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Old 03-03-05, 07:25 PM   #1
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Default Peer-To-Peer News - The Week In Review - March 5th, '05

Quotes Of The Week

"Musicians are not universally united in opposition to peer-to-peer file sharing. To the contrary, many musicians find peer-to-peer technology . . . allows them easily to reach a worldwide online audience. And to many musicians, the benefits of this . . . strongly outweigh the risks of copyright infringement." – Artists’ Organization

"This is a direct assault on the Sony Betamax decision. Sony has been our Magna Carta." - Gary Shapiro

"There is simply no need for the Supreme Court to overturn, or even modify, its holding in the Betamax case. It is good law." – Charles Baker

"If this court should announce a more restrictive rule, those who create the latest advances in technology will halt or significantly scale back their work, for fear of massive copyright infringement damages." – Academics’ Organization

"The question really boils down to, will America's technology companies be hiring more engineers, or will they be firing engineers and hiring lawyers instead?" - Fred von Lohmann

"This whole thing bothers me because I come from an era when we built radios in high school and stuff like that. Being able to build your own TV seems really American to me. It's sad that the government wants to halt innovation – it's just un- American." - Jack Kelliher

"The judicial expansion of secondary copyright liability advocated by petitioners is precisely the wrong approach. It is simply impossible for the U.S. Supreme Court to craft a rule that will target only a particular business model connected with a specific technology without the threat that the new doctrine will be used by copyright owners-reputable or otherwise-to impose judicially created duties on legitimate businesses and technologies." – CTIA

"There is a bizarre but cool irony to the conservatives who hate the media we produce but defend to the death our right to make money when we produce it." - Hillary Rosen

Stop Don’t Stop

I got a new CD/MP3 player from Fry's Outpost this week. It came from the Connecticut store via the FedEx guy right after a blizzard. Knock-knock, new toy. It’s a GPX, which in the past seemed to stand for nothing but Generic Product X, the quickie marketing of drug-store junk from China, but now that everything comes from this expanding economic powerhouse the GPX people have the inside track on the good stuff, and the not-so-funny joke’s on the pricey name brands like Sony whose hemorrhages of cash are underscoring a sobering and inescapable fact that anything pro-consumer can now be made there. Note to clueless U.S. policy makers: China is wide open, they’re not spending a lot of time legislating things that restrict technology and they are kicking our ass. Pay attention. Anyway its inexpensiveness (20 bucks on sale) belies its good looks (round, smooth and inky-black w/a loosely stylelized Moon and Pleiades theme featuring a big curvy see-thru window) and with the exception of a hint of brightness and some minor smearing of hot-sibilants on MP3s the sound is clean and pretty effing good considering it cost less than a lot of the CD’s hawked by the RIAA today (hey, from what I’ve been told).

It plays MP3 singles and the folders I make when I burn entire albums, ignoring all the other stuff that collects inside them like cover jpegs, nfo and m3u files and assorted bits and pieces that seem to settle between the sound files like dust bunnies and could perhaps trip up lesser players; but it also does this cool thing I’ve never seen before: after I turn it on and it spins up and starts pouring out sound - it then with no warning at all stops the MP3 disc cold for a full minute while continuing to play the music! This eyebrow raising bit of magic is easily seen thru the large crescent-moon window and let me tell you it sure looks bizarre. Since it’s so visible it’s like seeing an LP die without hearing something along the lines of the octave dropping warbling of HAL crooning Daisy in 2001. It must be the RAM anti-skip delay working with some kind of brainiac battery-saving strategy which I’m sure makes a lot of sense even if every cell is protesting the unnatural suspension of all the Edisonian laws of rotational tunage I ever grew up with. It happened the instant I turned it on and I thought, "Fark, it's toast! Right out of the box! Quick, grab the FedEx guy!" But nope, it’s made that way. It works perfectly fine. Runs like a champ, in fact like an internal CD-ROM drive (they can stop too), but it’s the first time I’ve seen this in a portable. Course I haven’t bought a CD player in a while and who knows maybe they all do this now, but it gave me a little happy surprise knowing the tech guys are out there innovating, working the details, making improvements, letting us do more, not less, and still free to come up with new ideas to drive their industry forward. That and a foot of snow were my cool thrills for the day.



P2P Companies Set Stage For Supreme Court Appearance
Roy Mark

The final piece fell into place today for the U.S. Supreme Court to review its 20-year-old landmark Sony Betamax decision. On Tuesday, peer-to-peer (P2P) networks and their supporters filed briefs for the March 29 high court date. The entertainment industry filed its final briefs in January in a case that pits content owners against technological innovation.

"This is a direct assault on the Sony Betamax decision," Gary Shapiro, president of the Consumers Electronics Association, said in a press briefing. "Sony has been our Magna Carta."

Three years ago, the movie and music studios, along with a number of songwriters and music publishers, sued Streamcast Networks, which owns and distributes the Morpheus P2P software, and fellow file-sharing company Grokster for secondary copyright infringement, claiming the companies' software encourages infringement.

Streamcast and Morpheus rejected the charges, based on the 1984 Supreme Court Betamax decision, which established the precedent that technology is neutral. At the time, Hollywood contended Sony's video recorder was encouraging copyright infringement. The Court ultimately sided with Sony, ruling that the new technology had substantial non- infringing uses.

Relying on the Betamax standard, two courts have already ruled in favor of Streamcast and Grokster. In April of 2003, a U.S. District Court in Los Angeles said that while copyright infringement clearly happens on the P2P networks, the technology itself has legal uses. A year later, the Ninth Circuit Court of Appeals in Pasadena upheld the decision.

Hollywood appealed to the Supreme Court, and, in December, the high court agreed to hear the case. A decision is likely by the end of the summer. If Hollywood prevails in the case, it will be in a position to shut down the P2P services.

"For the past century, copyright litigation in this country has been an endlessly repeating cycle. Time and again, the corporations that control both artistic content and the current method of distributing that content ask the courts to protect them against new and better technologies, by banning those technologies," said Michael Page, Grokster's attorney.

Page added, "Time and again, the courts have refused to extend the copyright monopoly. ... That basic principle that copyrights, no matter how numerous, do not give the holders a veto over technological progress is at the heart of the Supreme Court's 1984 Sony opinion."

Streamcast CEO Michael Weiss accused Hollywood of "taking on the role of technology gatekeepers. Hollywood would have you believe they support technology, and they are just trying to stop the bad actors."

Citing the two court decisions in Streamcast's favor, Weiss said, "Morpheus is not illegitimate software. If there are bad actors out there, it is not us."

Page contended that the entertainment industry in its appeal is attempting to "grossly broaden the rules," while Weiss claimed the outcome of the case "will dictate the future of innovation for the next 20 years."

The entertainment industry is not alone in pursuing the P2P companies. The U.S. Solicitor General, the Progress and Freedom Foundation (PFF), the Business Software Alliance and the Christian Coalition of America all supported the music and movie industries by filing friends of the court briefs.

"Although the [P2P] technology can be used for lawful exchanges of digital files, that is not how Grokster and StreamCast use it. They run businesses that abuse the technology. At least 90 percent of the material on their services is infringing, and that infringement occurs millions of times each day," a Motion Picture Association of America (MPAA) statement claims.

Donald B. Verrilli, the lead attorney for the MPAA, said in January, "They [P2Ps] are abusing the technology. When you set out to run a business built on copyright violations, you're on the hook."

Streamcast co-counsel Charles Baker dismissed Hollywood's claims for a revision of the Betamax standard.

"There is simply no need for the Supreme Court to overturn, or even modify, its holding in the Betamax case," Baker said in a statement. "It is good law and has allowed the development and eventual commercialization of many so-called 'disruptive' technologies, such as the VCR, the CD player, Apple's (Quote, Chart) iPod and even the computer, all of which arguably allow the user to make multiple copies."


'Crying Wolf' Over P2P Piracy
Andy Sullivan

EFFORTS to stamp out online piracy could give Hollywood a veto over new technology and stifle innovation, peer-to-peer software companies and their supporters told the US Supreme Court.

If peer-to-peer software companies like Grokster and Morpheus are held liable when their users download material without permission, the entertainment industry will effectively dictate to technology companies how to design products that handle their material, they said on the day filings were due in the much-anticipated case.

Copyright holders have long sought to quash innovations from the printing press to the videocassette recorder to the CD burner that they have found threatening, they argued.

"How many times has the entertainment industry cried wolf?" said Streamcast Networks chief executive Michael Weiss, whose company produces the Morpheus peer-to-peer program.

Entertainment industry advocates said in a conference call that they don't oppose innovation, only companies designed to profit from the illegal copying of their works.

"We support anything that gets more people to see our movies, as long as they support property rights. The Grokster model doesn't promote property rights - it promotes stealing," president of the Motion Picture Association of America Dan Glickman said.

The US Supreme Court is expected to hear arguments in the case on March 29, with a ruling due by June.

Lower courts have ruled that peer-to-peer makers shouldn't be held liable because, like VCR manufacturers, they make copyright violations possible but can be used for legitimate purposes as well.

Millions of people each day use Grokster and other peer-to-peer programs to copy material directly from each others' computers. Recording labels and movie studios believe the practice cuts into their sales and have sued to hold the companies responsible for copyright infringement.

They have also sued individuals for distributing their material without permission over peer-to-peer networks.

The software is used by the US Department of Transportation to communicate with its remote offices, and musicians who want to encourage their fans to trade concert recordings, supporters said.

Grokster supporters include consumer electronics makers, technology-industry trade groups, consumer groups, venture-capital firms, and Internet service providers.


Artists Break With Industry On File Sharing

Some musicians say sites valuable means of distribution
Jonathan Krim

A prominent group of musicians and artists, breaking with colleagues and the major entertainment studios, is urging the Supreme Court not to hold online file-sharing services responsible for the acts of users who illegally trade songs, movies and software.

The group, which includes representatives of Steve Winwood, rapper Chuck D and the band Heart, said in court papers to be filed today that it condemns the stealing of copyrighted works. But it argues that popular services such as Grokster, Kazaa and others also provide a legal and critical alternative for artists to distribute their material.

"Musicians are not universally united in opposition to peer-to-peer file sharing" as the major records companies claim, according to a draft of the group's court filing. "To the contrary, many musicians find peer-to-peer technology . . . allows them easily to reach a worldwide online audience. And to many musicians, the benefits of this . . . strongly outweigh the risks of copyright infringement."

The arguments are a stark counterweight to an aggressive push by the major recording and movie studios, and hundreds of musicians, actors and composers, to persuade the Supreme Court that file sharing damages the livelihoods of artists by robbing them of proper compensation for their work.

Specifically, the studios want the court to rule that Grokster is liable for the file sharing by many of its users because it is primarily used for piracy and because it does not take steps to prevent it. The court is scheduled to hear the case March 29.

But the artists opposing the industry's position said shutting down the major file-sharing services, which are used by tens of millions of people worldwide, would instead rob them of a chance to gain exposure and income.

Before online file sharing, "distribution of recordings to retailers was controlled largely by a few large national record companies and by several 'independent' labels," they argue. "Young people aspiring to be musicians faced daunting odds of ever being signed by a record label."

One musician, Jason Mraz, said half of the fans who pay to see him in concert heard about him through illegal downloading, according to the court filing.

Meanwhile, file sharing gives accomplished artists, such as Janis Ian, a chance to control distribution of their work that might no longer be deemed worthy of commercial promotion and sales, the group said.

Attorneys for Grokster argued in its court filing that file-sharing services are used extensively for distributing works legally, either by permission of the artist or because copyrights have expired or were never sought.

As a result, the company argues, it meets the legal standard set by the Supreme Court in 1984, when it ruled that Sony Corp.'s Betamax television recorder was not liable for copyright infringement because it had substantial legal uses.

The entertainment industry's position also was opposed today by other file-sharing firms, major telecommunications companies, electronics makers, and coalitions of computer scientists, inventors, consumer and digital-rights advocacy groups.

They argue that holding technology creators, or the companies that handle Internet traffic, liable for the acts of their users would make it too risky for innovators to develop products that have legal uses and which enhance the enjoyment of digital entertainment.

"This case is simply the latest in a long string of instances in which copyright owners, frightened by a new technological development" seek to place restrictions on electronic devices, Internet access services, and even on personal computers to try to prevent piracy, said a filing by the major telephone, wireless and Internet service providers.

Instead, said companies including SBC Communications Inc. and Verizon Communications Inc., the entertainment industry can properly continue to sue individual file-swappers who break the law.

The Recording Industry Association of America has sued more than 6,500 people, and announced another 753 suits yesterday, including against some Grokster users.

The telecommunications companies also said Congress should decide how to punish services that exist solely to encourage and enable piracy.

The Distributed Computing Industry Association, which represents file-sharing and other technology firms, said the entertainment industry's real agenda is to protect its monopoly.

Grokster "threatens that monopoly by providing a near cost-free distribution mechanism, which supports far more content than even Web-based distribution systems," the group said.

Other groups filing briefs in support of Grokster's position include the Consumer Electronics Association, the Computer & Communications Industry Association, Consumers Union, the Consumer Federation of America, and Public Knowledge, a digital-rights advocacy group.


Showdown Looms for P2P Networks

File-Sharing Software Vendors Fight Movie Industry In U.S. Supreme Court
Grant Gross

A group of technology trade groups, consumer advocates, and lawyers have filed more than 20 briefs in support of peer-to-peer software vendors facing a U.S. Supreme Court showdown with the movie industry later this month.

Groups filing briefs in support of Grokster and Morpheus distributor StreamCast Networks argued that the movie industry's attempts to use courts to shut down the two P-to-P vendors would stop innovative new technologies from being introduced in the United States. The Supreme Court will hear arguments in the MGM versus Grokster case on March 29.

The entertainment industry attempted to stall several technologies, including the VCR, the copying machine, and tape recorders, as they became available, but in the end found ways to make money from those technologies, said participants in a press conference organized by digital rights advocacy group Public Knowledge. The case could affect the "entire American technology sector," said Fred von Lohmann, senor staff attorney at the Electronic Frontier Foundation, a digital civil rights group.

"The question really boils down to, will America's technology companies be hiring more engineers, or will they be firing engineers and hiring lawyers instead?" von Lohmann said.

Case Background

In the case, the movie industry sued the P-to-P vendors, arguing they were responsible for widespread copyright violations by people using their software. The 9th U.S. Circuit Court of Appeals ruled in August that Grokster, StreamCast Networks, and a site operated by StreamCast called Musiccity.com were not liable for copyright violations by their users.

Supporters of the Grokster position argue the movie industry is attempting overturn the Supreme Court's 1984 Sony Betamax ruling, which found that technologies with significant non-infringing uses--in that case, a video recorder--were not liable for their users' copyright violations. Movie companies and their allies argue that P-to-P vendors are "bad actors" because the vast majority of files exchanged through P-to-P software violates copyright law.

P-to-P vendors trying to build business plans around distributing digital products with permission of the owners take offense to being called "bad actors" by the entertainment industry, added Michael Weiss, chief executive officer of StreamCast Network. "Let me set the record straight: We're not bad actors," Weiss said. "Bad actors are underground or hiding offshore out of reach of the law. Bad actors don't take their fight to the Supreme Court."

Among the groups filing briefs in support of Grokster Tuesday were: the Consumer Federation of America, 60 intellectual property law professors, the American Conservative Union, the American Civil Liberties Union, 17 computer science professors, the National Venture Capital Association, Intel Corp, the Computer and Communications Industry Association, and the Free Software Foundation.

The Other Guys

At their own press conference, supporters of the entertainment industry argued that movie makers and musicians need to be compensated for their work, and if the United States fails to protect copyright law, technology companies will be hurt as their inventions or products are stolen. The position of Grokster supporters--that technological advances will be slowed if the Supreme Court rules against them--is "utter nonsense," said Ted Olson, lawyer for the advocacy group Defenders of Property Rights and former U.S. solicitor general.

"Technology will be stopped if the inventors and creators . . . of creative works aren't protected," Olson said.

The lower court's ruling "rewards and promotes illegal behavior, that is the theft of intellectual property," said Dan Glickman, president and chief executive officer of the Motion Picture Association of America. "We support anything that gets more people to see our movies, as long as it also protects property rights. The business model created by Grokster does not support property rights--it promotes stealing."

In January, a day after five technology-related groups announced briefs in support of Grokster, the MPAA announced about 20 briefs had been filed in support of its position. Among the MPAA's supporters were 40 state attorneys general; U.S. Senators Patrick Leahy, a Vermont Democrat, and Orrin Hatch, a Utah Republican; three major sports leagues, including the National Football League; the Association of American Publishers; the Independent Film & Television Alliance; and six music publishing groups, including the Songwriters Guild of America.


Academics, Artists, Others Back File-Sharing Firms Before High Court

Some of the nation's leading computer scientists are siding with file-swapping companies against the music and movie industries.

They were joined by tech firms and consumer groups, among others, in urging the U.S. Supreme Court on Tuesday to side with two online file-sharing firms in their high-stakes battle with Hollywood and the recording industry.

The recording companies and movie studios are appealing to the high court to reverse lower court decisions that absolved Grokster Inc. and StreamCast Networks, which distributes the Morpheus file-sharing software, of responsibility when their customers illegally swap songs and movies.

