrow, then maybe it will be video monitoring of the home." Go to: Games may point to future | | | |
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less-welcome byproduct: the risk of unprecedented piracy of copyrighted
material that had been too large to be spirited away in older, dial-up
connections. That could make them unwitting accomplices in the illicit mass distribution of the very products they are planning to sell in their expanded businesses.
studios and record companies have barely made forays into the digital age,
much less worked out complicated distribution deals with the communications
giants. But some smaller, tech-savvy companies are already serving as
middlemen for the studios, and they say that dealing with the network
companies can be a critical part of the anti-piracy effort.
| Games may point to future Behind the bloody legal battles over online music piracy are a few optimistic signs that the long-term danger to the entertainment industry and its copyrights could be limited. And those kernels of hope can be found in the unlikely place of the gaming realm. As record companies and movie studios scramble to find ways to protect their works online, the game industry--long wracked by a highly organized network of piracy--has already pioneered a subscription model that has both protected profits and proved extremely popular. The idea is simple but carries broad consequences for consumer entertainment: People might steal individual products. But if given new services for a relatively low price, such as access to the entire music industry's catalog at once, they may be willing to pay subscription fees that could render piracy almost irrelevant.
"These are growing pains, part of the move from being a product to being a service," said Jim Griffin, CEO of entertainment consulting company OneHouse.com and the original technology director for Geffen Records. "TV was the same thing. Was Jerry Seinfeld nuts? Nobody remembers paying him, but he still made billions." The computer game industry has long been a kind of stepchild to both Hollywood and Silicon Valley, viewed as an industry with enormous potential but without the clear mass-market appeal of movies or music. Nevertheless, the market for games has exploded in recent years as a buying public dominated by young, tech-savvy males spends billions of dollars annually on new titles and hardware to play them. But with these free-spending fans has come a curse. This group of aficionados overlaps strongly with the demographic characteristics of people most likely to be interested in and able to pirate the works and distribute them online. A highly sophisticated, competitively organized system of game piracy has flourished for years online, using technology such as private FTP servers, Internet Relay Chat (IRC) and, to a lesser extent, short-lived Web sites to distribute illegal copies of titles. A thriving "Zero Day" culture awards status to people who can crack the copyright protections on games and distribute them on the day of their release. The Interactive Digital Software Association estimates that hundreds of millions of dollars in annual revenues are lost this way, though no precise figures are available. The industry trade group predicts that today's new file-swapping programs could worsen the problem as they simplify wide distribution. "I think Napster and Gnutella are pretty serious threats to the games industry," association president Doug Lowenstein said. "As you get to more broadband, I think they become even more dangerous."
These games create virtual worlds online, where thousands of people at a time can log on and fight, bargain for goods, go on manufactured adventures or even create their own games within games. Bringing all of these people together becomes a valued service--and therefore becomes the product itself. "As far as piracy goes, it's practically impossible," said Hunter Luisi, the producer for Sony's "EverQuest." "'EverQuest' is a service--you have to supply a credit card and be billed monthly to play the game." The mainstream entertainment industry, which has traditionally made its money by charging per ticket, per package or some other kind of unit, has a lot of adjusting to do before music and film companies accept this idea. But a few signs show that the concept is beginning to take hold. Just last week, Sony and Seagram's Universal Music Group said they would jointly develop an online subscription service for their music, and other smaller companies are making similar moves. This kind of evolving business will certainly be supported by the cable and telephone companies who will take over the distribution role now served by video stores and record shops. But resistance from those old-world retailers, who hold considerable sway over the movie and music industries, could slow the online transition. Central to these new online businesses will be greater reliance on copy protection--so-called digital rights management technology that keeps would-be pirates from copying and distributing their wares.
These kinds of services, however, have had only mixed success in the The companies also are faced with making their protection systems as easy and convenient to use as free online swap meets like Napster and Gnutella. That's a tall order, according to those in the industry. "That's much harder to do than say, given that what we're competing with as a group of companies is a pretty seamless experience," said Larry Miller, president of rights management firm Reciprocal's music division. The brief life span of the much-maligned Divx video player, devised as a way to prevent unauthorized copying of DVDs, provides clear warning that consumers are skeptical of schemes that limit the way they can use their own possessions. "Napster and its clones have really opened the valve on the idea that information should be free, and it's not the nature of the Net to restrict that notion. This goes for all media, not just MP3s," said Wayne Chang, a high school student in Haverhill, Mass., who administers Napster's conversation boards. "The RIAA is trying to turn that valve back to closed, or at least try to tap it so that it's profitable for them." But the optimists predict that industry will offer services that easily overshadow Napster and other swapping programs. "If you could pay $10 a month for access to all the music in the world, why would you open your hard drive to other people?" Griffin asked. | | | |
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A few music companies are already beginning to 
But the new "massively multiplayer games" that are sweeping the gaming landscape--with titles like "Ultima Online," "EverQuest" and "Asheron's Call"--have successfully created one niche where subscriptions keep revenues flowing, even from players who might have pirated the game itself.
continuing struggle with hackers. The recent release of Stephen King's new work on the Web, whose copy protection was