Video World's Not Safe From Napster

Cable World, Feb 19, 2001 by Richard Cole

Despite Chilling Court Ruling, File Sharing Remains a Threat

It's like that whack-a-mole arcade game. Every time a mole pops up out of a hole, you have to whack him on the head. But no matter how many moles you whack, a new mole always pops out of another hole.

That's one high-tech executive's take on the latest chapter in the Napster saga in the wake of the Ninth Circuit Court of Appeals decision upholding the recording industry's claims against the music file-sharing service.

There is no question the decision will send at least a temporary chill through the peer-to-peer file-sharing community, says The Yankee Group analyst Steve Vonder Haar.

"It is the type of decision that will give pause to anyone else thinking about doing their own peer-to-peer," he says. "Napster is going to deal with the cards it was dealt, but if you are a venture capitalist, you're not going to rush in."

No one believes the music industry -- and ultimately the video industry -- is out of the woods yet on peer-to-peer file transfers. First, the U.S. Supreme Court has a long history of reversing the Ninth Circuit -- especially on this kind of issue, notes Consumer Electronics Association president/CEO Gary Shapiro.

"The Ninth Circuit is the same Circuit that ruled in 1981 the VCR was illegal before the ruling was overturned by the Supreme Court," he says. "If that decision had stood, we would have no VCR or movie rentals -- to the detriment of Hollywood and American consumers."

And whether or not the decision is reversed, there is a widespread belief that peer-to-peer file sharing -- especially in a future broadband world -- will keep popping up to haunt the music and eventually the TV and movie industries, just like those pesky moles.

"You shouldn't become complacent if Napster is shut down," says Stephen Dull, a partner in the consulting firm Accenture's Convergence Marketing Practice. "The genie is out of the bottle, the toothpaste is out of the tube, and you're not going to put it back in."

He emphasizes the issue in the Napster case was copyrights, not the technology itself.

Within moments of the court decision, CNET released a list of five alternative sites for Napster users in case the service is ultimately closed down. They included Audiogalaxy Satellite and Gnutella, as well as CuteMX, which allows sharing of video clips and music.

And Sen. Orrin Hatch (R-Utah), noting that Napster users represent a huge voting bloc, called on the record companies to work with Napster to preserve the popular service in some form.

Napster partner Bertelsmann, which helped the site go semi-legit with a $50 million loan and a fee-charging plan, says the court ruling may ultimately kill free Internet music services. The Bertelsmann-Napster plan continues on track, the company insists.

Bertelsmann is also looking at Napster's approach for video, according to CEO Thomas Middlehoff, who has touted Napster as a possible "second AOL." This month Bertelsmann bought a majority stake in RTL Group, Europe's largest television company and is apparently examining peer-to-peer exchanges of RTL's ample video library.

It's not only Bertelsmann that sees gold in Napster's 50 million-strong user base. A company called BigChampagne is already using Napster to promote singer Aimee Mann by finding which users have her songs on their hard drives, then e-mailing them with a connection to her site.

Peer-to-peer technology advances daily. The same day as the Ninth Circuit ruling, Mountain View, Calif.-based XDegrees trumpeted its technology, which allows direct access from any laptop or home computer to content anywhere else. XDegrees assigns a numeric address to a computer -- only servers have such addresses -- and then an individual address to every file inside it. The result is instant networking and file sharing. XDegrees emphasizes the technology works with all files, including video, not just music or text.

Couple that with DivX technology developed by a French and German engineering team, which is a modified version of MPEG4 that includes MP3-like file compression. The technology, plus a card for the PC, allows viewers to store television shows and movies on their hard drives and includes TiVo-less replay capabilities. Once those files are on the hard drive, XDegrees technology will theoretically allow Buffy the Vampire Slayer or The Sopranos to be shared with anyone else, peer-to-peer.

The technology is far from hypothetical. A Texas company called SnapStream has a demo of its system in use at Rice University's School of Management. With SnapStream's Personal Video Station software installed on the network, professors can record programs such as CNBC's Power Lunch and PBS' Nightly Business Report onto computers from their offices or anywhere with a network connection. Those files are then shared across the network to any student or fellow faculty member wishing to view them.

Napster has shown that more than 50 million people are willing to share music, and for years online video garners have been illegally sharing computer games, forcing Sega and other companies to hunt out and shut down Web sites. Bootleg videos of Hollywood new releases are almost instantly available on the Net.