The justices are scheduled to hear arguments in the case March 29.

In briefs filed Tuesday, Grokster, StreamCast and their supporters urged the court not to reinterpret the legal doctrine it established in the 1984 Sony Betamax case. At the time, the court ruled that Sony's video recorder was legal because it had legitimate uses apart from making unauthorized copies of movies and television shows.

The entertainment industry has asked the court to reconcile the 20-year-old ruling to protect copyright holders it says are hard-pressed to safeguard their intellectual property in today's digital and online world.

``A rule like this will make it almost impossible for anyone to innovate or create new products unless they have the blessing of the copyright holders,'' said Grokster attorney Michael Page during a conference call with reporters Tuesday. ``And when the copyright holders also control the distribution systems, that blessing will not be forthcoming.''

A group of 17 computer science and engineering professors at nine universities, including Harold Abelson of the Massachusetts Institute of Technology, Edward W. Felten of Princeton and David J. Farber of Carnegie Mellon, stressed in their brief that they feared if the court sided with the entertainment companies it could chill technological progress in computers and the Internet.

``If this court should announce a more restrictive rule, those who create the latest advances in technology will halt or significantly scale back their work, for fear of massive copyright infringement damages,'' the professors' brief asserts.

Four consumer and public-interest groups also weighed in, arguing that any steps to change the Betamax doctrine would give Hollywood and other copyright owners the power to censor information technology that ultimately could benefit consumers.

Entertainment companies ``would turn this into a surveillance society in which every file is fingerprinted, every user is tagged, every transaction is monitored,'' said Mark Cooper, a spokesman for the Consumer Federation of America.

Others who filed briefs in support of Grokster and StreamCast included a group of law professors, the National Association of Shareholder and Consumer Attorneys, the National Venture Capital Association, Creative Commons and trade groups representing technology companies such as Intel Corp., Verizon Communications Inc. and Apple Computer Inc..

Intel also submitted a separate brief, where it argues that any changes to the Sony Betamax decision would put the onus on it and other companies to ``anticipate the potential uses of their innovations ...'' and then redesign their technology to make sure it doesn't violate copyright laws.

That ``would stifle innovation and dramatically increase the cost of such technologies and of the consumer and enterprise products based on those technologies,'' the company argued.

A brief by several recording artists, including the rock band Heart, rapper Chuck D and Sananda Maitreya, formerly known as Terence Trent D'arby, was expected to be filed later Tuesday.

The entertainment companies also count several recording artists, including Sheryl Crow, the Dixie Chicks and Avril Lavigne, and artists' unions among those who filed briefs supporting their appeal.

Several conservative family groups, professional sports leagues, state attorneys general from 39 states, the U.S. government, university professors and online services that legally sell music or movies, including Napster Inc., MusicNet and CinemaNow also filed briefs in support of the entertainment industry.


Cellular-Internet Group Joins Peer-To-Peer Supreme Court Case
Heather Forsgren Weaver

The Cellular Telecommunications & Internet Association (CTIA) has joined with several trade associations and telecommunications companies in opposing the entertainment industry's effort to create what it calls "a secondary copyright liability."

"The judicial expansion of secondary copyright liability advocated by petitioners is precisely the wrong approach. It is simply impossible for the U.S. Supreme Court to craft a rule that will target only a particular business model connected with a specific technology without the threat that the new doctrine will be used by copyright owners-reputable or otherwise-to impose judicially created duties on legitimate businesses and technologies," reads a brief filed late Tuesday by CTIA, the U.S. Telecom Association, the U.S. Internet Industry Association, AT&T Corp., BellSouth Corp., MCI Inc., Savvis Communications Corp., SBC Internet Services Inc., Sun Microsystems Inc. and Verizon Communications Inc.

The Supreme Court will hear oral argument March 29 in the case of Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd.

CTIA's friend of the court brief was filed on the side of Grokster, a peer-to-peer software provider.

The movie industry, after seeing the downloading that occurred using peer-to-peer software in the music industry, is concerned this could spill into other forms of entertainment.

CTIA argues that Congress, not the courts, should decide what is a violation of copyright law.


Anti-Piracy Begins at Home
Jon Newton

The Christian Coalition of America has fallen hook, line and sinker for spurious Big Music cartel claims that P2P file sharing applications have a major role in the existence of online pornography, including child porn.

The MPAA (Motion Picture Association of America) is trying to persuade the Supreme Court to overturn a lower court ruling that P2P companies aren't responsible for what users do with P2P technologies. Meanwhile, the movie industry trade group is suing more people it says are illegally distributing films online.

MPAA officials won't say how many lawsuits they've filed, or where. Nor will they say if any of the pirated movies in question originated with Academy Award "screeners," copies of nominated films that are sent to Academy voters so they can view them at home.

A report from AT&T Labs' Secure Systems Research program says that of 285 underground movies sampled, 77 percent were leaked by industry insiders.

Whom To Sue?

Academy of Motion Picture Arts and Sciences member Carmine Caridi, 70, was recently ordered to pay Warner Bros. US$300,000 for providing copies of "The Last Samurai" and "Mystic River" to Russell Sprague, 51, who then posted them on the P2P networks.

Mel Gibson's "The Passion of the Christ" was the most-posted movie on P2P networks in April last year. Gibson sued not file sharers but a Hollywood post-production company.

When asked about the new lawsuits, however, John Malcolm, MPAA director of worldwide anti-piracy operations, told the Los Angeles Daily News, "This is something we feel we must do."

He added, "The litigation targets movie fans who share digitized versions of films over peer-to-peer networks. Under the United States Copyright Act, each violator could be subject to fines of between $30,000 and $150,000 per violation."

Scare Tactics
Meanwhile, the Christian Coalition of America has fallen hook, line and sinker for spurious Big Music cartel claims that P2P file sharing applications have a major role in the existence of online pornography.

The Supreme Court will hear arguments in the P2P case on March 29. Briefs from Grokster and Morpheus , the principal defendants, and their supporters are expected today.

With senators Orrin Hatch and Pat Leahy leading the way, the four major record labels have been using the specter of online pornography, particularly child porn, to persuade groups such as the CCA -- which has zero interest in the music industry -- into backing them as they try to crush P2P file sharing, which, they claim, is devastating their multibillion-dollar businesses.

"File-swapping services make pornography easily accessible to minors, the social conservatives submit," says the Associated Press.

It's unlikely the Christian groups would have come up with this idea had not the cartel -- Sony (NYSE: SNE) BMG, EMI, UMG and Warner -- raised it in the first place as part of its effort to kill P2P.

The MPAA is still reporting record profits.


P2P Provider Pushes Advertising Model
Kristyn Maslog-Levis

Online digital entertainment distributor Altnet has confirmed plans to share revenue generated by advertising on popular peer-to-peer applications with independent music labels.

The independent label customers include V2, Artemis, Epitaph/Anti, Side One Dummy and Palm, Simmons/Latham, and Koch Media. Under the business model, the independent labels will share the revenue generated from advertising that appears in the user interface of popular P2P applications.

"Developing an effective revenue-sharing strategy where the P2P community as well as the record labels benefit has always been the primary objective for Altnet," Altnet president Lee Jaffe said in a statement.

"Through this advertising fund, top-tier indie entities and P2P forces have created a working group who, together with Altnet, Kazaa and other P2P application providers, will raise the value of the media being sold inside P2P applications and allow revenues to be shared back to labels through the Altnet pool," he said.

Altnet licensors will share in the initial pool. The fund will be split proportionately based on content licenses issued whether the music content is offered for sale, trial or for free.

Jaffe said the fund will initially serve as a catalyst to develop a business model for P2P resembling radio that is based upon audience segmentation and media performance.

Altnet is expecting the fund to grow considerably larger through participation of advertisers and labels who are seeking "innovative marketing for bands and brands using techniques and technologies offered via the Internet".

Kevin Bermeister, Altnet chief executive officer, said the business model will provide a partnership between music labels and the advertisers of p2p applications such as Kazaa and eDonkey to segment target demographics that each advertiser is seeking.

"Altnet's been promoting the advertising model for some time now. Altnet's key capacity is really to bridge the content transaction of end user with that of the advertisers. This model can help the advertising media reach end users that the advertiser is seeking. The end user is always seeking a piece of content be it games, film, band etc. Typically, contents are segmented into different demographics. When a user is seeking a type of content, essentially the advertiser knows the profile of that user.

"There is value in an advertiser being able to target a certain user demographic. The revenue essential makes its way back in part to the label and content provider and the end user also benefits. Although not yet apparent at this point, the [end user benefits] will quickly become apparent because there will be a reduction of the price on the content that is being offered to the end users. That's the way see it later on," he said.

Burmeister added that this business model can be applied globally, even with independent labels and local artists in Australia. Although the Australian major record labels are welcome to participate, Burmeister said they haven't had much luck with them.

"Altnet has had a long hard battle trying to attract music labels to work with us. We really haven't had much luck with them because of our relationship with p2p applications. We are hoping in time they will see through the wisdom of their ways and we will end up doing business with them.

"This is a precursor to that happening. Essentially, one of the reasons for this business model is to convince them. Independent labels are doing extremely well with us. Progressively, they are seeing the benefits of p2p, with this fund being one of them," Burmeister said.

Altnet is currently building relationships with advertisers in Australia as part of the new business model.



ISPs In Dark Over New Porn Laws
Chris Jenkins

INTERNET service providers remain in the dark about their exact obligations under new federal child pornography laws due to come into effect next week.

Service providers say they understand the broad intent of the laws, but had yet to be formally notified by the Australian Federal Police of exactly how they will be required to report and act on material covered by the new legislation.

"We are in the process of contacting the Federal Police to get some clarification about what is required," Primus general manger Campbell Sallabank said.

"This has come on ISPs fairly suddenly," he said.

Broadly, the laws require ISPs and content hosts to inform the Federal Police when they receive complaints about offensive material that can be accessed by via their network or is hosted on their servers.

However, they will only be required to act when there are "reasonable grounds" to suspect that the material constitutes child pornography or images of child abuse, rather than take action over each individual report.

"The amendments do not impose an obligation on ISPs and ICHs (internet content hosts) to take additional measures to ensure that their services are not being used in this way, for example, by monitoring usage," a summary document released by the Attorney General's Department says.

Nevertheless, ISPs are not clear about how the new regulations will work in practice.

TPG spokesman Alan Latimer said the company had been given little more information than had been published in the media.

"We are still absorbing it," he said.

Mr Latimer said his current understanding of the requirement was that ISPs would need to take action only in the event of a report from their customers, the public or law enforcement agencies.

However, TPG was still not clear on what action was required, he said, saying the company had yet to be told whether it would merely be required to report the offending material, or whether it would be expected to take it down or block access to it.

"We uncertain on the specifics right at this time," he said.

In any event, the new requirement would not mean major changes at TPG, he said. "Apart form the requirement of having to report it to the agency, we don't see it as much of an issue because us, and I'm sure all the other ISPs, have terms and conditions covering offensive material."

Mr Sallabank said Primus was very supportive of any measures introduced to combat child pornography and "will obviously comply with anything the Australian Federal Police put in front of us".

"It would appear as though they want to be notified if we know of anyone transmitting child pornography, and restrict access to any sites that are peddling child pornography. But that will require us to put some processes and procedures in place," he said.

"Certainly, an ISP does not want to have an obligation to police everyone," Mr Sallabank said.

He said while Primus already had processes in place to deal with law enforcement issues, staff would need to be informed of requirements of the new regulations.


Chinese Firms Face More Patent Suits

China's new electronics companies, lured by riches in foreign markets, are feeling the bite of well-honed patent protection systems that have become effective weapons of business war for their competitors.

Such lawsuits filed in the United States would have been considered little more than a nuisance by Chinese firms just two years ago, carrying little or no clout in China.

Multinationals are reluctant to file patent lawsuits in China, where intellectual property (IP) laws are new and the courts lack experience handling such cases.

But with China's exports of machinery and high-tech goods reaching $490 billion last year, up 45 percent from 2003, the threat of being shut out of lucrative western markets has become a potent deterrent against IP theft by Chinese companies, experts say.

"The Chinese companies have to care because if they don't they face several bad scenarios," said Tony Chen, an IP attorney at the law firm of Paul Hastings, Janofsky & Walker.

"If you lose a lawsuit, the court...could issue an injunction to stop your product from entering the U.S. You also face the prospect of very big damages. Also, your customers don't want to be exposed to liabilities."

In January, U.S. chip designer SigmaTel sued Zhuhai, China-based Actions Semiconductor in Texas. Weeks later, SigmaTel announced a settlement with Actions co-defendant Sonic Impact, a U.S.-based company that was using the Chinese firm's chips in its MP3 players.

But the main complaint with Actions has yet to be resolved, said Mike Wodopian, a senior vice president at SigmaTel.

"At the end of the day, from an overall market perspective the U.S. is still a huge consumer of these products," he said, explaining SigmaTel's decision to sue in the United States.

Attorneys said the number of IP lawsuits in the United States is relatively small, in the dozens each year.

But they added the number has been growing as companies try to nip new competition from China in the bud and avoid losing market share the way they did to aggressive competitors from Japan and later South Korea starting in the 1970s.

While it is difficult for an outsider to judge the merits of individual cases, and few lawsuits have made it to trial, foreign companies say Chinese firms routinely copy their technology, including highly complicated circuitries and production processes.

Such cases are not always easily resolved and can drag on for years. Most are eventually settled out of court.

One of the earliest, a suit by Japan's Sanyo Electric against Chinese battery maker BYD filed in California in 2002, was resolved earlier this month when the two companies reached a settlement.

In one of the most high profile cases to date, and one at the head of the recent wave, Cisco Systems in 2003 sued Chinese rising tech star Huawei Technologies in Texas for alleged IP theft. The two companies settled the case later that year.

More recent cases against Chinese firms, both filed in California, include a suit by a hard drive joint venture between Hitachi and IBM and one by Taiwan's TSMC, the world's biggest maker of made-to-order chips, against fast- growing Chinese rival SMIC.

TSMC and SMIC announced a settlement to their case late last month.

"Cases in the past often involved Japanese or Taiwanese defendants," said Sebastian Hughes, an attorney at the law firm of Preston Gates. "These days it's more mainland Chinese defendants. In some cases, such as SMIC, you have a Taiwanese or Japanese plaintiff suing in the U.S. It's come full circle."

Foreign companies may have more experience using the U.S. courts, but a growing number of Chinese firms are also finding they can use the system to their advantage in a range of disputes with their overseas business partners.

Two Chinese companies sued a consortium of DVD patent holders, including Philips, Sony, Pioneer and LG Electronics, alleging cartel-like behavior.

China's top TV maker, Sichuan Changhong Electric Appliances, sued U.S. distributor Apex Digital in California in December to recover an alleged $484 million in unpaid bills.

"The Chinese firms are drinking from a hydrant, they're learning," said Chen of Paul Hastings. "From the U.S. law firms, the education of Chinese companies about the possibility of filing lawsuits themselves is getting some effect."


EC Launches iTunes Pricing Investigation
Dominic Timms

The European commission is starting an investigation into the pricing of Apple Computer's iTunes digital music service, after consumers complained that downloading tracks was more expensive in the UK than other parts of Europe.

Officials are investigating whether price differentials between the UK and France and Germany of up to 20% are unjust and amount to a breach of EU pricing regulations.

The inquiry comes after Which? - formerly the Consumers Association - wrote to the Office of Fair Trading last September, asking it to look into iTunes' pan-European pricing.

In the UK iTunes charges users around 120 euro cents per track against the 99 cents it charges French and German users.

The OFT later referred the case to the EC, which today said it would begin an investigation.

"The case mainly concerns the fact that prices for the downloading of music tracks from the Apple UK website are, allegedly, substantially higher than the prices for the downloading of the same tracks from the other Apple websites - in particular the French and German websites," an EC statement said.

However, the investigation is also looking into complaints that UK iTunes users are being prevented from accessing cheaper tracks via other European websites.

Music fans in France and Germany must have a bona fide national address and a credit card or other payment method registered in the country to access the iTunes sites.

"The case is also aimed at verifying whether it is true that UK consumers are prevented from downloading the same tracks through the foreign websites and, if so, whether such territorial differentiation is compatible with EU law," the EC added.

Apple declined to comment, but in a response to the original Which? referral said its pricing was based on "the underlying economic model in each country".

"That's not unusual. Look at the price of CDs in the US versus the UK. We believe the real comparison to be made is with the price of other track downloads in the UK," Apple said.

Apple's iTunes has become by far the dominant force in the online music industry since it launched in Europe last June.

Globally it is estimated to have sold over 350m tracks to date, the majority in the US.

Analysts at US securities firm Piper Jaffray predicts iTunes to reach 513m downloads by the end of this year and break through the 1bn barrier in 2006.

But in addition to the EC investigation, Apple faces a number of legal actions, most based on allegations of monopolistic practices.

Earlier this year Californian Thomas Slattery filed a lawsuit seeking unspecified damages against the company for making iTunes' 1m-plus tracks available only to iPod users.

Mr Slattery claims he was "forced" to buy an iPod in order to take his music collection, which is first downloaded onto a computer, with him in a portable format. This, he claims, is a breach of US antitrust laws.

Earlier this month a French group sued both Apple and Sony, alleging that both companies' music services were anti- competitive because they only work with the companies' own music players.


