File-swapping leaders nearing D-day

With record labels' lawsuit threats pending, time left for eDonkey and its peers to make deals is running short.

The young chief executive of MetaMachine, distributor of eDonkey file-sharing software, appeared six months ago before a U.S. Senate committee and said his network--the world's most popular--was ready to turn over a new leaf.

Now Sam Yagan and his company are nearing the point when they'll have to deliver on that promise.

Music industry insiders say that pressure is building for eDonkey's makers and other peer-to-peer software companies to reach a final deal with record labels, turning off the free music and movie swapping that has gone on long after Yagan said it would stop. Yagan himself declined to give details on negotiations, but says he's hoping to have a final deal soon.

"I honestly had expected everything to move more quickly," Yagan said. "We look forward to a settlement (with the record industry) very soon. It's not months away, that's for sure."


What's new:
Companies that make and distribute file-sharing software are under increasing pressure to settle their disputes with the record industry, which has been cracking down on illegal downloads of music and videos.

Bottom line:
Peer-to-peer software companies can shut down, merge with or be acquired by an existing online music service or devise ways to prevent illegal downloads and allow users to pay for the files they swap. But the software companies point out that converting to a legal, industry-sanctioned service can be very expensive.

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eDonkey is the largest of the peer-to-peer software companies that have yet to make official peace with entertainment companies. But many others, such Lime Wire and BearShare, are at the same critical juncture, and the decisions their executives make over the next month could transform the face of file swapping.

The companies are facing recording and movie industry attorneys emboldened by last summer's Supreme Court ruling saying that file-swapping services could potentially be held liable for people who use their software to download movies, music and software illegally.

In September, the RIAA sent a round of cease-and-desist letters to big file-swapping software companies threatening imminent litigation if they didn't agree to settle and change their business models. A few, including Grokster, WinMX and I2Hub, have since closed their doors.

But the 28-year-old Yagan is among the few who have tried to keep their services alive while figuring out how to morph into industry-approved businesses.

It hasn't been easy.

Narrowing options
With the threat of an expensive lawsuit looming in the not-so-distant future, eDonkey and its peers have only a few choices in front of them. They could shut down. They could sell the company or merge with an existing or planned online music service. Or, as Israel-based iMesh has done, they could try to build a service that filters out unauthorized swaps and charges consumers fees.

eDonkey has been in talks with existing and planned legal peer-to-peer services, according to sources familiar with the discussions. iMesh Chairman Bob Summer declined to comment on specific negotiations but said his service is eager to acquire the user bases of other file-swapping companies, such as eDonkey.

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