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Week in review: Avast, ye pirates

Guilty verdict issued in Pirate Bay file-swapping case. Also, human error blamed for Amazon's delisting of gay and lesbian books, and Google finally feels recession's pain.

In a highly watched legal ruling, a court in Sweden on Friday found all four defendants in the high-profile Pirate Bay case guilty of having made copyright-protected files accessible for illegal file sharing.

The defendants were each sentenced to a year in jail and also ordered to pay a total of 30 million Swedish kronor ($3.6 million) in damages to copyright holders, among them a number of American media giants.

The four men--Peter Sunde, Gottfrid Svartholm Warg, Fredrik Neij, and Carl Lundström--were found guilty of having made 33 copyright-protected files accessible for illegal file sharing via the Web site.

"The crime has been committed in a commercial and organized form," Judge Tomas Norström said in a Web broadcast from a press conference in Stockholm. Warg and Neij are the founders of The Pirate Bay. Sunde is a programmer and a spokesman there, and Lundström offered technical services to the site in 2005.

Pictured, from left, are Pirate Bay defendants Peter Sunde, Fredrik Neij, and Gottfrid Svartholm Warg. Carl Lundström is not pictured. Pontus Alexander/Fabian Landgren

Copyright holders cheered the verdict, as the large penalty will likely discourage illegal file sharers, according to those in the music business. While the legal process still has a long way to go in the United States, Rick Carnes, president of the Songwriters' Guild of America, said he and everybody else "put out of business by cyberlooting" were smiling after the verdict.

Of course, even though the verdict has been handed down, legal actions are far from done.

"The prosecutor leads 1-0 after the first round, but this will, of course, be appealed," said Per E. Samuelsson, defense lawyer for Lundström, according to the Swedish newspaper Dagens Nyheter.

Meanwhile in the media word, controversy brewed this week when delisted from its sales ranking system gay and lesbian book titles that it deemed "adult."

When one author of novels with gay characters noticed that many books were suddenly deranked, he made inquiries into the matter and received the following response from an Amazon representative:

In consideration of our entire customer base, we exclude "adult" material from appearing in some searches and best-seller lists. Since these lists are generated using sales ranks, adult materials must also be excluded from that feature.

An online petition against the move attracted thousands of signatures and pointed out that the policy appears to be biased against books with gay, lesbian, and transgendered characters.

Of course, being delisted from the rankings doesn't mean that the book giant has stopped selling the title; it just means that the title won't show up with a public-sales ranking or in the best-seller lists--often a factor in how shoppers make their purchases.

One blogger claimed that he did it to cause an outrage among the gay community, a claim that was dismissed by Amazon representatives, who characterized the episode as "a glitch in our system, and it's being fixed."

However, an unnamed Amazon employee confirmed the report of manual error. "Amazon managers found that an employee who happened to work in France had filled out a field incorrectly, and more than 50,000 items got flipped over to be flagged as 'adult,'" the employee said.

Meanwhile, Amazon has reportedly blocked the use of the controversial behavioral-advertising system Phorm on its British site. The move comes as the European Commission takes action against the United Kingdom, alleging that the country failed to adequately comply with data protection laws in Europe.

Phorm's technology is designed to allow its customers to observe a user's behavior while online, such as Web sites visited or keywords entered, and then serve up relevant advertisements based on that behavior. The controversy over Phorm's technology revolves largely around privacy issues.

Google on the go
Buoyed by continued growth in search and by cost cuts, Google reported better-than-expected profitability for the first quarter of 2009. Google's net income increased 8 percent annually to $1.42 billion. Revenue increased 6 percent to $5.51 billion, but excluding commissions paid to advertisers (called traffic acquisition costs), revenue increased 10 percent to $4.07 billion.

Google's revenue growth rate has been slowing, but for the first time since it went public, the company's quarter-to-quarter revenue declined.
Google's revenue growth rate has been slowing, but for the first time since it went public, the company's quarter-to-quarter revenue declined. (Click to enlarge.) Google

But everything is most definitely not coming up roses. Google's revenue, after ascending steadily quarter after quarter, peaked in the fourth quarter and declined 3 percent in the first quarter. Google's business is still relatively strong, and it's been hit by the recession less than many in the tech world, but it's been hit nonetheless.

