The major recording and movie studios (studios) have faced an increasingly serious problem over past few years: they are losing billions of dollars in their sales of CDs and DVDs.
A large part of the problem is copyright piracy. For example, Russia was recently placed on the USA’s official piracy watch list, as US businesses have lost an estimated US$6 billion in the past five years due to Russia’s illegal production of CDs and DVDs (the problem is exacerbated in Russia by it’s cash-strapped military, who have begun turning their restricted military installations into high volume piracy operations, in the full knowledge that Russia’s police don’t have the jurisdiction to stop them—let alone the inclination to raid a military bunker filled with ‘pirates’ carrying Kalashnikovs).
However, the studios also view internet-based file sharing networks as a serious problem, and are starting to take aggressive action against network developers. They have had some significant wins in this area—most publicly against Napster several years ago in the USA, Grokster and StreamCast in the United States Supreme Court in June this year, and KaZaA in the Australian Federal Court in August.
However, the studios’ dilemma is that suing the developers of peer-to-peer networks is a very expensive and time consuming proposition, and even if a network is forced to close, several more will spring up in its place.
Therefore the studios seem to have adopted a carrot and stick strategy, the stick being to come down hard on the few peer-to-peer networks. For example, in the KaZaA case, the studios indicated that they would be seeking damages in the billions of dollars, and immediately seized AU$30 million of KaZaA’s assets. The carrot is encouraging legal file downloading; where the users pay a fee (eg $1) to download a song, a portion of which goes to the copyright owner in royalties.
The strategy may be working. The Wall Street Journal recently reported that Grokster was in negotiations to be acquired by the American company Mashboxx LLC, who is attempting to establish a legal peer-to-peer music operation. The intention appears to be that Grokster would provide their client base, and Mashboxx would pay Grokster’s current owners a portion of any revenue Grokster’s client base generates.
iMesh, another file sharing network which has previously reached agreement with the music industry to operate a legal paid service, also announced that it is in similar negotiations with other peer-to-peer networks. iMesh isn’t offering much money to acquire those peer-to-peer networks; the real value is in offering them a safe haven from litigation.
At the moment, the demand for free downloads is still very strong, and there is no shortage of peer-to-peer networks who are willing to provide that service. As long as this continues, it is difficult to see how the legal (ie paid) downloading services can compete. Therefore, the real question for the studios is whether enough fear has been created in the peer-to-peer networks to make them either shut up shop, or convert to the provision of legal services.
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