Clear Channel Posts $4.7 Billion Loss in Fourth Quarter
T.A. Badger

Clear Channel Communications Inc. on Friday reported a loss of $4.7 billion in the fourth quarter of 2004, all of it due to an accounting change to comply with federal regulations.

Excluding the charge, Clear Channel's earnings were $214.3 million, or 37 cents per share, in the quarter ended Dec. 31, 2004, up 14.5 percent from the $187.2 million, or 30 cents per share, earned in the same quarter in 2003.

The per-share earnings matched the consensus of analysts surveyed by Thomson First Call.

The San Antonio-based radio and advertising giant reported fourth-quarter revenue of $2.31 billion, up 1 percent from $2.29 billion a year earlier.

Radio revenue was $965 million in the quarter, essentially the same as the fourth quarter of 2003, and its live entertainment division dropped 12 percent to $525 million. Billboards and other outdoor advertising rose 12 percent in the quarter to $686 million.

Clear Channel management also said Friday that it was pleased with early results of its so-called ``Less is More'' strategy, in which the company is emphasizing shorter radio ads and shorter commercial breaks as a benefit both to advertisers and listeners.

Demand and price of 15-second and 30-second ads were both up in the first two months of 2005 compared to a year earlier, it said.

``We know that shorter-length commercials work,'' John Hogan, chief executive of Clear Channel Radio, said during a conference call with analysts. ``We are giving advertisers an opportunity to deliver their message in a less cluttered environment.''

The new strategy comes as traditional radio continues to lose audience share to satellite radio, which doesn't interrupt programming with commercials.

A recently released survey by J.P. Morgan found that the absence of commercials is the single biggest factor in why many listeners are switching to subscription services like XM Satellite Radio and Sirius.

Randall Mays, chief financial officer, said Clear Channel will continue its focus on using free cash flow to buy back its stock. The company announced earlier this month that it plans to spend $1 billion for stock buyback over the next year, which it said would bring to $3.1 billion the amount spent on buybacks since early 2004.

For the full year, Clear Channel had a loss of $4 billion on sales of $9.4 billion, with the loss coming from the accounting change to satisfy a Securities and Exchange Commission rules interpretation in September on how intangible assets are reported.

Without special items, the company had a full-year profit of $845.8 million, or $1.41 per share, up from the $726 million, or $1.17 per share, earned in 2003.

Radio was up 2 percent to $2.16 billion for the year, the company said, led by growth in small and midsize markets that are more reliant on local advertising. In larger markets, it said it was hurt by lower ad spending by retailers, car dealers and telecom companies.

Revenue from concerts and other live events rose 4 percent for the year to $2.75 billion, and outdoor advertising grew 13 percent to $2.45 billion.

Clear Channel operates about 1,200 radio stations and 41 television stations in the United States. The company is also the world's largest producer of concerts and other live-entertainment events, and has significant interests in billboards domestically and overseas.

Its shares were down 91 cents, or 2.7 percent, to $33 in early trading Friday on the New York Stock Exchange. The 52-week trading range for Clear Channel is $29.96 to $45.22.
http://hosted.ap.org/dynamic/stories...LATE=DEF AULT


Calling P2P: Peer-to-Peer Networks Coming to a Phone Near You
Peggy Anne Salz

Nnapster, KaZaA, and Gnutella have fuelled consumers' passion for downloading and swapping MP3 music files—and BitTorrent and eDonkey are doing the same for video. Now, a handful of upstart vendors are poised to move peer-to-peer (P2P) file-sharing applications from the wired Internet to the wireless space to create an anywhere, anytime network for content creation and distribution.

Mobile phones, PDAs, and other devices are chock-full of features and computing power, and increases in storage capacity make these smart mobile devices the perfect platform for sharing content. "So, the question quite naturally arises whether peer-to-peer activities could be scaled down to mobile devices," observes Bob Emmerson, an independent telecoms consultant based in The Netherlands. "Previously, the computing power was in the central network switch. But, moving ahead, it will all be in the phone. And that's a shift that can either create or destroy value."

It still is too early to judge the impact of P2P on mobile content, but experience with P2P on the Internet speaks volumes. Estimates are that P2P networks Gnutella and KaZaA now make up a whopping 40% to 60% of Internet traffic.

KaZaA founders Swedish Niklas Zennström and Janus Friis are also responsible for the phenomenally successful Skype, which brought free voice-over-the-Internet to the masses. Not surprisingly, the duo sees room to extend the reach of P2P into the mobile market, as demonstrated by its recent deal with Germany's global electronics giant Siemens to build its technology into cordless phones and VOIP phones. Extending P2P functionality to mobile phones, game consoles, and other portable consumer electronics devices is only a matter of time. File-sharing already figures into Skype's roadmap; its latest software includes a file transfer capability of up to 2GB.

It seems inevitable that P2P will show up on a slew of wired and wireless devices beginning in early 2005. But rather than resist the onslaught, media companies would be well-advised to rethink business models in order to leverage P2P, observes James Enck, a telecoms and IP analyst at Daiwa Securities SMBC Europe Ltd. in London. "If big media can get comfortable enough with the DRM aspects, the very large, kind of hip user base that Skype is providing with large data transfer functionality represents a potentially interesting marketing channel for content, either as promotion or as sales," Enck says. He points to Weedshare, a Seattle-based group of musicians and developers that allows consumers to download files via a P2P network. Consumers can pay for the content if they want—or allow content to expire if they aren't interested in owning it. They can also share it with friends and are rewarded for the viral promotion. Enck sees the possibility for large media companies to cash in on the "social marketing aspects of P2P." Viral marketing can also empower small content owners to play a huge role in the market. "It has the potential to fundamentally change the content distribution business."

While P2P technology in the consumer market has been overshadowed by illegal file-sharing, the business model in the enterprise space is much more attractive. Nimcat, a provider of embedded call processing software based in Canada, takes the intelligence usually found in the central switch and distributes it to the end-user telephone handsets. Its objective is to provide P2P telephony to small and mid-size businesses with fewer than 100 extensions at low-cost. Because the intelligence is in the phone there is nothing to configure and no directories to populate. Put simply, employees can basically buy a Nimcat-powered phone, plug it in the wall, and make calls to colleagues in the same building and across the branch offices. In addition, users benefit from 150 telephony features including voicemail, call transfer, and conference calling—all built into the phone.

While file-sharing may not be Nimcat's top priority at the moment, Marc Gingras, VP of product management and marketing, can imagine companies leveraging this technology to vastly improve content management within the enterprise. "You could share files and also access the rights to files in a peer-to-peer fashion," he says. "This could also fit in well with call center and billing applications where the company has to share content in a seamless fashion." The company's first devices will hit the market in the first quarter of 2005.

Creating the "borderless enterprise" is also the main focus of Popular Telephony, a telecommunications middleware company with offices in France and Israel. It seeks to embed its Peerio P2P technology into devices such as VOIP phones, allowing direct communication between Peerio-enabled devices without the need for call controlling servers, switches, proxies, or gatekeepers.

Although no application is formally in the works, Dmitry Goroshevsky, Popular Telephony founder and CEO, has document sharing on his radar. "Peerio is creating a uniform infrastructure for sharing, storing, and finding anything," he explains. "Since there are no servers in this technology, content distribution is secure and address distribution is secure." This approach, he says, saves enterprises the cost of running document file-sharing solutions within the enterprise. "The technology has a 100% delivery rate. If the file is stored in a Peerio-enabled network, it is stored in a redundant manner and will remain there until somebody deletes it."

While the details behind the Peerio technology are somewhat sketchy, Goroshevsky is clear about his belief in the potential of P2P. "Our technology can theoretically scale to four billion end-user devices." That sounds like a market that would interest most content providers and may help brighten P2P's tarnished image.


Steal This File Sharing Book

What They Won't Tell You About File Sharing

Guide Rating - ****½

File sharing is a controversial subject. I was taught in preschool that sharing was a kind and respectful thing to do, but the RIAA and the MPAA get more than a little bent out of shape when you share "their" stuff. Peer-to-peer networks like the original incarnation of Napster, Kazaa, Morpheus and others that have appeared in their wake allow users to trade all sorts of files and data. This book covers every aspect of sharing, including how to secure and protect your computer while doing it.

The Book

This book is like a bible or encyclopedia of everything file sharing. It covers a broad range of information ranging from how and where to find shared files, to how to share your own files and the security and ethical concerns in between.

The first section, Starting Out, covers the basics of file sharing. When most people think of file sharing, they immediately think of peer-to-peer (P2P) networks like Napster or Kazaa, but there are also newsgroups, instant messaging and chat rooms, and web or FTP sites where shared files can be found.

Part 2, Stealing Files, covers the meat of how to get shared files and how to share your own files. Wang covers topics such as Protecting Your Identity, Protecting Your Computer and Miscellaneous Thievery among other topics in this section. Whether you want to know more about locating shared files or sharing your own files this section has the information you need.

Wang concludes the book with a section called The Future where he describes some of the legal and ethical concerns and what organizations like the RIAA and the MPAA have done to make it more difficult and more illegal for users to share work they own the copyrights for.

My Review

I love Wallace Wang's Steal This Computer Book 3. In this book, Wang takes his best-selling knowledge and writing style and focuses it on a new subject- sharing files.

I learned a lot in the opening section. I have been familiar with peer-to-peer (P2P) networking since the advent of Napster, but I was not aware that such a wide variety of sources existed for finding and sharing files. Wang points out web sites, FTP sites, instant messaging and chat rooms and more where you can share files.

Even better than that, he doesn't just list sites, but rather provides in-depth analysis of many, explaining what is good or bad about the different resources and pitfalls to watch out for. He also includes many graphic illustrations which help you understand the information better.

This book sheds light on a number of "fringe" file sharing tools and resources. The mainstream is familiar with the likes of Kazaa and Morpheus, but Wang delves into many more tools. He points out some of the things to watch out for when using some of the shadier tools and networks as well.

The RIAA and MPAA may not like it, but in some way, shape or form, file sharing is here to stay and this book will help you find what you need and use file sharing securely.


Books of the Times | 'Lipstick Jihad'

As if the Mullahs Were All Young at Heart
Michiko Kakutani

A Memoir of Growing Up Iranian in America and American in Iran
By Azadeh Moaveni
249 pages. PublicAffairs. $25.

In her compelling new memoir, "Lipstick Jihad," Azadeh Moaveni gives the reader a guided tour through the underground youth culture in Tehran, introducing us to kids who follow an " 'as if' lifestyle," as though their society were not under the thumb of hard-line mullahs, as though it were "permitted to hold hands on the street, blast music at parties, speak your mind, challenge authority, take your drug of choice, grow your hair long, wear too much lipstick."

She takes us to Ally McBeal nights in Tehran, to a "post-revolutionary, posh health club," to a Tehran fashion show and to a "techno-Ashoura" party, held on the anniversary of the holy day when the prophet Muhammad's grandson Hossein was martyred in the seventh century. She writes that "in Tehran, where Western movies were officially banned, everyone had a filmi, a video guy, who schlepped a trunkload of new films around to his clients' homes as a sort of mobile video store," and that many teenagers "worked fiercely to imitate music videos and Hollywood movies to every last detail," assuming, "with a touching naïveté, that all guys should act like Carson Daly."

Ms. Moaveni, who worked as a reporter for Time magazine in Iran before joining The Los Angeles Times to cover the war in Iraq, grew up in California, the daughter of Iranian émigrés. The story she tells in these pages is partly the story of her efforts to grapple with her own identity: as an Iranian growing up in an America unable to forget the Iranian hostage taking of 1979, and later as an American journalist in an Iran that remained, on an official level anyway, militantly anti-American.

It is the story of an American reporter trying to deal - personally as well as professionally - with the myriad restrictions placed upon women in Iranian society, and the story of a young woman trying to come to terms with her family's memories of an Iran now vanished and with her own conflicted sense of loyalty to both countries.

Growing up in California, Ms. Moaveni felt that "the shame of the revolution" placed enormous pressure on her and other second-generation children to fit in, "to be ever more exceptional," to "achieve more, acquire more degrees." When she moves to Iran in 2000, she finds herself becoming outraged over indignities perpetrated by the regime's morality police - indignities accepted by her Iranian friends with cynical resignation. Her friends in Tehran tell her that she smiles too much (a sure sign she is American), and remind her that in Tehran "having a facade is normal, because being honest is such a hassle."

This sense of being an outsider in two worlds may have made daily life difficult for Ms. Moaveni, but it also makes her a wonderfully acute observer, someone keenly attuned not only to the differences between American and Iranian cultures, but also to the ironies and contradictions of life today in Tehran - a city where men and women can ride motorbikes together but must queue in segregated lines at the passport office; a city where the restrictions on male-female relationships (meant to instill a solemn sense of decency) have inflamed people's carnal instincts, making them "preoccupied with sex in the manner of dieters constantly thinking about food."

Ms. Moaveni observes that the harsh dress codes imposed on women have encouraged an obsession with plastic surgery aimed at perfecting the face. She writes that "low-grade depression was a national epidemic" in Iran, and that since contempt for the system has tainted many people's traditional esteem for Islam, more and more people are turning to Eastern spirituality, yoga and homeopathy for relief. And she argues that "the mercenary survival skills young people had been forced to develop prevented them from making lasting attachments" because "love involved the suspension of selfishness, and the anarchic culture of the regime had made selfishness paramount."

Because Ms. Moaveni tends to rely heavily on sources who belong to the educated upper middle class, it's hard for the reader to tell just how representative her impressions might be. But her book lays out a rich, tactile portrait of her and her friends' daily life in Tehran, suggesting that "at some historic moment impossible to pinpoint, around the turn of the millennium, Iranians' threshold for dissimulation and constriction sank, and people simply began acting differently." Women stopped carrying socks in their purses (in fear that they would have to cover their sandal-clad feet) and began wearing lipstick. Cautious, penny-pinching citizens bought illegal satellite dishes. Intellectuals began writing "vicious satire and stinging commentary." And "people of all ages turned up music in their cars, caroused with the opposite sex."

Those residents of Tehran determined not to be "marooned at home with bad Islamic television," she writes, learned how to navigate the mullahs' rules and maneuver around the police. "A culture of transgression" flourished: women learned they could flout the limits on dress and comportment "in the right neighborhood, at the right time of the day or month, in the right way," just as young couples learned they could circumvent prohibitions "with the right verbal pretexts, at the right times, in the right places."

Ms. Moaveni argues that these grass-roots changes will eventually alter the trajectory of Iran's history, that the younger generation - born just before the revolution or along with it - "is transforming Iran from below": "From the religious student activists to the ecstasy-trippers, from the bloggers to the bed-hopping college students, they will decide Iran's future." She also notes, however, that the optimism initially engendered by the reform movement in the late 1990's has given way more recently to disillusionment, to the realization that with the hard-liners controlling the judiciary, the armed forces and state institutions, there are no easy ways to move a reform agenda forward.

She writes that many activists, subjected to harassment and blackmail from the hard-liners, "simply gave up their political work, in return for promises that they and their families would be left alone," and that "as the life was slowly pummeled out of the reform movement throughout 2000 and well into the spring of 2001," the thinking of many Iranians underwent a shift "from a specific hope vested in recognizable figures, to the distant, abstract conviction that things would change because they must."

In fact, throughout this volume, Ms. Moaveni seems to be in a dialogue with herself about the country's future: at one moment deeply depressed over the realization that "Iranian society was sick," "spiritually and psychologically wrecked"; the next moment angry at Americans eager to depict the country as "exclusively static, declining and repressive" and intent on ignoring the many ways in which social life there was changing. She laments the effect the revolution has had on people's lives and dreams, and yet contends that it had the ironic effect of making "a huge segment of Iranian society more tolerant": "By taking rigid moralism to such a bloated, extreme level, the regime had shown definitively that minding thy neighbor's religiosity was an ugly way to live."

After 9/11, with America at war in Afghanistan, Ms. Moaveni decided to return to the United States. Whereas she had been able up to that point to work "with a relative freedom that surprised" even her, the Iranian government had begun to clamp down, and her sessions with a government minder she calls Mr. X grew increasingly vociferous. In large measure, she suggests, this was because President Bush's depiction of Iran in his 2002 State of the Union address as part of the "axis of evil" had inflamed the government's suspicions and served as "a divine gift to the hard-liners, who were running out of excuses for their ongoing repressiveness."

Near the end of this illuminating book, Ms. Moaveni writes: "The country was under attack, said the hard-liners, and everyone needed to band together. Internal conflict would no longer be tolerated. If the ostensible goal of the Bush administration was to promote tolerance and democracy in the Middle East, thereby discouraging militancy and religious extremism, then its policies had neatly produced the opposite effect."


Internet Fame Is Cruel Mistress for a Dancer of the Numa Numa
Alan Feuer and Jason George

There was a time when embarrassing talents were a purely private matter. If you could sing "The Star Spangled Banner" in the voice of Daffy Duck, no one but your friends and family would ever have to know.

But with the Internet, humiliation - like everything else - has now gone public. Upload a video of yourself playing flute with your nose or dancing in your underwear, and people from Toledo to Turkmenistan can watch.