In short, people are buying less, and advertisers consequently are advertising less. As an Efficient Frontier study released earlier this week showed, advertisers are getting more conservative by bidding for search terms where there is a proven return on investment. Google Chief Economist Hal Varian's "Wal-Mart effect," in which people under financial pressure would steer more of their purchasing behavior through search engines in an attempt to get the best deals, has its limits.

Meanwhile, Google-owned YouTube has struck deals with a host of entertainment companies, including Sony Pictures, CBS (parent company of CNET News), Metro-Goldwyn-Mayer, Lions Gate Entertainment, Starz, and the BBC, to acquire "thousands" of TV episodes and hundreds of films. The new content will be available only in the United States.

YouTube executives also said during a conference call that they have redesigned part of the Web site to create separate areas for professionally made content. On the site's front door will be two new tabs. Movies from Sony Pictures will only trickle on to YouTube, at least initially. YouTube has agreed to display the films using a video player from Crackle, Sony Pictures' own video site. The studio will control all the advertising for the films, and Crackle will also get credit for the traffic.

So far, YouTube has been a free, advertising-supported service, but Google plans to build payment mechanisms into its video-sharing site. The change in tactics will mark a new era for Google's attempt to make money from YouTube. The service is tremendously popular, but also tremendously expensive to operate, and Google has been working hard for months to come up with a more successful financial formula for sharing video.

On the line
The founders of Skype have reportedly been trying to repurchase the Internet phone service. Niklas Zennstrom and Janus Friis sold their company to eBay four years ago for $2.6 billion. The two men have been meeting with private-equity firms and gathering their own funds to finance the deal.

eBay has acknowledged that Skype has few synergies with its core businesses. And eBay's chief executive has publicly stated that he's willing to sell it for the right price.

Zennstrom and Friis are reportedly encountering turbulence in striking a deal with eBay to buy back the Internet phone service, despite the financial backing from a group of large private-equity firms. KKR, Warburg Pincus, Elevation Partners, and Providence are reportedly teaming up with the Skype founders. But eBay and the founders' group reportedly face a wide gap on price, and a deal involving the private-equity firms appears unlikely.

Those efforts may be for naught, as eBay announced plans to spin off Skype with an IPO in the first half of next year. While eBay plans to launch a Skype IPO in the first half of next year, the company noted that its exact timing will be based on market conditions.

Last year, Skype generated $551 million in revenues, up 44 percent over the previous year. The number of Skype's registered users has increased to 405 million at the end of last year, up 47 percent from the previous year.

Meanwhile, Time Warner Cable has put the brakes on a trial that was testing its new "consumption-based billing" system for its broadband service. Chief Executive Glenn Britt said in a statement that there has been "a great deal of misunderstanding" by consumers and lawmakers who have criticized the plan.

Time Warner had quietly been testing its metered billing service in Beaumont, Texas, since last year. But last week, the nation's second-largest cable provider said it was planning to expand the test of the bandwidth caps to other cities, including Austin, San Antonio, Rochester, N.Y., and Greensboro, N.C.

The way the plan worked is that Time Warner would cap data downloads and uploads at 10 gigabytes to 60 gigabytes a month, with prices ranging from $25 to $65 per month, depending on the region. The company also planned to introduce a new plan that would have offered 100GB of downloads for $75 a month. Additional downloads would be charged $1 a gigabyte, with a cap of $75 on the extra fee, essentially making an unlimited plan cost $150 per month.

Also of note
CNN took control of the leading Twitter account as a race against Ashton Kutcher and Britney Spears to be the first with 1 million Twitter followers came to a close (Kutcher won)...Facebook is encouraging users to vote on whether proposed terms of service culled from user feedback should replace the existing terms of service...The man who co-wrote "Never Gonna Give You Up," the 1980s song revitalized by the Rickrolling phenomenon on YouTube last year, is accusing Google of exploiting him.