File Sharing's Close-Up - InformationWeek

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10/24/2003
11:51 AM
Tony Kontzer
Tony Kontzer
Features
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File Sharing's Close-Up

Music execs wish they'd embraced online business models sooner. Hollywood had better be quick to learn that lesson.

Hollywood loves a sequel, but there's one it's desperate not to have any part in. Think of it as a horror script with the working title "Subpoena 2: Curse Of The File Swappers," in which consumers are pursued by large companies. "You just don't sue your customer," says Ron Wheeler, senior VP of content protection at News Corp.'s $11 billion-a-year Fox Entertainment film and television group.

Wheeler is referring to the Recording Industry Association of America's recent subpoena campaign against music fans accused of illegally making copyrighted material available on file-sharing sites. Wheeler acknowledges that the RIAA may have been left with few options, but that's in part because the industry waited so long to offer a legal alternative. "There's a lot of sympathy for the music industry," he says. "It's clear that the legitimate music sites should have been offered much earlier, but hindsight is 20-20."

Ron Wheeler, senior VP of content protection at News Corp.

Legitimate music-downloading sites should have been offered earlier, says Wheeler, News Corp.'s Fox Entertainment senior VP of content protection.

Photo by Diana Koenigsberg
Hollywood wants to avoid a rerun of the music industry's experience. The Internet's effect on intellectual property, copyright, and content proliferation and protection pervades the music business today, and it's increasingly impacting other entertainment industries, with moviemakers providing the richest target. While it's easy to see Hollywood's problems as unique, they are fundamentally similar to those of most companies in other industries: protecting intellectual capital, developing a money-making online strategy, and keeping customers happy. How the music industry and Hollywood work out their Internet challenges will influence how E-business is conducted in the future.

The fact that metal detectors and security personnel with night-vision glasses have become a regular part of advance movie screenings illustrates just how dire the situation is becoming. Pirated copies of movies find their way online in several ways. Among the least sophisticated: Amateur bootleggers wielding digital video cameras sneakily shoot first-run films in theaters, then burn them onto DVDs and distribute the admittedly rough copies--often with silhouetted heads in the picture--via file-sharing sites such as Grokster, Kazaa, and LimeWire.

The more sophisticated optical pirates manage to record from tripods and tap directly into theater sound systems by adapting headsets available for the hearing impaired. Or unprotected DVDs are ripped onto PC hard drives and similarly uploaded onto file-swapping networks. On rare occasions, studio employees leak prerelease copies of big-budget films--accidentally or not--as was the case with the much-publicized fiasco in which an early edit of Universal Pictures' The Hulk made its way onto the Internet, creating an unfavorable buzz and possibly damaging box-office returns.

At an entertainment-industry conference in early October in Los Angeles, much of the discussion focused on how to create successful E-business models. An essential element is limiting the restrictions users find when purchasing movies and music from Web sites. "Unless the content industry steps up and develops the kind of flexibility consumers want, we're going to continue to have problems," Mitch Singer, executive VP of Sony Pictures' Digital Policy Group, told a room full of digital-media types at the Digital Hollywood conference. "We really need to build an architecture that's better than free."

Better than free--the words hung in the air like a Humphrey Bogart line. What would that look like? Is it enough to promise that paid services don't come with viruses, spyware, unpredictable quality, and subpoenas? In the view of Tyler Goldman, VP of business development for Movielink, a movie-download service backed by five of the major studios, the answer is simple: "We need to develop a great user experience."

While the studios are several technological improvements away from making that happen, the music industry has made great strides this year. No fewer than 10 legitimate online music services are up and running, and ever-improving usage rights give buyers more flexibility. Apple Computer's iTunes service has led the charge. When Apple launched iTunes in April, it was looking to shed a reputation for encouraging piracy with its "Rip. Mix. Burn." marketing slogan that sounded to music execs like their worst nightmare. Now, iTunes has sold more song downloads than any of the labels predicted, even before the introduction this month of a service for Windows PCs.

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