Here, then, is the cautionary tale of Gary Brolsma, 19, amateur videographer and guy from New Jersey, who made the grave mistake of placing on the Internet a brief clip of himself dancing along to a Romanian pop song. Even in the bathroom mirror, Mr. Brolsma's performance could only be described as earnest but painful.

His story suggests that the quaint days when cultural trinkets, like celebrity sex tapes, were passed around like novels in Soviet Russia are over. It says a little something of the lightning speed at which fame is made these days.

To begin at the beginning:

Mr. Brolsma, a pudgy guy from Saddle Brook, made a video of himself this fall performing a lip-synced version of "Dragostea Din Tei," a Romanian pop tune, which roughly translates to "Love From the Linden Trees." He not only mouthed the words, he bounced along in what he called the "Numa Numa Dance" - an arm-flailing, eyebrow-cocked performance executed without ever once leaving the chair.

In December, the Web site newgrounds.com, a clearinghouse for online videos and animation, placed a link to Mr. Brolsma on its home page and, soon, there was a river of attention. "Good Morning America" came calling and he appeared. CNN and VH1 broadcast the clip. Parodists tried their own Numa Numa dances online. By yesterday, the Brolsma rendition of "Love From the Linden Trees" had attracted nearly two million hits on the original Web site alone.

The video can be seen here.

It was just as Diane Sawyer said on her television program: "Who knows where this will lead?"

Nowhere, apparently. For, in Mr. Brolsma's case, the river became a flood.

He has now sought refuge from his fame in his family's small house on a gritty street in Saddle Brook. He has stopped taking phone calls from the news media, including The New York Times. He canceled an appearance on NBC's "Today." According to his relatives, he mopes around the house.

What's worse is that no one seems to understand.

"I said, 'Gary this is your one chance to be famous - embrace it,' " said Corey Dzielinski, who has known Mr. Brolsma since the fifth grade. Gary Brolsma is not the first guy to rocket out of anonymity on a starship of embarrassment. There was William Hung, the Hong Kong-born "American Idol" reject, who sang and danced so poorly he became a household name. There was Ghyslain Raza, the teenage Québécois, who taped himself in a mock light-saber duel and is now known as the Star Wars Kid.

In July 2003, Mr. Raza's parents went so far as to sue four of his classmates, claiming they had placed the clip of him online without permission. "Ghyslain had to endure and still endures today, harassment and derision," according to the lawsuit, first reported in The Globe and Mail of Toronto.

Mr. Brolsma has no plans to sue, his family said - mainly because he would have to sue himself. In fact, they wish he would bask a little in his celebrity.

"I don't know what's wrong with him," his grandfather, Kalman Telkes, a Hungarian immigrant, said the other day while taking out the trash.

The question remains why two million people would want to watch a doughy guy in glasses wave his arms around online to a Romanian pop song.

"It definitely has to be something different," said Tom Fulp, president and Webmaster of newgrounds.com.

"It's really time and place."

"The Numa Numa dance," he said, sounding impressed. "You see it and you kind of impulsively have to send it to your friends."

There is no way to pinpoint the fancy of the Internet, but in an effort to gauge Mr. Brolsma's allure, the Numa Numa dance was shown to a classroom of eighth graders at Saddle Brook Middle School - the same middle school that he attended, in fact.

The students' reactions ranged from envious to unimpressed. "That's stupid," one of them said. "What else does he do?" a second asked. A third was a bit more generous: "I should make a video and become famous."

The teacher, Susan Sommer, remembered Mr. Brolsma. He was a quiet kid, she said, with a good sense of humor and a flair for technology.

"Whenever there were computer problems, Gary and Corey would fix them for the school," she said.

His friends say Mr. Brolsma has always had a creative side. He used to make satirical Prozac commercials on cassette tapes, for instance. He used to publish a newspaper with print so small you couldn't read it with the naked eye.

"He was always very out there - he's always been ambitious," said Frank Gallo, a former classmate. "And he's a big guy, but he's never been ashamed."

Another friend, Randal Reiman, said: "I've heard a lot of people say it's not that impressive - it doesn't have talent. But I say, Who cares?"

These days, Mr. Brolsma shuttles between the house and his job at Staples, his family said. He is distraught, embarrassed. His grandmother, Margaret Telkes, quoted him as saying, just the other day, "I want this to end."

And yet the work lives on. Mr. Fulp, the Webmaster, continues to receive online homages to the Numa Numa dance. The most recent showed what seemed to be a class of computer students singing in Romanian and, in unison, waving their hands.

Mr. Reiman figures the larger world has finally caught on to Gary Brolsma.

"He's been entertaining us for years," he said, "so it's kind of like the rest of the world is realizing that Gary can make you smile."


Sad, Lonely? For a Good Time, Call Vivienne*
Keith Bradsher

Men, are you tired of the time, trouble and expense of having a girlfriend? Irritated by the difficulty of finding a new one?

Eberhard Schöneburg, the chief executive of the software maker Artificial Life Inc. of Hong Kong, may have found the answer: a virtual girlfriend named Vivienne who goes wherever you go.

Vivienne likes to be taken to movies and bars. She loves to be given virtual flowers and chocolates, and she can translate six languages if you travel overseas. She never undresses, although she has some skimpy outfits for the gym, and is a tease who draws the line at anything beyond blowing kisses.

If you marry her in a virtual ceremony, you even end up with a virtual mother-in-law who really does call you in the middle of the night on your cellphone to ask where you are and whether you have been treating her daughter right.

She may sound like a mixed blessing, decidedly high maintenance and perhaps the last resort of losers. But she is nonetheless a concept that cellphone system operators and handset manufacturers are starting to embrace.

Vivienne, the product of computerized voice synthesis, streaming video and text messages, is meant not only to bring business to Artificial Life (she will be available for a monthly fee of $6, not including the airtime costs paid to cellphone operators or the price of virtual chocolates and flowers). But she is also meant to be a lure for the new, higher-tech, third generation, or 3G, cellphones.

Vivienne, who may soon be joined by a virtual boyfriend for women and, after that, a virtual boyfriend for gay men and a virtual girlfriend for lesbians, is at the leading edge of a wave of services that companies are developing to take advantage of the much faster data transmission rates made possible by 3G technology.

These include the ability to download everything from high-resolution television news broadcasts to music videos to trailers of the latest movie releases.

Cellphone games are already available in Korea and Japan that allow users to change the clothing, hair style and other features of doll-like images of people. Vivienne - and similar games that are likely to follow from other companies - is distinctive in that she is a figurine who appears to be three-dimensional and moves through 18 different settings like a restaurant, shopping mall and airport.

She can converse on 35,000 topics, from philosophy to movies to sculpture. Artificial Life tweaked and reused close to 70,000 questions and answers on banking alone for Vivienne - those questions were developed for an unrelated contract for a Swiss private bank.

The cellphone chip cannot manage all of this; instead, the phone merely communicates with servers that run the program. The servers use so-called expert systems for dialogue, a specialty of Mr. Schöneburg, a former professor of artificial intelligence and neural networks who used to work on expert systems for German military projects.

But Artificial Life has already run into delays in introducing Vivienne to men in Asia and Europe. It originally hoped to have her flirting on cellphone screens by last Christmas.

The problems have ranged from the cosmetic - Vivienne is being reprogrammed not to bare her navel or display body piercings in conservative Muslim countries like Malaysia - to the technological.

"Every cellphone is a little bit different," and the programming must allow for this, said Stephen Leung, the project manager at Artificial Life.

She is now scheduled to become available, so to speak, in Singapore and Malaysia by the end of April, in Western Europe by late spring and possibly in a few American cities by the end of the year.

The delays are indicative of the broader problems facing 3G technology and the businesses that hope to piggyback on it. Users have complained of batteries that run down quickly, dropped signals while driving or in fog or rain, and phones that cost several times as much as current models unless the cellular service company subsidizes them. Cellphone operators have found that consumers are slow to sign up for costly video services, using 3G phones mostly for voice calls.

3G phones currently account for less than 2 percent of the world's handsets, but that proportion is starting to grow quickly, industry specialists said. The technology allows cellphone system operators to transmit voice as well as data more cheaply than existing systems once the initial investments are made.

"It is happening because it's driven by cost savings for the operators, and they've already paid for the spectrum," said Duncan Clark, the managing director of BDA China Ltd., a telecommunications consulting firm in Beijing.

At an Internet game parlor here, packed with young men busily shooting or chopping apart a wide variety of villains and monsters, there was no clear consensus on whether people would pay to exchange valentines with Vivienne.

"It's a little bit for the losers," said Rick Wong, a 32-year-old off-duty security guard, who nonetheless added that, "even people who have girlfriends, well, girlfriends are not perfect, so they may play anyway."

Yet the willingness of companies like Artificial Life to invest in applications for 3G shows the complexity of programming that the new cellphone technology will permit.

Vivienne, for instance, will double as a translator for travelers. Type in the desired words in English while traveling and, with additional programming in the next few months, her synthesized voice will coo it back in Chinese, Japanese, Korean, German, Spanish or Italian.

"You can say, 'What is chicken soup in Chinese?' and she will say it out loud, so you can give it to someone when you order," Mr. Schöneburg said.

Users must type in their questions as they would a short text message on a cellphone, as the system software does not include voice recognition. Vivienne responds with both a synthesized voice and text.

Vivienne's largest database is for processing those difficult conversations about romance and intimacy. "People will see that they can't have sex with her, but they'll try to," and Vivienne has many ways to hold them off, Mr. Schöneburg said.

Vivienne is fairly prudish, partly because Artificial Life is hoping the market will include teenagers from affluent families. Artificial Life has been contacted by companies interested in the development of a racier version, and perhaps even a pornographic version, and may license the technology but will not enter that market itself.

Partly to prevent anyone from becoming addicted to Vivienne's charms, the program will limit users to an hour of play time a day.

Even an hour could be costly. The monthly fee will not include airtime for the data - a big incentive for cellphone operators to offer the service, notwithstanding recent questions about whether teenagers have been running up excessive cellphone bills even without virtual relationships. Mr. Schöneburg predicted that most subscribers for Vivienne would be able to entertain her using the free data allowance provided with the initial monthly fee for 3G service. But subscribers who use the basic allowance for other services could end up paying several dollars a month more to the service provider.

Users eager to advance quickly toward a virtual kiss or even marriage should know that she has a faintly mercenary appreciation for gifts, from flowers and chocolates to cars and diamond rings. Some virtual gifts are free, but others will require users to make real charges against their monthly phone bills of 50 cents to $2.

"The money goes to us," Mr. Schöneburg said, grinning at the prospect of lovelorn suitors around the world paying real money to woo a computer program.

Vivienne does offer a way to test out approaches to a virtual woman before trying them in reality. "If you buy her a membership to a gym, she may take offense and say, 'What, am I too big for you?' " Mr. Schöneburg said.

Artificial Life is not suggesting Vivienne is any substitute for a flesh-and-blood girlfriend. "I hope they think of her as a companion," said MaryAnna Donaldson, the company's creative content editor, "and will see her as a practice round before the real one."


Music Download Prices Rising?
Music industry execs say prices, set low to stimulate demand, need to move higher: report.

Just as legal music downloading is taking off in earnest, the major record labels are in talks to raise the price they charge online retailers for song downloads, a newspaper reported Monday.

The Financial Times, quoting unnamed music executives, said wholesale music prices, thought to be around 65 cents a song, were originally set artificially low in a bid to stimulate demand. The executives noted the success of Apple's hugely popular iPod digital music players, the report said.

The move by the music labels was said to anger Apple's chief executive Steve Jobs. Apple, which charges 99 cents a song to download music from its iTunes online store, accounts for about 65 percent of all legal downloads, according to the paper. The executives noted that prices to download mobile phone ring tones are roughly 10 to 15 percent higher than song downloads, according to the newspaper.

But just as music lovers are being coaxed into using legitimate download services, price jumps could prod them back to piracy, industry analysts said.

"I think whoever came up with this idea understands the online music industry about as well as a cow understands algebra," said Phil Leigh, senior analyst for Inside Digital Media.

"If the labels really want to fight piracy, it defies logic to increase prices and create more of a disincentive for the consumer to use legitimate providers. If they want to encourage the public to use legitimate online pricing, raising prices is about the last thing they should think of doing."

Music download sales totaled about $300 million last year, roughly three times its total for 2003, according to Josh Bernoff, principal analyst for Forrester Research. Music labels are believed to charge about 65 cents a song wholesale.

Given the threefold revenue jump, industry moguls might feel he time is right to hike the price, analysts noted, though they criticized the strategy.

"If you're looking to have this market develop, this is a really bad time to increase rates," said Michael Goodman, senior analyst for The Yankee Group. "You need to be careful about killing the golden goose. If they do raise rates, they're just getting greedy, and they're running a very significant risk of seeing those rates decline significantly."

But greed and ethics are not the issues -- supply and demand are, according to Forrester's Bernoff, who noted the music labels have been battling illicit downloading services for years.

"The right price has nothing to do with greed," said Bernoff. "It has to do with demand."

If piracy was somehow stamped out, the environment could support a price jump, but that's irrelevant so long as illicit downloading is alive and well, said Bernoff. The lure of free music was being countered by the fear of prosecution for illegally downloading, but an increase could draw legitimate consumers back to the shady world of piracy.

"People would go right back to stealing music," said Bernoff.

Aram Sinnreich, music industry analyst for the University of Southern California, said increasing prices would be a "major mistake" and that any price over a dollar would "nip the emerging consumer trend in the bud." Sinnreich said the story was probably leaked as a "weather balloon" to test the market, but it could have legal repercussions for the industry if it ever comes to fruition.

"The major labels should take care so as not to appear that they're discussing the rise in wholesale prices in any collusive way," he said, noting that illegal collusion could bring down them the wrath of the Justice Department and other regulators.

Spokesmen at Sony BMG Music and EMI declined to comment.

Officials at Universal Music and Warner Music could not immediately be reached for comments.


For a Start-Up, Visions of Profit in Podcasting
John Markoff

The primarily amateur Internet audio medium known as podcasting will take a small, hopeful step on Friday toward becoming the commercial Web's next big thing.

That step is planned by Odeo, a five-person start-up that is based in a walk-up apartment in this city's Mission District and was co-founded by a Google alumnus. The company plans to introduce a Web-based system that is aimed at making a business of podcasting - the process of creating, finding, organizing and listening to digital audio files that range from living-room ramblings to BBC newscasts.

Audio files on the Internet are nothing new, of course. But the recent proliferation of portable iPods and other devices for storing and playing files in the MP3 audio format has created a mobile audience in this country - more than 11 million and growing - on whom podcasters are counting to listen to much more than downloaded songs and the occasional audio book.

The question for Odeo, and for the many other entrepreneurial efforts almost certain to come, is whether there is any money to be made from podcasting. Recall that the dot-com boom was full of start-ups betting on one or another notion of the Web's potential. But for every felicitous pairing like Google and keyword searching, there were dozens of broken marriages like Pets.com and online dogfood sales.

In podcasting, there are already a number of small commercial efforts to create audio programs especially for listening to as mobile downloads. And there are both hardware and software systems that make it possible to convert over-the-air and Internet radio broadcasts for mobile storage and listening on MP3 players. One recent example is Radio Shark, a small device that sells for $70 and enables users of Macintosh computers to automatically record over-the-air radio programs and convert them to MP3 files for later, on-the-go playback.

The enterprising Web logger Adam Curry, a former MTV host, has created a podcast show called Daily Source Code, in which he plays music and chats about whatever is on his mind. The show, free so far, has several thousand daily listeners, he says.

Last week, Audible.com, which in 1994 pioneered the idea of using the Internet to download audio books and other audio material to personal computers, said that it would soon join the podcasting movement. The company, whose business currently includes distributing popular radio programs like "Car Talk" on a subscription basis over the Internet, now says it intends to make its software and distribution system available to people who want to produce their own podcasts.

"When I started Audible and we started signing up radio partners, people would ask me, 'where does your technology leave radio?,' " said Donald Katz, Audible's chairman. "Now it's clear that the creative capacity that is out there greatly outstrips the capacity of the radio pipeline."

But he also warned that podcasting has become the Internet buzzword of the moment and so is at risk of being overhyped. "Podcasting is drafting on the magic surrounding the word iPod," he said.

Compared with the other various approaches so far, Odeo (pronounced OH-dee-oh) means to be podcast central - an all-in-one system that makes it possible for someone with no more equipment than a telephone to produce podcasts and also makes it possible for users to assemble custom playlists of audio files and copy them directly onto MP3 audio players.

The company plans to make money by selling audio content and advertising and, eventually, software for producing and editing podcasts.

Odeo, which is scheduled to make its formal debut on Friday at the Technology, Entertainment & Design Conference in Monterey, Calif., was founded by Noah Glass and Evan Williams, two pioneers of the Web logging, or blogging, movement.

Mr. Williams, who is 32, helped found a maker of Web logging software, Pyra Labs, which he sold to Google in 2003 for an undisclosed amount of stock, and then stayed at the company until last October. He predicts that podcasting will repeat the steep growth curve of the text blogging phenomenon - which went from only a few thousand blogs when he entered the field in 1999 to more than 7.3 million today.

He bases his forecast on the rapid proliferation of iPods and other handheld MP3 devices that are capable of playing digital audio files containing news, music and talk radio, as well as an increasingly diverse array of amateur productions that are more difficult to categorize.

