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Fighting the final digital battle

Red Swoosh CEO Travis Kalanick says the long-standing chill between technologists and the entertainment industry may soon start to thaw.

I vividly remember sitting in a movie theater half a decade ago and seeing the Universal Studios globe turning in full Technicolor just before the start of the feature presentation.

As the U-N-I-V-E-R-S-A-L lettering made its way to the foreground, my heart sped up and my hands began to sweat. My reaction was only natural, as my last company had only recently been sued by Universal, and 28 other media companies, for a quarter of a trillion dollars. My partners and I ultimately were forced to settle with Hollywood, sell the company, and start anew in the peer-to-peer space.

At the time, it was my opinion that these media companies did not know much about this chaotic, uncontrollable medium but definitely knew they didn't like what our search engine was finding. So instead of using the precise mechanisms that existing law already provided for their protection (known as take-down provisions in the Search Safe Harbor of the Digital Millennium Copyright Act), these companies were certain they needed to slow things down with a scary, overwhelming message to would-be entrepreneurs and their investors.

For almost an entire decade, innovators in digital media distribution were chilled by the aggressive tactics of the entertainment industry to protect their analog interests. For many years, we essentially saw a lockdown on Internet distribution of media. Practical licenses for legitimate Internet distribution were forbidden, while lawsuit after lawsuit was wielded as a blunt tool and a stern warning against those creators (aka innovators) who had their sights set on staking a claim in the wild west of online digital media.

For almost an entire decade, innovators in digital media distribution were chilled by the aggressive tactics of the entertainment industry.

This chilly pursuit's last salvo came with the Grokster decision by the Supreme Court last month. The court's principled yet vague decision remains a Pyrrhic victory for the entertainment industry in its fight against piracy. There will be no substantial abatement of peer-to-peer piracy as a result of the decision. Maybe the only lasting innovation resulting from these pursuits will be the advent of distributed, noncommercial, anonymous networks that make for difficult tracking by copyright owners, law enforcement and oppressive foreign governments alike.

Ironically enough, in the decade to come, we technologists should see a reversal of our collective fortune in our relationships with the media industry. The cold winter of media distribution innovation has already begun its thaw and will enter full spring bloom in the coming years.

That may sound a bit iconoclastic given everything we've heard from some of our techie leaders. But it is absolutely clear that technologists and technology companies are well-positioned to win the post-Grokster peace.

After the Grokster decision, there is nobody left for Hollywood to fight. The Kazaa-like "infringers" either lost in the Supreme Court along with Grokster, or the few remaining have basically gotten the message and are finding ways to go "legit" as we speak. Without anybody substantial left to fight (not counting those millions of consumers who might still be using peer-to-peer software to directly infringe), all that is left is to think about taking this huge groundswell in demand for digital distribution and making a big business out of it. The entertainment industry has "won." All that's left is to actually take their own prodigious creative talent, and innovate new business models around digital distribution. The VCR is a prime example--once the industry focused on positive innovation, it realized a bigger billion-dollar business than from traditional box-office receipts.

After the Grokster decision, there is nobody left for Hollywood to fight.

Second, the very entertainment execs who architected the fight against digital distribution are well on their way to overcoming their fears. Years of evangelism by dedicated entrepreneurs (myself included) of the legitimate uses of peer to peer have gone a long way. The development of technologies like Snocap and Audible Magic to identify, filter and "protect" online services closes the final gaps that will make the executives' transformation to innovation a reality. For example, utilizing Red Swoosh peer-to-peer distribution technology along with Snocap's identification and registration technology could make an infringing peer-to-peer service into a noninfringing one with the flip of a switch. As such, the entertainment industry not only publicly recognizes that digital distribution is an opportunity, it has even started to point out in the last six months that peer-to-peer technology is not all bad, singling out and even licensing to commercial peer-to-peer businesses.

Third, the market is ready. Broadband penetration has gone well past 50 percent in the U.S. Devices that play high-quality audio and video (in cars, living rooms and via mobile devices) are deploying in the tens of millions--soon to be hundreds of millions. The online-advertising market that will support online content is quickly becoming a substitute for the traditional broadcast media. And, most importantly, the demand is there. Early experiments in online music, television and movies have passed the test. After only 18 months on the PC, iTunes accounts for a few percent of the global music market and is a huge growth vehicle (more than a half billion dollars in sales expected this year; over $2 billion in sales expected next year), leading the way for many initiatives across music, television, movies and other services, with ultimate market sizes that will dwarf their analog equivalents.

Regardless of whether we agree with the entertainment industry's means to this end, it is inevitable that a huge wave of digital distribution is about to come ashore. Licenses are coming, and lawsuits against technology companies will recede--the quest for massive commerce will trump the use of unproductive wasteful lawsuits against technologies.

This huge wave means enormous opportunities to innovate with widely available licensing that enables massive commercial distribution. And with content distribution everywhere, we should keep our eyes on the prize--if iPod/iTunes tells us anything, it's that for every $100 million in content revenues, there is more than $1 billion in technology purchases.

There will be hiccups and hard work along the way. Some of the more extreme digital rights management technologies and other security mechanisms are not the most fun, but market forces could make some of these paranoia-induced features go away. And for those who cringe when they hear the term "filter," I have some advice: Integrate filtering into all of your search, peer-to-peer and consumer applications and make it optional for the user (users get a checkbox that turns on safe, legal, filtered file surfing; unchecked users are on their own).

Media companies have nowhere else to go but online. The consumers are there, the advertising is there, and the technologies are there. But after the Supreme Court case, the perceived corporate "bad actors" that scare entertainment companies are not.

Content won't be free, but our ability to innovate will be--at least more than it was during the last decade.