The number of MP3 players in the United States is expected to grow from 11.3 million last year to more than 45 million in 2008, according to Jupiter Research. And as more of those devices have wireless communications capabilities, the ability for users to download material from the Web from wherever they are promises to expand the variety of potential podcast offerings - possibly including text-to-speech software for listening to written material plucked from the Web.

Odeo plans to base its business on the premise that the explosion of digital audio content has created the need for a central place to find relevant material and that there will also be a need for a market to buy and sell "premium" content in much the style of the eBay online marketplace.

Odeo, noting that advertising is already an accepted component of conventional radio, also plans to embed automatically generated audio ads within the downloadable files. And because the files are specifically chosen by the consumer, the company is also hoping that consumers and advertisers might find one another as readily as through the keyword Web search advertisements that are at the heart of Google's and Yahoo's businesses.

"These media advertising paradigms have thrived for a long time," said Mr. Glass, 35, who previously founded a small company, Listen Lab, that provided a service called Audioblogger for posting audio snippets from a telephone directly to Web logs.

Mr. Williams and Mr. Glass became friends several years ago when they lived in adjacent apartments in San Francisco, after Mr. Glass noticed that his neighbor was constantly sitting in front of his computer while wearing a Blogger T-shirt.

When they started Odeo late last year, they folded in Listen Lab and have incorporated the Audioblogger services into Odeo's offering.

While still too much in its infancy to be considered an immediate threat to the radio industry, podcasting does present the prospect of a growing army of iPod-toting commuters who take programming decisions out of the hands of broadcasters and customize their own listening.

Odeo's founders say they believe that, as with other old and new media, conventional radio and podcasting can coexist in the long term. If, through podcasting, conventional radio programs are increasingly stored and played back on the listener's schedule, rather than the broadcaster's, then the trend could have the same time- shifting impact that TiVo-style video recorders have had on the viewing habits of television audiences.

But Mr. Williams said that the real promise of podcasting might lie not in what it means for conventional radio but in the new forms of expression the medium will permit. "We're going to let people do what they do," he said, "and we'll see what they do and hope they do it a lot."



Mini Media Mac: Peer-to-Peer Broadcasting Over iChat AV

Bill Douthett (Digital Bill of Wizards of Technology fame) and I are big fans of film director Kevin Smith and his Jersey Trilogy. When news hit recently that Smith would be appearing in a 3 episode story arc of "Degrassi: The Next Generation", I was stoked. But, Bill...not so much.

"WTF is 'Degrassi'?"

Degrassi in its various forms is a curious Canadian television phenomenon that was a favorite of Kevin Smith's while he worked as a clerk at the Red Bank, New Jersey Quik Stop he later made famous. He also made reference to Degrassi in nearly every one of his films. You'd think a show given that kind of attention would be more famous but it isn't even all that big here in Canada, and even less so in Fort Lauderdale, FL where Bill lives. It does broadcast there but on the N and on a delay of several weeks...and who wants to wait weeks to see Jay and Silent Bob battle Canadian Ninjas? Not Bill, I can tell you that.

The solution involves iChat AV, an ADS Tech Pyro A/V Link analog to digital converter (from here on referred to as "the Pyro"), two broadband connections (for the sender and the receiver) and little else. I connected the video and right and left audio out from my VCR to the video and right and left audio in on the Pyro. Next, I set the Pyro to Analog Mode and stretched a Firewire cable from it to the Firewire port on the Mac. I then simply logged into iChat AV and specified the Pyro as both my"camera" and my "microphone" in the Video pane of iChat's Preferences and, bikkity-bam, I was broadcasting whatever played on my VCR over iChat AV. If you attempt this yourself, you may also need to set iChat's Bandwidth Limit to about 200Kbps, so you don't overrun the person on the receiving end (never a bad idea when video chatting over DSL or other bandwidth-limiting connections).

When Monday night rolled around, I just emailed Bill in the morning to let him know that at 8:30pm PST he should be on iChat awaiting an invitation for a One-Way Video Chat and that was that. When the show was about to air, I selected Bill's iChat screenname and sent the invitation via the Buddies menu. Once he accepted he was able to watch the episode "virtually live." There were a few problems with the signal dropping off, but if the person on the sending end of the rig keeps a close eye on the preview window, it is easy to see when trouble occurs and simply re-invite the receiver.

After the show was over, we found that this method also worked for broadcasting VHS video cassettes and even DVDs. Granted, the video is heavily compressed, but if you just want to get the idea across and share a movie with a friend online, this is a pretty cool way to do it.


Keep TV Free?

Gee, who would have thought that some of the same suits who are now trying to dictate what you can watch and record on television once urged Americans to "Keep TV Free"? Well, here's a PSA from the late 1960s Hollywood that does just that.

In 1967, when one of the first pay TV services was preparing to launch in California, Hollywood and the networks helped defeat the service because they didn't want the competition. Theater owners organized a KEEP TV FREE campaign, with PSAs like this one running in movie houses before feature films.

Though this particular campaign was limited to California, the advertising industry and television networks have long argued a similar case. When Vance Packard, Ralph Nader, Peggy Charren, and other critics attacked advertising in the 1950s, 1970s, and 1980s (respectively), defenders of industry often cited a common refrain: "advertising provides free news and entertainment."

In other words, the major networks (in conjunction with the ad industry) have promoted the idea that television is free for decades. Now that viewers have taken their word for it by recording and sharing TV shows freely, the industry has only itself to blame.


Dept.of Sticking it to the Man dept

Build your TV!

As the FCC and the entertainment biz get ready to end home recording as we know it, a bunch of radical geeks are working on a solution or two.
Annalee Newitz

'ALL I WANT is to make a high-definition copy of Buffy the Vampire Slayer, save it on a DVD, and loan it to my friend," says Sarah Brydon, looking up from a long table covered with half-built computers. These sound like the words of a science fiction nerd, not a revolutionary. But Brydon is a new breed of protester – and she's expressing her discontent with the U.S. government by building a television.

She's one of a dozen consumer activists who have gathered on a Saturday morning in late January for a high-definition television "Build-In" at the Mission District office of the Electronic Frontier Foundation (where I work). Part computer hardware nerdfest, part hell-raising political action, the Build-In is a high-tech protest of a new Federal Communications Commission regulation called the "Broadcast Flag."

According to the FCC, the flag is going to ease the nation's transition from today's analog televisions to tomorrow's high-definition televisions. What exactly does it mean for a government agency to "ease" the transition from one kind of TV signal to another? In this case, it seems to mean making the entertainment industry feel very warm and fuzzy inside.

The Broadcast Flag is designed – poorly – to stop people from putting high-quality recordings of TV shows on popular file-sharing networks like BitTorrent. In reality, it will give the government an unprecedented amount of control over what we do in our own homes with recordings of HDTV. The flag is supposed to stop mass copying and infringement, but it will also stop most consumers from perfectly legal activities like saving HD copies of shows for personal use.

Past generations of media activists protested government and industry control of TV content. They battled FCC censorship, denounced market grabs by massive content conglomerates like News Corp., whose bland, mainstream programming turned a diverse media landscape into The O'Reilly Factor and 7th Heaven reruns. Those activists nourished independent TV content on local cable access channels, where they could talk openly about radical politics or get naked on a whim.

Now the Broadcast Flag has alerted a new group of media guerrillas to another way in which government and industry control pop culture: by locking down the devices that receive, copy, and remix broadcast signals. And these activists are responding by building independent technologies that don't bend to the will of the FCC or MGM.

The televisions created at the Build-In are also computers, and they contain a TiVo-like device called a personal video recorder (PVR) – you can use them to pause a show, record it, sample it, and even save a copy to DVD. Using the TV she builds today, Brydon won't have any trouble loaning her friend a copy of Buffy.

The television liberation front

By noon every surface in the EFF office is covered with computer guts: multicolored ethernet cables lie in snarled piles all over the floor, hard drives occupy precarious positions near half-eaten bagels, TV antennae poke into the air, and exposed circuit boards are tenuously connected to monitors whose output isn't always good. These TVs are going to rock, but getting the software running perfectly is a pain in the ass.

Celebrated consumer gadget blogger Phillip Torrone is bouncing around the room, interviewing everybody with his iPod for a Podcast about building televisions. He's flown down from Seattle just for the Build-In. "Tell me about this machine!" he says excitedly, thrusting the little white device at audiovisual geek Gregor Menasian, who has packed the last bit of open space with a computer full of extremely sweet components: quiet fan, capacious hard drive, fast CPU.

As the two of them talk, EFF special projects coordinator and attorney Wendy Seltzer snaps photos of an error message on Menasian's monitor. Seltzer, who helped organize the Build-In, wants to be sure that accurate reports of glitches go to the hackers who wrote the software everybody's using today to turn their computers into HDTVs with built-in PVRs. Called MythTV, it's named for the "mythical convergence box" gadget-crazy futurists often predict will finally combine TVs, DVD players, Web browsing, and stereos in one simple machine.

What has galvanized this group – made up of TV fans, civil liberties activists, and politically minded hackers – is outrage at what the Broadcast Flag will do to the future of innovative, crazy-dream devices like MythTV. After the mandate goes into effect July 1, it will be illegal for anyone in the United States to manufacture a device that records high-definition television unless it's built to obey a special signal – the flag – emitted by stations broadcasting HD shows. The flag will tell PVRs and other equipment whether they're allowed to copy a show onto some other medium, like a DVD. In short, broadcasters and content owners will actually be able to control your recording habits.

Let's say, for example, that it's a couple of years from now, and your TiVo (bought anytime after July 1 of this year) has recorded the excellent Marx brothers movie Animal Crackers, which was just broadcast on TNT in HD. Tomorrow you're getting on a plane to Australia, and you'd like to save a copy on DVD to watch on your computer during the 15-hour flight.

You're entitled to make a personal copy under federal copyright law, so it should be no problem. And in fact, it was no problem back in the days of analog broadcasts and VCRs. But with the Broadcast Flag in place, TNT can send out a signal that tells your TiVo not to make HD copies of Animal Crackers. So when you burn that DVD and put it into your computer somewhere over the Pacific, you get a bunch of garbage. The FCC has just stolen your rights.

Think of it this way: if the Broadcast Flag applied to VCRs, it would, in effect, allow you to tape shows but not necessarily take the tape out of the VCR. And you'd likely be forced to erase your show in order to tape the next thing.

Certainly there may be broadcasting companies that refuse to send out the flag, or that send out a flag saying "go right ahead and copy this." But a company like Paramount, which owns the rights to Star Trek, is unlikely to allow them to do so, for fear that letting people make copies will undercut its ability to sell syndication rights to Spike TV and UPN. Networks like CBS aren't going to want to let their shows out of the box either – they don't want to lose control of their intellectual property. For years we've taken for granted our ability to record television programs to enjoy weeks or even years later. Now that we have a chance to get extremely high-quality, HD broadcasts, the FCC is trying to take our HD media libraries away from us.

Why would it do this, especially given that it has received absolutely no mandate from Congress? Basically, the agency succumbed to pressure from Hollywood. Entertainment companies figure that as long as the copies available online are of a lower quality than what's on TV, the broadcasters have a leg up on downloaders. But instead of relying on the law to stop people from infringing copyrights, these companies lobbied the FCC to take control of the marketplace and force vendors to sell machines that make all forms of copying effectively impossible. If your super-excellent HD copy of CSI can't get out of the TiVo box, then you can't stick it online and break the law. Too bad you can't do what the law permits either.

Even more disturbing, the Broadcast Flag mandates that recording devices be "robust against user modification." In plain language, that means consumers can't repair, tinker with, or optimize their own machines. What's more, it will also become impossible for small, upstart technology companies to break into the consumer electronics market for TV recorders. If they can't take apart the devices that output the HD signal, they can't build cool new devices to play with that signal.

Which also means that the devices people are using at today's Build-In will be illegal in four months.

The government-entertainment industrial complex

"I don't care about TV, and I don't watch it," says Build-In organizer Seltzer, who's been fine-tuning her MythTV box for several months, coaxing better and better performance out of it. "I'm concerned with the Broadcast Flag because it could be the first step in a new kind of technology regulation" – a precedent-setting moment in which one government agency takes control of the high-tech marketplace, allowing only certain companies to manufacture devices outputting the HD signal. It seems a dangerous direction to be heading in.

For now, consumers may not realize the immense impact of the Broadcast Flag – the big content owners and the FCC are being pretty foxy about it. Even after the Broadcast Flag goes into effect, you'll still be able to make low-quality copies with your VCR. Most televisions are still receiving and outputting analog signals. The full impact of the flag won't be felt for several years, when most broadcasts are in HD and most people have chucked their VCRs. Suddenly you'll find out that the DVD player you bought last year can't play HD programs you burned from your new TiVo. Sound confusing or hard to imagine? That's precisely the point – the FCC is counting on your not being able to figure it out until it's much too late.

Over the next decade, HD is going to become the standard signal – most new TVs will be able to tune it, and free-to-air networks like ABC, CBS, and Fox are going to move to HD broadcasting. So will cable. Most networks already make some shows available in HD – CSI, most sports events, some PBS shows, like The Desert Speaks.

If your current TV receives HD, you'll know it – the quality is so much better it's almost scary. A traditional analog TV creates its picture out of 480 interlaced lines on your screen, while a typical HDTV creates the same picture using 1,080 interlaced lines. Those extra lines mean more detail, more intense color, and an eerie sense that the picture on your screen is literally the same quality you'd get if you were watching something with your own eyes.

The FCC is acting now to shut down what you can do with this amazing quality because once consumers have something (the way they've long had VCRs that record TV), it's harder to take it away. As long as what's being taken away is something "in the future," it's hard to feel like you're losing. But of course you are.

For a perfect example of how you'll feel this loss, consider the DVD player. Ever wonder why there have been no new nifty gadgets you can use with your DVD player for at least 10 years? Seems strange, doesn't it? I mean, think of how many new hoozits and zoomies have been invented for your computer in the past decade. Given the rate of invention in this country, shouldn't DVDs be making breakfast for you by now?

There's one simple reason they aren't. A coalition of companies from the entertainment, consumer electronics, and computer industries got together in 1999 and formed a group called the DVD Copy Control Association, which enforces a strict standard on all devices that can play DVDs. Anyone who develops such a product must comply with the CCA's standards, which include forcing it to place copy protections on any copies made of a DVD. Those protections mean you can only play the DVD in "approved" devices, such as a Sony DVD player or a Microsoft Media Player. It means you can't run the DVD through a mixing board to make a video collage, or create a tiny digital copy of it to play in your cell phone when you're bored on the bus.

Just a few weeks ago, a company called Kaleidescape was sued by the CCA for having the audacity to invent something it called a DVD jukebox – a cool device that could hold dozens of movies ripped from DVDs and output them to as many TVs or computers as the user liked. It was sort of like an iPod for movies, except several people could watch the movies in the same house at the same time if they wanted. At $27,000, the DVD jukebox is a very high-end toy. Kaleidescape execs say it's ideal for somebody who wants to make his or her DVD collection available to people in multiple rooms all over a large house (like, say, Steve Jobs's).

CCA sued Kaleidescape on the grounds that the jukebox promoted piracy, despite the fact that the recordings in it were made from legitimately purchased DVDs and that copies couldn't be removed for distribution elsewhere. The industry group wanted Kaleidescape to rebuild it so that viewers had to insert the DVD they were watching to prove they actually owned it. Of course, that would defeat the whole purpose of a jukebox. It would be nothing more than a very expensive DVD player.

And that pretty much sums up why the DVD player you bought in 1995 isn't much different from the one you'll buy tomorrow. This is a situation that sucks for the consumer and sucks for the small- business owner or innovator who wants to bring his or her ideas to market.

The Broadcast Flag will create a cartel similar to the CCA, only this time the government will be directly involved. Instead of the CCA launching a civil suit against somebody for making a noncompliant device, under the Broadcast Flag the government will be able to fine that person or stop him or her from selling the product. This will allow big media companies like MGM, Sony, and Paramount to get what they want – total control of how you watch television – without having to get their hands dirty.

Already, small-business owners like Jack Kelliher – who runs a tiny computer hobbyist company called pcHDTV – are being forced to change their business strategies to survive the flag. A longtime hardware hacker and entrepreneur, Kelliher sells a computer component called a PC card that lets computers tune in HD signals like a television (people at the Build-In used his cards to turn their computers into TVs). "We wanted to do something for hobbyists who wanted to build their own HD systems," he tells me by phone from his office in Utah. "But then the FCC did their embargo, and the rule means we can't offer the product next year."

He and his partners are scrambling to come up with other (legal) products to sell next year, in order to make ends meet. Among other things, they're creating a computer card that will receive TV signals and output them to analog devices that aren't affected by the Broadcast Flag. "This whole thing bothers me because I come from an era when we built radios in high school and stuff like that," Kelliher says. "Being able to build your own TV seems really American to me. It's sad that the government wants to halt innovation – it's just un-American."

Another innovator whose brainchild will be seriously affected by the flag is Isaac Richards, the Ohio- based lead developer of MythTV, the program the Build-In participants are using to make their computers act like PVRs. MythTV interacts with a PC card like Kelliher's, then displays TV shows on your monitor. It also records and stores shows, movies, and music, and it can even be set up to display the weather for your area (scraped from the Weather Channel) and bring you the latest news from your favorite blogs. It's not much different from TiVo – except that it's free and it isn't authorized by the FCC.

Like many inventors, Richards started his project because he wasn't satisfied with what was commercially available. "I wanted a TiVo, but it was limited," he says. "And the concept was simple: you just record TV and play it back."

Since Richards released the first version of MythTV on the Net two years ago, the program has become quite popular: nearly 100,000 people downloaded the last release. And part of what makes MythTV such a seductive package is the fact that it's entirely open: anyone can add to it. It's the diametrical opposite of a DVD player, whose every element must be reviewed and approved by an industry cartel.

In general, people are using MythTV to watch analog TV. But when HD becomes the standard, MythTV's development may face stagnation. As analog becomes an obsolete format, MythTV will also become obsolete. People can build their own analog TVs, but they won't be able to build their own HDTVs. And thus there's no chance an upstart young innovator like Richards will ever create a bigger, badder, cooler PVR for HDTV the way he did with MythTV for analog.

Looked at from this perspective, the Broadcast Flag isn't really a deterrent against piracy so much as a deterrent against the big consumer electronics companies losing market share to little guys with big ideas. As long as it's illegal for people like Richards to tinker around with HD components, nobody will ever invent something better than TiVo or Media Player. It simply won't be possible to create new HD-related toys without a fleet of expensive lawyers in tow.

The Broadcast Flag is an unholy alliance of government, big entertainment, and big electronics. Each is protecting the others' interests so that they can maintain control over the marketplace. The only losers in the deal are small entrepreneurs and consumers.

Geeks and librarians unite

Hope is not lost – at least, not yet. Several public interest groups, including Washington, D.C.-based Public Knowledge and the EFF, as well as the American Library Association, are fighting the Broadcast Flag tooth and nail. Librarians worry that limiting devices that can output HD may interfere with future methods for distance learning and archiving. Public Knowledge is concerned with the bigger picture. As executive director Gigi Sohn puts it, "People who want to make fair use of copyrighted materials won't be able to do it." In other words, no personal copy of Animal Crackers to make the flight to Australia less arduous.

Last week, a D.C. appeals court heard oral arguments in ALA v. FCC, the lawsuit these groups brought against the FCC, in which they argue that the FCC overstepped its jurisdiction when it mandated the flag. "There is no precedent for what the FCC did here," Sohn says. "Every time the FCC has regulated devices, it's because Congress gave it the authority. But this rule isn't based on any congressional mandate or even ancillary to a provision in the Communications Act."

Sohn, who was at the oral arguments, says the three-judge panel was very persuaded by the merits of the case. All three acknowledged that the flag seemed unnecessary to ease the nation's transition to HDTV – one even remarked that this was as ridiculous as the FCC attempting to regulate washing machines. Unfortunately, the case may hit a snag when it comes to whether these groups actually have standing to bring the case. The court seemed eager to have more concrete examples of how people would be harmed by the mandate. "Of course, it's hard to come up with concrete examples when the devices in question aren't even out yet," Sohn points out. And may never be, given the flag rule's chilling effects.

The EFF's Seltzer says the flag will create media fiefdoms, in which consumers are locked into particular devices or sets of devices in order to enjoy their media. It will be costly to buy a set of flag-compliant consumer electronics that all work together – and even when you do, recordings made in, say, a Sony machine won't be able to play in a Microsoft one. Which is just one more reason why it's time to build your own TV.

Back at the Build-In, Seltzer and Brydon are jumping up and down and shouting. "We've got TV!" Seltzer exults. Brydon can't stop grinning at her monitor, where they've tuned in some local news. The picture is still a little jerky – the software needs some tuning – but we've got our first HDTV working. Best of all, it's a liberated TV – it isn't an "authorized device," and it's not "broadcast flag compliant." It certainly isn't "robust against user modification." But because it was built before the July 1 start date of the Broadcast Flag rule, it's going to remain perfectly legal. This TV will always be able to record HD shows and burn them to DVDs for personal use. Next year, Brydon can loan her friends an HD-quality copy of Battlestar Galactica if they missed it that week.

Dale Kiefling, another Build-In participant, is almost ready to channel surf on his box too. He and his friend Lorena Fleming say they're excited to play around with TV the way they do with their computers. "I think the Broadcast Flag punishes the wrong group," Kiefling says. "The people who do mass piracy will always have the means to – the flag won't stop them. Meanwhile, the rest of us are stuck with broken entertainment systems."

All the people who now take for granted the act of removing a tape from their VCR – the Star Trek fans, the OC addicts, the Marx brothers aficionados – will gradually discover they can't do the same thing with their new PVRs. Copyright law permits consumers to make personal, fair-use copies of their media. And yet the government-entertainment industrial complex will have engineered every device to stop them.

"That's the worst part of all this," Fleming says. "People won't realize how bad it is until suddenly their stuff stops working."

Annalee Newitz is policy analyst at the Electronic Frontier Foundation and a freelance writer. Get the gory details at www.techsploitation.com.



Fighting For The 'Freedom To Tinker'
Viola Huang

Fighting for the 'freedom to tinker': Computer science professor Edward Felten wrote tinyP2P, which at 15 lines is the world's shortest peer-to-peer file-sharing program. Felten is not one to shy from the spotlight.
The world is an imperfect place, and Edward Felten likes to tinker with it.

Sitting behind his desk in a spacious office in the Computer Science Building, Felten is an unlikely poster child for academic freedom. The desk is piled high with papers, and an abandoned keyboard sits in a box in the corner of the room.

But the scholarly, soft-spoken professor has more than once been the center of attention — and he isn't afraid to put himself there again.

"Ed is not very easily intimidated," computer science professor Andrew Appel said.

In December, Felten released the world's smallest peer-to-peer file-sharing program — 15 lines of code he named tinyP2P — to prove that such programs could not easily be banned.

He has been called in as an intellectual property expert before the Senate and House judiciary committees, testified for the government in the Microsoft antitrust case and been threatened with a lawsuit by the recording industry for his work in digital copyrights.

"He didn't go looking for some of these conflicts — for example, the one with the recording industry. He did sound technical work, and they came after him for the work that he had done," said Larry Peterson, chair of the computer science department. "He found himself in the position of having to defend his academic freedom, and that's basically what he has been doing ever since."

The Microsoft case was Felten's claim to fame, but he said that work was just "the tip of the iceberg" to him.

He's now working on a security analysis of airport security passenger screening.

"The goal of my paper is to talk about flaws, but [also] to describe how the system could be changed in way to make it much more effective without spending a lot of money," he said. "It is a difficult question of how or when to release it, and I haven't made a decision yet."

In Felten's line of work, such difficult questions are not uncommon. Having a tenured position at the University grants him some degree of security.

"It is certainly true that it would be very hard for Ed to do things he's been doing before he had tenure," Peterson said. "Part of it is the freedom that gives him the ability to focus on policy as well as the technological aspects of his job."

Despite the potential for conflict, Felten said the University has been supportive of his work.

"I've had long conversations with people around the University about why we do this kind of work and how to look at the ethics of it," he said.

Making a statement

Felten wrote tinyP2P in response to discussions over the regulation of P2P technology. He cited the MGM v. Grokster case, which will be argued before the Supreme Court later this month, as an attempt to ban such programs.

"There seemed to be a tone that P2P programs are very complicated, mysterious things that only big players could afford to make," Felten said. "I knew that was not true and was looking for a way to convince people of it."

He wrote tinyP2P, he said, to prove a point — not to make something useful.

"It's very easy to write a P2P application," he said. "Therefore policymakers have to realize that it would be very hard to ban or stamp out P2Ps because . . . lots of people know how [to write them]"

Felten wrote tinyP2P with his graduate student Alex Halderman '03. It isn't the first time the duo has caught the eye of the media.

In 2003, Halderman discovered a way to bypass the copy-protection technique in CDs by pressing the Shift key. He was soon threatened with a lawsuit.

"Dr. Felten was invaluable as a part of that experience," Halderman said. "[It] was a difficult legal and political position because I was threatened with a lawsuit. I don't know how I would have dealt with that kind of a reaction . . . without Ed's expertise with law and policy."

Felten's colleagues also noted his unique ability to combine extensive technical knowledge with an awareness of policy.

"For a technological, science or engineering person [to pay] a lot of attention to policy is fairly rare," Peterson said. "Some engineers are only interested in the technical problems that excite them. A lot of what we do has lots of ramifications across society, and Ed is someone that is very interested in those things."

Halderman, who knew Felten as an undergraduate, stayed at Princeton specifically to work with Felten.

"He has this amazing knack for combining very detailed knowledge of technical aspects of a problem with political savvy and an economic way of thinking. It's a very rare mix of talents, I think. That's really what attracted me to stay here at Princeton," Halderman said.

For Felten, the opportunity to work with students like Halderman is what keeps him in the classroom. Felten finds that teaching enhances his ability to do his security research.

"Students are part of the key," he said. "If you're in the technology field and want to stay current, you need to have people around who know about the latest things . . . This is one of the big benefits of being at a university — there's always a constant stream of smart students coming through."

Felten, who teaches a seminar on information technology and the law, said he draws on his own experiences with the legal system, but also gains perspective from his students.

"It's interesting to talk about a wide range of technology policy issues with students every year," he said. "There are always new insights from students . . . and the process in preparing to teach is valuable . . . To teach well you have to be in touch with the broad range of things that are happening, see the big picture."

The big picture

Beyond the University community, Felten speaks out through a daily blog, freedom- to-tinker.com, which he started to advocate "freedom of ordinary users to adapt technologies to their cause."

This kind of "tinkering" includes the recent controversy in which Realnetworks figured out how to bypass a feature on Apple's iPod that prevented songs downloaded from other vendors from working on the player.

"They experimented with the iPod and figured out how to make their product more useful, while simultaneously making people's iPods more useful," Felten explained. "It was positive for consumers, but there were questions on whether it was legal."

In the site's disclaimer, he wrote, "Nothing I write here is endorsed by Princeton University or by anyone else except me. Even I am not too sure about some of this stuff."

Felten's career was not always marked by a penchant for controversy. Many colleagues say a lawsuit threat by the Recording Industry Association of America in 2001 is what sparked his interest in intellectual freedom.

Felten, along with seven other scientists from Princeton, Rice and Xerox, took up a challenge from the recording industry to examine a new anticopying technology. But when they tried to publish their findings, the RIAA sued to keep them from publishing the paper.

Felten and his colleagues subsequently countersued for the right to make their findings public and won. Their paper was officially published as part of the UNESIX Security Symposium in August 2001.

Since that experience, Felten has not shied away from controversy when he believes intellectual freedom is at stake.

"I care about it because I'm one of the people affected. My own research has been challenged, and I'm interested in being able to engage in wide-ranging investigation of technical issues," Felten said. "I like working on things that are important, and I'm not scared off by controversy. Unlike lots of security researchers, I'm in a position where I can afford to do it without risking my job."
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Man Convicted of Copying Oscar Films Dies

Prosecutors said Russell Sprague received the films from Carmine Caridi, an actor and academy member who appeared in "The Godfather: Part II." Caridi admitted in an affidavit he sent Sprague copies of several movies, but denied knowing about Sprague's criminal activities. He was never charged.

A man awaiting sentencing for illegally copying and distributing movies being screened for Oscar picks was found dead in his jail cell, authorities said.

Russell Sprague, 52, of Homewood, Ill., may have died of a heart attack, the U.S. Marshals Service said. His body was discovered yesterday morning and an autopsy was scheduled for today.

Awaiting Sentencing

Sprague was scheduled to be sentenced March 21 after pleading guilty last year to one count of copyright infringement. He had faced up to three years in prison.

Sprague was accused of copying 134 "screener" movies sent to members of the Academy of Motion Picture Arts and Sciences to solicit their votes for last year's Oscars, including "Kill Bill: Vol. 1" and "Seabiscuit." Films were made available for download over the Internet, authorities said.

Prosecutors said he received the films from Carmine Caridi, an actor and academy member who appeared in "The Godfather: Part II." Caridi admitted in an affidavit he sent Sprague copies of several movies, but denied knowing about Sprague's criminal activities. He was never charged.

Expelled Screeners

In November Caridi was ordered by a federal judge to pay Warner Bros. US$300,000 for providing copies of "The Last Samurai" and "Mystic River" to Sprague. A similar suit filed by Columbia Pictures against Caridi is still pending.

The academy expelled a member for leaking Oscar screeners last year. That member is widely believed to be Caridi, though the academy did not identify the member.

Caridi has said he received no money for the films. He allegedly told investigators he believed Sprague was a film buff and merely wished to watch them.

Movie studios routinely send copies of films to academy members, who view them in their homes as they prepare to vote in various categories for the Oscars.


No End To Lights, Camera, Action

When the 24th Hong Kong Film Awards pay their annual tribute to the film industry next month, the drop in the number of movies produced in the SAR in 2004 would be on everyone's mind. What was once among the most prolific filmmaking centres is facing perhaps its biggest challenge, for film productions are projected to fall further from last year's dismal 60.

But does that mean the end of Hong Kong films? Not necessarily, says Woody Tsung, chief executive of Hong Kong, Kowloon and New Territories Motion Picture Industry Association. On the contrary, the situation is "good", he says. Though focused on the health and future of HK films, Tsung surprisingly is not that worried about the falling numbers, for he says it's a natural result of the changes in people's lifestyle. And he refuses to blame the economic downturn or the SARS outbreak for that.

"Hong Kong can weather this storm, but we definitely need some changes to help it survive," he says. "Over the years, Hong Kong has changed a lot and the nature of the film industry too has to change... No longer can studios rely on an audience that accepts anything they churn out. People today have so many entertainment choices: the Internet, video and online games, karaoke. Or, they can go to Shenzhen for shopping."

Also, he says, "people today have more money... They go abroad, get exposed to other cultures and ideas. These raise their expectations... and they demand better quality." Films such as "Star Wars" and "Day After Tomorrow" have raised the bar, driving local audience's tastes for Hollywood movies. "Now HK films have to fight with these big budget Hollywood films. So it means we have to raise our standards."

While industry figures from the 70s and 80s, when Hong Kong regularly made more than 200 films a year, look impressive, the quality of most of them left a lot to be desired, says Tsung. "In the old days, Hong Kong had a manufacturing base. There were no computers, no Internet, so most people didn't know as much about what was going on in other countries. Also, they didn't speak a lot of English. So for them movies in their own language were the main form of entertainment. That's why local films were very popular."

Film studios minted money. "People would flock to the cinemas, irrespective of the quality of the films. So there was no incentive to do something new," he says. But now higher audience expectations "force studios to make better films", instead of run-of-the-mill productions or copies of successful foreign films.

Tsung says: "After 'Infernal Affairs', many films tried to make money by copying its formula. But that strategy doesn't work anymore." Local filmmakers should make bigger and better films on their own.

The fall in the number of films can be partly explained by the studios' present-day tendency to make fewer, but better, movies. They are putting more of their money into big productions such as the groundbreaking "Kung Fu Hustle". Many films still may be badly written or marred by bad acting, but "they have the right attitude... and are trying something new."

Raising of standards apart, the biggest hurdle for Hong Kong films is finance for promotion and distribution. A relatively big budget - say HK$40-million - film can do a lot with a 10-per-cent advertising budget. Such an amount is sufficient to draw enough viewers to rake in a profit. But a 10-per-cent ad budget would give a HK$4-million film only HK$400,000 for publicity. "How much advertising will that get you?", Tsung says. Not enough to draw people to the cinemas. "Medium-budget films don't attract investors, for fear of not being able to make money."

The lack of diversity is another problem plaguing our films, for they tend to focus on some recurring themes to capitalize on the commercial appeal of their Hollywood counterparts. In a city with a relatively small movie-going population, studios need to pay more attention to cinegoers' mindset, Tsung says.

"Art house films would never be popular in Hong Kong not because Hongkongers cannot appreciate such movies, but because there's no culture to support them. We need to have this if we want to diversify the kind of movies we make."

While other Asian cities may be busy raising the profile of their film industries, the reverse is true of Hong Kong. Its movies have always been popular in the region, especially in Taiwan and in countries such as Malaysia, but "what we need to worry about is the shrinking of these traditional markets".

The reason for this is piracy, he says. Since many HK films earn the majority of their revenue from outside the SAR, rampant piracy is costing the industry untold losses. Films that in the past could have been counted on to make money are under attack in the overseas market, Tsung says. "A pirated copy in Taiwan or Malaysia can be bought very cheap", so why should people pay to see it in the cinema? Copyright infringements cause huge losses to the industry, and piracy is an issue that "cannot be resolved". For, strategies like improving security or technology to prevent piracy wouldn't eliminate the problem.

"Piracy is here to stay. Softwares such as Bit Torrent (BT) make it impossible to stop it," Tsung says, referring to the peer-to-peer (P2P) data transfer technology that allows users to share files without logging on to a central server. Because the data is not transferred through a third party, there's no way to stop unauthorized copying of copyright materials such as films.

The only way to end piracy, he says, is by educating the public. "People need to see that buying pirated copies is a bad thing." But that is an uphill task - because it is the better educated, according to a recent survey, who are more likely to buy pirated copies or download contents illegally. But despite that, educating people is still the best option, feels Tsung. There's a need for a clear framework for protection of intellectual property and that can be achieved only through government action.

On the other hand, the mainland's film industry appears to be headed in the opposite direction. A record 212 movies were made in 2004, compared with 140 in the previous year, earning 1.5 billion yuan (US$182 million) in revenue. The mainland market offers a huge potential to HK film-makers, he says, but HK films still have a long way to go before being confident of turning a profit there.

Some sectors such as financial services are justifiably upbeat about the prospects offered by the Closer Economic Partnership Arrangement (CEPA). But the challenge for HK films is not trying go open up the mainland market, but to know what happens when they get there. Under CEPA, HK films are not subject to a quota on the mainland because they are treated as domestic productions. But what is needed for the mainland to salvage HK films is the right distribution infrastructure. And, says Tsung, "that has not happened yet".

The small number of firms authorized to release films on the mainland is another obstacle. Given the bottleneck, many HK films may not even make it to the mainland screen. The low penetration of cinemas and the exercise of releasing films in smaller towns and cities often mean having to deal with local mainland authorities, and that makes the process more complex, he says.

The wide income disparity between cities, especially in the eastern provinces, and rural areas, where cinema ticket is a luxury, is another major problem. The true potential of the mainland can only be realized when wealth is more equally distributed, Tsung believes.

Overcoming these difficulties is "not impossible, but the mainland market is not there yet". Despite the challenges, however, Tsung is optimistic that the HK film industry will survive. "HK movies will never die. Despite a great number of Hollywood movies and their success, local audiences will always want to watch something in their native language that tell stories about things that they know about."


Cinequest, a P2P Movie Fest
Alison Strahan

There's no need to don black tie or jewels to attend the 15th annual Cinequest Film Festival in San Jose, California, this week. In fact, there's no need to don anything.

Simply lounge in the buff while you check out the festival's lineup of nearly 200 films, most of which are available for download from the festival's website.

Running March 2 though March 13, the Cinequest event is an independent film festival with a digital twist.

Commercial-free, DVD-quality downloads of many of the festival's feature films are available for online viewing, powered by a video- sharing system from Kontiki that uses peer-to-peer technology to deliver movies to desktops.

Like its file-sharing competitor BitTorrent, Kontiki users download movies not just from one server but from many. Movie files are broken into small chunks that are shared between peers, making for fast and timely downloads. The more people downloading a particular movie at the same time, the faster the downloads.

The movies are delivered in Microsoft's Windows Media format, and are copy-protected. Unfortunately, Mac users are out of the picture. The system works only on PCs, which is bad news for the hordes of indie filmmakers using Macs and Final Cut Pro to produce and edit movies.

Mac users who wish to check out the festival's entries will need to get dressed and schlep on down to one of four venues in San Jose where the films are showing.

Halfdan Hussey, the festival's executive director and co-founder, said the Kontiki-powered system will be available to Mac users by next year. In the meantime, marginalized Mac users can still access some of the festival's online material, including trailers and festival news bulletins.

Hussey said he was excited by viewers' response to Cinequest movie downloads. "The internet will be a staging device for direct delivery of indie movies to a user's desktop or home entertainment center," he said. "My prediction is it will bring new revenue to independent filmmakers and distributors outside of the realm of Hollywood within the next two to four years."

The film choices are abundant and eclectic. The lineup includes My Big Fat Independent Movie, a satire in the spirit of Scary Movie that skewers independent flicks; Butterfly, a sexy lesbian drama from Hong Kong about a woman's metamorphosis; and Missionary Positions, a documentary about a pair of Christians trying to rid the world of porn.

The festival expects 60,000 flesh-and-blood visitors this year, up from 54,000 last year. Organizers expect more than 75,000 movie downloads during the festival.


Downloading: The Next Generation

As far as the licensed digital music services have come, they still have to clear some major hurdles if they are going to evolve into the vibrant alternative to online piracy that the record labels need them to be.
David McGuire

Kelly is the type of person who gives music industry executives hives. She arrived at college in 2001 having never downloaded music -- illegally or otherwise -- in her life. Within a week of her arrival, a classmate turned her on to Kazaa and she was well on her way toward building an illicit library of 500 songs.

"I've watched enough MTV to know that most of the rock stars whose songs are being stolen the most live so comfortably that I can't possibly feel sorry for them," said Kelly, a college senior in Maryland, who asked that she not be identified further for fear of legal reprisal.

Dislodging Kelly and millions of her peers from services that give them all the copyrighted music they want, free of charge, is challenge enough, but the record labels realize that it's also only half the battle. Entertainment-industry leaders know they'll never stamp out illegal file swapping on the Internet, but they hope they can tarnish the experience enough to drive otherwise law-abiding users off of the underground peer-to-peer -- or "P2P" -- services and into the waiting arms of licensed digital services like the remodeled Napster, Rhapsody and Apple's iTunes.

Kelly, who said she has "absolutely no qualms" about downloading the major labels' latest releases, is a little uneasy about all the lawsuits that are being filed against song swappers, and about the nasty "adware" that's been gumming up her computer since she started downloading. For all the fun she's having, Kelly said she'd probably quit stealing music after college, in large part to avoid the mounting dangers and hassles that go along with it.

The entertainment industry is doing everything it can to encourage that sort of thinking. In a multi-pronged campaign against illegal downloading, the industry has taken on everyone involved with file sharing, from the companies that distribute the software to the people who use it.

Meanwhile, the options available for licensed downloading, including the size and quality of online music catalogs, are getting more attractive for potential users. Consumers can buy or rent their songs, pay as they go or in one lump fee, and pick from more than a million tracks, all for less than a dollar apiece. But as far as the licensed services have come, they still have to clear some major hurdles if they are going to evolve into the vibrant alternative to online piracy that the record labels need them to be.

"It's not realistic for anyone to think that they can eliminate piracy online," said Cary Sherman, president of the Recording Industry Association of America. "The ultimate success of the online marketplace is going to be, first and foremost, a matter of marketing and business models. Control of piracy is imperative to support that, but in the end it's the business model that has to work."

In a phone survey of 2,201 U.S. adults, the Pew Internet & American Life Project found that 11 percent owned digital music players. This means at least 22 million players are in the hands of Americans over 18 years old, while millions more are likely blasting tunes into adolescent ears. Spurred by the enormous popularity of its iPod players, Apple Computer Inc. has seen its iTunes Music Store sell more than 250 million songs as individual downloads for about 99 cents apiece since its April 2003 launch.

And while Apple is the nascent industry's undisputed 800-pound gorilla, other companies are posting impressive growth. Several competing services, including RealNetworks Rhapsody, the reformed Napster, Yahoo's MusicMatch and MusicNet, all of which offer unlimited "tethered" music downloads for about $10 a month, combine for more than 1.5 million subscribers.

That upward trend will continue, according to a 2004 report by JupiterResearch, which predicts that online music sales -- both subscriptions and individual downloads -- will top $1.7 billion in 2009, or about 12 percent of consumer music spending.

For all the growth, the volume of unlicensed downloads continues to dwarf that of paid transactions. In January alone, file swappers traded more than 1 billion tracks over the most popular networks, according to Atlanta-based BigChampagne LLC, a company that tracks file-sharing activity. That figure has remained fairly steady throughout the entertainment industry's anti-piracy campaign, BigChampagne President Eric Garland said.

Still there are indications that the digital market may be slowly swinging in the industry's favor. In a survey of 1,112 people conducted earlier this year by Ipsos-Insight, 11 percent said they'd paid to download a song at least once. An identical percentage of respondents said they'd downloaded at least one song from a file-swapping network. In 2002, the first year of the survey, only 2 percent of respondents said they'd paid to download a song, compared to 19 percent who said they'd downloaded songs for free.

"I think that everyone agrees it's headed in that direction. It's just a question of when is it going to be a significant slice," said Matt Kleinschmit, Ipsos- Insight's vice president.

Finding the Right Carrot

To feed the new distribution engine, record companies are shoveling their catalogs into the electronic furnace as fast as they can.

"We've licensed any piece of music that we have the rights to," said Thomas Hesse, president of global digital business for Sony BMG Music Entertainment.

"The total number of tracks that we're licensing is 200,000. We generally make our releases available [when they're cleared for radio play] and we sometimes make available B-sides from singles or live recordings that haven't actually been released 'on record.'"

Ted Cohen, EMI Music's senior vice president for digital development and distribution, said the labels' efforts to throw open their catalogs to the online stores have paid dividends for consumers. "I think over the past year there's been a tremendous increase in the amount of variety. You have virtually unlimited choice and you can take it with you."

Like Sony, EMI offers unique "digital box sets" and will often license tracks from foreign artists for sale electronically, even if the CD isn't being sold in U.S. stores. Cohen said EMI has licensed 60,000 songs for online distribution in the United States -- more than 99 percent of its U.S. catalog, according to the company.

For nearly a year, EMI has also been in the process of reorganizing its internal structure to interface more smoothly with the digital marketplace. The company abandoned its CD pressing plants, and Cohen said the firm is spreading the gospel throughout its operation. "We're integrating digital into the operational business units. ... It was never going to be a real business if we kept it sitting on the side."

According to EMI spokeswoman Jeanne Meyer, that means the digital side of the business isn't "three guys in a garage," but the responsibility of every employee in every department. When the hip-hop artist Chingy put out his second album, his first single was made available as a cell phone ring tone before it was released on radio.

The download services, meanwhile, are racing the unlicensed P2P operators --and each other --to find the magic formula that will attract and keep users. Earlier this year, Napster offered users of its basic service -- which allows users to download as much music as they want, but prevents them from listening to it away from their computers -- the chance to pay a little extra for the privilege of taking their playlists with them on an approved portable player. RealNetworks' Rhapsody service will soon be offered in portable form as well, said Richard Wolpert, the company's chief strategy officer.

So far, bulk-subscription or "rental" models like Rhapsody and "Napster to Go" have lagged behind iTunes' pay-per-download model. But devotees say it offers an experience closer to that of the illegal services, in that users can download songs on a whim without adding to their bill. JupiterResearch predicted that the subscription market would eventually eclipse the market for a la carte songs.

Consumers may soon have a third option in the form of licensed file sharing. Using technology developed by Shawn Fanning, who created the original Napster in the late 1990s, several companies are planning to launch file-sharing services that let users swap songs with one another, just as they would if they were using one of the unlicensed services like Kazaa or eDonkey. The technology simply requires users to pay for the trades that were once free.

Among the legal download services, only iTunes has the resources to mount a big general advertising campaign, but the underdogs are aggressively hunting down new customers where they think they're most likely to find them -- on college campuses. Starting in 2003, when Napster inked a deal with Pennsylvania State University to give students free access to the company's all-you-can eat download service, online music sellers have flooded college campuses with deals and arrangements designed to snare young consumers with legal options before they're tempted by the fruits of file-swapping networks. Two of the smaller, newer players in the online-media market – Herndon, Va.-based Ruckus Network and Englewood, Colo.-based Cdigix – so far serve nothing but college campuses.

Competing With Free

"What we're doing is to try to create a service that does [the] best it can to mirror the experience of peer to peer. What we do to get people away from peer to peer is give people the best service we can," Napster spokeswoman Dana Harris said of the young firm's strategy for attracting users.

It's a refrain repeated throughout the industry. A good pay-to-download service should include everything that's good and fun about peer-to-peer, minus the incomplete files, adware and viruses. EMI's Cohen said users don't want to think about their service as anything other than an always-on conduit for music: "The most compelling interactive service is the one that you don't actually interact with unless you're having a good time."

Observers broadly agree that the pay services have moved closer to that aim over the past year, but buyers of licensed electronic music still can stumble into glaring reminders that they aren't in the freewheeling early days of Napster anymore. Download from iTunes "and for 99 cents you get a guarantee that you're getting the thing you want," said Roger Kay, a vice president and market analyst for IDC in Framingham, Mass. "But if you put in the word 'Beatles,' ... you'll get John Lennon and Elton John singing some schlock tune together. ... You'll get nothing else, because Apple [the Beatles' record label] won't play."

The number of mainstream artists who won't provide their recorded music in digital form is dwindling. But licensed downloading also still lacks the hundreds of concert sets, rare studio outtakes and unreleased B-sides that made the original Napster so appealing, Kay said. "Once you fence the prairie, there's no more 'Wild West,' but it's also not quite as much fun."

And contrary to what some online music executives believed at the outset of the pay-to-download business, the depth of the catalog has a direct impact on business. In a 2003 interview, RealNetworks' Wolpert questioned the need for a digital service to have millions of tracks in its catalog, saying, "Eighty to 90 percent of the songs people download [on free services] are the same couple hundred songs."

After nearly two years of watching his own customers, Wolpert jettisoned that supposition. "Catalog does matter," Wolpert said, noting that the company's customers download 90 percent of RealNetworks' million-song catalog every month. That monthly figure remained steady even as the company doubled its catalog.

"In digital there is a 'long tail' of tracks that will sell," Sony's Hesse said. "There is a great opportunity here to go even deeper in the catalog. People will actually find this stuff." Added EMI's Cohen, "The whole promise of this unlimited digital shelf is playing itself out."

Which One Is the Betamax?

Those who argue that legal downloading is just as good as file swapping, for a small fee, face another uncomfortable reality: Concerns over compatibility

among the various players and digital formats -- known as "interoperability" -- seem to be increasing.

For example, Napster to Go users are told that for $5 a month extra, they can take their downloaded sounds wherever they want to go -- unless their portable player is an iPod, because iPods aren't compatible with the Microsoft software that Napster uses to protect the playlists.

With each player and service using slightly different file formats, standards and security tools, users may have less freedom to use their music than they think. IPod owners who buy music from iTunes might get a shock if they buy new devices from Creative Labs or Dell and try to pull their iTunes songs onto them.

"That is something that we struggle with and it is a definite obstacle. I hope at some point digital music will be simpler in that respect, but I think that's still a long way off," Napster's Harris said. Wolpert called interoperability concerns "potentially the biggest obstacle to mass consumer adoption."

Sony's Hesse and EMI's Cohen say that they may need to lean on the retailers to make their services more interoperable. "I think we need to make significant strides in 2005 to improve that situation," Hesse said.

The company that did the most to get legal downloading off the ground may also be the lead weight on a market whose consumers like to shift among different players and services, taking their libraries with them. In addition to shutting out Napster, Apple also prompts iPod owners to use iTunes as their PC media player and online music store, making it difficult or even impossible to buy tracks from other retailers and move them directly to their devices. About 90 percent of the hard-drive-based music players sold in the United States are iPods, according to Piper Jaffray analyst Gene Munster.

"Apple has opted to keep iPod proprietary and not let people who own them choose how they want to get digital music," Harris said.

Representatives for Apple reached by telephone and e-mail repeatedly declined to be interviewed for this story. While its adherence to a proprietary model may eventually become an obstacle to widespread adoption, Apple's strategy is sound business and unlikely to change any time soon, said Gartner G2 analyst Mike McGuire.

"In a perfect world it would all be interoperable, and everybody would make money, but in a market-driven world, is there a business case to be made for making the iPod interoperable? I don't know," McGuire said. Apple chief Steve Jobs "is doing what any business would do," he added.

'An Introductory Price'

Finally, the question of how much digital music should cost remains unanswered. Some market observers and retailers say the current prices, particularly

for individual downloads, may be too high. One-time promotions aside, the industry's standard rate for downloads has hovered fairly steadily at the dollar- per-song level since its inception.

RealNetworks offers both the Rhapsody subscription service and an a la carte download store. When the company offered downloads at 49 cents a song during promotions, sales tripled, Wolpert said. But RealNetworks took a loss to offer those promotions, he said, because the record companies won't lower their per-song rates.

IDC's Kay said more pricing flexibility would help, but added that he doesn't see much downward pressure on prices: "If Apple has managed to sell a quarter of a billion songs, it would be hard to tell them they're overpriced, but I would like to see it cheaper and more portable."

But others argue that 99 cents a song is actually too low. Ditto the $14.95 a month for Napster to Go. "I think [that] can only be an introductory price," Sony's Hesse said. He acknowledged that record companies save money by not having to manufacture and ship CDs, but noted that the labels still bear substantial artist-development costs, which don't fit well into a one-track-at-a-time economic model.

This means runaway success of services like iTunes could end up threatening the music industry's bottom line more than widespread file sharing, which is still somewhat marginalized, BigChampagne's Garland said. "At 99 cents you'll succeed yourself right out of business if you're not careful."

And whatever the correct price point and proper distribution model is, the music industry doesn't have the luxury of a lot of time to figure it out, said Gartner's McGuire. "They're all part of the big media conglomerates. It's not like they can go to their corporate heads and say, 'Hey, can you give us a couple years off from contributing to the bottom line, because we've got to figure out this whole digital music thing.'"

Meanwhile, the specter of unlicensed peer-to-peer trading looms, and would-be consumers like Kelly face a choice between unrestricted -- and unlawful -- file swapping on unlicensed networks, or a legal experience that may not be exactly what they're looking for.

"The legality thing is a definite bonus and if it had been like that the whole time, it would be easier to adapt to," the Maryland student said. "But if you're used to downloading illegally ... and getting away with it, I can't imagine most people I know would pay to get less. ... Why buy the cow when you can steal the milk for free?"

The (Legal) Digital Music Marketplace

ITunes: Spurred by the runaway popularity of the iPod player, Apple's iTunes has grown to become the nation's most successful download store, selling more than 250 million tracks -- typically for 99 cents each -- since its launch in 2003.

RealNetworks: Best known for its ubiquitous "RealPlayer," the company offers one-song-at-a-time downloads as well as $10 monthly subscriptions to the unlimited-download Rhapsody service.

Napster: Named for the underground file-swapping service that started it all, the reborn Napster offers a subscription similar to Rhapsody, with a "To Go" service allowing transfers to approved portable players for an additional $5 a month.

MusicMatch: Owned by Yahoo, MusicMatch offers a range of services including a la carte downloads, Web radio and a subscription service.

MusicNet: Unlike its peers, MusicNet doesn't operate a retail store. Instead it provides the back-end download technology for companies like America Online and Virgin Digital.

Wal-Mart: The retail giant sells a la carte downloads at 88 cents a song.

Buy.com: The Internet retailer offers 79-cent singles from major-label artists.

MP3tunes.com: Launched by the founder of the now-defunct MP3.com downloading site, the service offers 88-cent downloads of songs from independent artists.

Emusic: This smaller service specializes in independent labels, offering bulk downloads for a monthly fee.

Peer Impact: Still in its testing phase, Peer Impact would allow users to share files while digital rights management technology automatically determines what fees they owe.

Ruckus Network: Ruckus specializes in the college market, offering music and movie downloads through arrangements


Resurrected Napster Raises Revenue Guidance

Napster - which was once put through the legal ringer for running a free platform that allegedly implemented illegal peer-to-peer, file-sharing among users - today offered additional hope for its new life via a paid “Napster To Go” music-download subscription service. The Los Angeles company raised guidance for the fourth fiscal quarter ending March 31, 2005, saying it now expects to report revenues of about $15 million versus prior projections of $14 million.

"We are raising our guidance based on robust growth in our subscription service," said Chris Gorog, Napster's chairman and CEO. "Since the launch of Napster To Go, we have experienced exceptional demand for all aspects of our business. Our new marketing campaign is already delivering strong returns by generating unprecedented interest in both our regular and portable music subscription offerings.”

Napster’s on-line digital music business allows sampling and purchase of MP3 downloads over the Internet and includes year-long subscription options. The new strategy essentially competes against traditional retail CDs and is being fueled, in part, by built-in compatible MP3 players from personal computer manufacturers and better network security for transactions.

The company also said it had net cash and investment balance of approximately $188 million as of February 9, 2005 and approximately 42.8 million total outstanding shares.


Can eBay Continue To Defy Gravity?

When eBay reported its 2004 financial results on January 19, it looked like business as usual. Annual revenue was up 51 percent from a year ago, and net income jumped 76 percent. But then the company cut its outlook for 2005 and rankled customers with a fee increase. On Wall Street the Internet darling got panned as shares tumbled 19 percent in one day (January 20).

Are these issues short-term growing pains or the beginning of something worse? Is eBay becoming a mature company that won't be able to keep up its heady growth? And what competitors are targeting eBay? Wharton experts say there's no need to get too worried about eBay's prospects right now. In the future, however, things may become more interesting.

Wharton management professor Saikat Chaudhuri says eBay is going through a natural evolution of companies in relatively young markets. First, one dominant player emerges due to first mover advantage as eBay did. Then, a company gains near monopoly status in its new segment such as electronic auctions. Next, large competitors such as Yahoo and Amazon get interested in the market and even smaller rivals adopt similar business practices. And finally, the dominant first mover matures and the rate of growth slows.

"I'm not worried about eBay's performance, but the question eBay has to ask is when it will reach the limits of its growth," says Chaudhuri. "It won't be today, but it could be five years from now." Marketing professor Yoram "Jerry" Wind, co-author of a recent book entitled “The Power of Impossible Thinking”, agrees. "eBay is positioned well, but the longer you go with strong percentage growth the harder it is to keep going," he says.

Worries about eBay were triggered by its fourth quarter earnings results. The company reported pro forma earnings of $226 million, or 33 cents a share, on revenue of $935.8 million, up 44 percent from a year ago. While those results were strong, they fell short of Wall Street estimates by a penny, prompting analysts like Merrill Lynch's Gregory Smith to note "a few chinks in the armor." The outlook for first quarter earnings and 2005 was also slightly cut because eBay is planning to spend $300 million on expanding globally.

On the company's earnings conference call, eBay CEO Meg Whitman said the company faced the same lumpy results over the holiday shopping season that traditional retailers experienced. "We saw some very unusual trading patterns in November and December," noted Whitman. "As a mainstream shopping destination, the eBay marketplace was affected by the same delay in holiday shopping that occurred in much of offline retail."

Can eBay continue to defy gravity? "We believe eBay has shown signs of becoming a victim of its own phenomenal growth success as the law of large numbers begins to impact results," wrote Smith in a report. "Taking a step back, we realize that eBay still has an outstanding business model and overall fundamentals remain intact."

Challenges ahead

While worries about eBay's future are premature, the company has some challenges ahead, say Wharton faculty.

One example: eBay may not have the pricing power it thought it had. A recent price increase in fees for posting photos and other advanced features wasn't handled well, and some customers revolted. Following complaints, eBay issued an open letter to customers and announced it reduced listing fees on items below 99 cents to 25 cents from 30 cents. eBay raises fees annually.

Chaudhuri acknowledges that eBay could have handled its price increases better. "eBay wasn't savvy about it. At other companies like Procter & Gamble there's a more formal process and a scientific way to evaluate the impact of price increases. eBay has been so successful that it didn't expect any pushback."

That kind of flub shows just one of the challenges eBay faces. Another issue is growth. In 2004, the fourth-quarter growth rate for eBay's U.S. auction business slowed to 25 percent from 40 percent in the first quarter. International auction growth, however, picked up the slack, but analysts say that can't last forever. The trick for eBay will be to keep its growth rates while managing Wall Street and customer expectations. "The challenge is to temper investor expectations for boundless growth and to avoid the temptation of overreaching to satisfy Wall Street," says Wharton marketing professor Peter Fader.

Bottom line: eBay is a mature company, and growth has to slow at some point. Not today, maybe not next year--but over the next five years or so, slower growth is definitely possible. "If maturity isn't here it's certainly on the horizon," says Fader.

Slowing growth will also mean that eBay will have to keep its current customers and lure new ones. As they mature, all companies have to fuel repeat purchasing, attract new customers and minimize churn. Wharton experts say eBay to this point has had it easy. Its network, growing base of buyers and sellers and wide availability of products have come with minimal marketing. eBay hasn't had to try all that hard to grow. Wind says eBay's biggest challenge will be to maintain the edge it had as a smaller company. "Can eBay manage its growth internally with its people and processes?" asks Wind. "Or will it become big, complacent and arrogant like most big companies?"

No need to panic

Fader says there's no need to get overly concerned about eBay's fourth- quarter performance, even if it did disappoint a few skittish investors. "I am as upbeat as ever about the prospects of eBay," he notes. "They have a gold mine there." Given eBay's winning streak of strong quarters and solid performance from the day it went public, "at some point, you have to just sit back and trust them."

According to Fader, eBay has entrenched itself as a bona fide distribution channel, and that's really hard to displace, especially because the company maintains its focus on core markets. Whitman cited eBay research showing that 430,000 users depend on eBay for some or all of their livelihoods. "Compare eBay to Amazon, which is really just a bookstore," says Fader. "eBay is a distribution channel that's only growing. Amazon is diluting itself." The company, with its reputation as a one-stop shop for things ranging from old football jerseys to stadium naming rights to automobiles, doesn't have any competition in the near term, he and others add.

The wild card is what eBay will do when its growth begins to slow. Will it branch out into retailing? Will it enter new businesses? eBay has branched out somewhat, but acquisitions such as PayPal, Half.com and Rent.com complement its core auction business. Meanwhile, with each eBay move, the company becomes more secure. "It would be very difficult for any company to replicate eBay," says Wind. "The rating system, the infrastructure, the incredible trust between buyers and sellers are really priceless."

As for customer losses, Chaudhuri says there's no need to worry because customer churn is a natural issue with maturing companies. "Some customers are going to leave anyway. eBay still offers a compelling value to customers."

Future competitors

Although Fader, Wind and Chaudhuri were unanimous about the lack of competition for eBay, all agree that the real threats may not even be created yet. "You really have to look for competition from left field," says Wind. "A bank isn't worried about the bank across the street; it is worried about Wal- Mart."

In the U.S., no competitor provides the network and scale of what eBay provides--although some players such as Overstock.com are nibbling at eBay's market. The real battle will be abroad. "The next decade of growth will come from the rest of the world, not the U.S.," Wind predicts. Overseas, the competition to eBay is more intense. On the international scene, the most obvious competitors are Yahoo and Google, which have the resources to take on eBay directly. Some rivals even have first mover advantage: Yahoo Japan, for example, is the leader in auctions in Japan.

eBay, however, has done its best to acquire international players such as India's Bazee.com. The strategy is to buy strong eBay-like clones to gain entry into a new market. In 2004, eBay launched two new sites in the Philippines and Malaysia, consolidated ownership of Internet Auction Company in Korea, and made two acquisitions in Europe. "The potential in expanding eBay's global marketplace is enormous," said Whitman, adding that eBay will continue to grow internationally, especially in China.

The real unknown for eBay is the competition under the radar. Wharton legal studies professor Dan Hunter says he expects U.S.- based local sites, including Craigslist, a minimalist local community site that features classified ads and local information, to become a viable threat to eBay. "Sites like Craigslist could nibble at eBay by providing a trusted local network of good products and recommendations," notes Hunter. "Sites like Craigslist won't be a direct challenge, but whenever distance matters the local sites could win." eBay may already see the threat from local merchants. It recently bought a 25 percent stake in Craigslist.

According to Hunter, social networking software and services like Friendster could also form a commerce network. The benefit of these social networking sites is that a level of trust between buyers and sellers would already exist due to peer referrals. "eBay spends a significant amount of time on disputes and keeping the reputation of sellers high," says Hunter. A commerce network of "friends of friends" could be powerful. "These social networking sites would in theory eliminate the need for that cost. You drive down costs as you start to build the network."

Fader expects peer-to-peer networks to also become a formidable eBay rival in the future. These "P2P" networks are typically used to swap music and video files but ultimately could be used for commerce, says Fader. "With P2P you could line up millions of people to buy and sell easily. It won't happen right away, though, because the technology has so many legal clouds." A P2P commerce network would be able to do what eBay does but without the centralized servers, infrastructure costs and overhead. "It could be a threat, and I wouldn't be surprised if it weren't on the back of someone's napkin somewhere."

eBay's next steps

The ultimate question is how eBay should fend off encroachment from rivals, maintain its focus and build the infrastructure and management team to continue to evolve. Chaudhuri says eBay's first mission is to maintain its focus. "eBay's big advantage is that it is focused on one area, and that's good," he says. "eBay has a first mover advantage that it can build on even if it ultimately changes its business. eBay will always be associated with commerce."

As growth slows, eBay will also have to find ways to lure consumers such as Fader, who likes eBay's business, but isn't much of a fan of the company as a shopper. "I go there as a last resort," says Fader, who doesn't care for the auction format in general. "eBay will have to reach out to get customers like me without diluting its core auction business." eBay can go more mainstream perhaps with acquisitions of consignment or "drop off" stores, which take goods and sell them on eBay. Those stores appeal to potential customers who may not be inclined to start and follow an auction on eBay.

At eBay's analyst meeting shortly after its earnings report, Whitman outlined plans to expand its PayPal unit. PayPal can be now used to buy music downloads on iTunes and Napster, and eBay is pitching PayPal as an option for merchants both off and on eBay. To support its initiatives, eBay is bolstering its management ranks. The company recently swapped executives running PayPal, and the North American and international businesses. eBay also named a new chief technology officer. According to Whitman, the moves will "effectively spread expertise throughout the company and help set the stage for our next phase of growth."

Wind says that kind of focus on management depth will serve eBay well in the future. For example, eBay executives will learn from their mistakes when it comes to managing expectations and rolling out price increases. "I think they realize that they could have done this smarter." According to Chaudhuri, eBay is up to the task. eBay, he says, "is one of the most mature companies in an immature industry."


Peer Impact Licenses EMI Catalogs

EMI Music became the fourth major recording company to agree to make its music available over a legal peer-to-peer service that hopes to lure customers away from illegal sharing programs.

Peer Impact, which Wurld Media Inc. plans to debut by the end of March, had announced license deals in November with the three other major companies: Universal Music Group, Sony BMG Music Entertainment and Warner Music Group.

"Our agreement with EMI Music is essential to Peer Impact's viability, as we now have all the major record labels' entire catalogs available for download," Greg Kerber, chairman and chief executive of Wurld Media, said Wednesday.

Peer-to-peer services like Kazaa and LimeWire allow computer users to swap files among their hard drives. But since the rise of Napster, record companies have tried in court to shut down "P2Ps" that allow users to download copyrighted songs for free.

Peer Impact is among a new breed of legal P2Ps run in cooperation with media companies and designed to compete with centralized download services like Apple Computer Inc.'s iTunes. Proponents say decentralized P2P networks ease strain on servers and require less bandwidth.

Like iTunes, songs on Peer Impact will cost 99 cents, although users can earn up to 10 percent credit on a song if they agree to share it with other network users, Kerber said.



Record Deal For Fanning's Swap Service
John Borland

Snocap, the new company started by Napster founder Shawn Fanning, said Thursday that it struck a deal with SonyBMG Music Entertainment to help distribute the record label's music through file-swapping networks.

Fanning's company has developed a range of tools that allow songs to be identified as they're traded online, and lets those trades be turned into sales. Labels see the technology as a potential way to turn anarchic peer-to-peer networks into profitable distribution tools equivalent to Apple Computer's iTunes.

The deal is the second for the young service. Late last year, Universal Music also agreed to put its catalog of music into Snocap's song- identification databases.

Snocap's technology "will help to curb copyright infringement, and will facilitate the creation of legitimate, authorized P2P services," Thomas Hesse, president of SonyBMG's global digital business division, said in a statement.

The deal highlights labels' growing willingness to experiment with peer-to-peer distribution of their music, as long as it is done on their own terms.

Snocap's system allows the creation of swapping environments where individuals can essentially sell each other their favorite music. It's designed so that peer-to-peer networks can plug the identification technology into their own software, blocking unauthorized trades and turning others into sales.

At least one company, called Mashboxx, is planning to launch a service based on Fanning's work later this year.

File-swapping network Imesh is also planning to transform itself into a place for authorized song swaps later this year, but is developing the service using different song-identification technology from a company called Audible Magic.


The Record Empire Strikes Tampa Bay
Anthony Salveggi

The burgeoning effort to make music and movie downloaders pay for their entertainment has hit the Tampa Bay area.

Two Bay area residents are the latest named defendants in complaints recently filed by a Miami law firm in the U.S. District Court in Tampa. In both cases, the plaintiffs are a who's who of top record companies, which are accusing private citizens of illegal distribution of property.

But the defendant in one of the cases is Dunedin single mother Christina Berry, 27, who works as a waitress while raising four children. Her annual salary: between $12,000 and $13,000.

"I heard about Kazaa and downloaded music, but I didn't think I was doing anything wrong," she said.

Of the 1,117 songs she's being accused of stealing, she said she owns 85 percent of them on CDs. She said she doesn't have a lawyer, hasn't answered the complaint and doesn't know what to do.

She's not alone.

On Jan. 24, the Recording Industry Association of America sued more than 700 individuals across the country for illegally sharing files, the organization said in a press release. Among the "John Doe" defendants, 68 are users of computer networks at 23 colleges, including the University of South Florida.

In response to the illegal sharing of music files, record companies have filed more than 8,400 federal lawsuits since the RIAA initiated the first wave of litigation in September 2003. Similarly, the Motion Picture Association of America has increased its anti-piracy efforts with a new round of lawsuits and a media campaign warning would-be thieves to "think again."

Industry pushes fast forward

The effort shows no sign of slowing down. Last month, the MPAA and RIAA asked the U.S. Supreme Court to overturn the Ninth Circuit Court of Appeals' decision that file-sharing networks such as Grokster and Morpheus are not liable for copyright infringements that occur over their networks. The highest court is scheduled to hear those arguments in late March.

Specific legislation has been passed that addresses the transfer of copyrighted material by digital means.

"The No Electronic Theft Act criminalizes sound recording copyright infringements occurring on the Internet regardless of whether there is financial gain from such infringements," the RIAA Web site published. A copyright is considered infringed when a song is made available to the public by uploading it to the Internet for other people to download, regardless of whether that individual stands to gain monetarily.

Amidst its efforts, the industry has been criticized for muscling Internet users. But they aren't backing down.

"They are clearly out there hunting," Brent Britton, an intellectual property lawyer with Akerman Senterfitt, said of the music industry.

In the Tampa cases filed in January, one was against "John Doe" on behalf of Sony BMG Music, BMG Music, Capitol Records and Warner Bros.

The complaint against Berry, also filed Jan. 27, is on behalf of BMG Music, Elektra entertainment, Interscope Records, Arista Record, UMG Recording and Virgin Records.

That powerful music industry plaintiffs would go after private citizens for downloading music speaks to the seriousness with which they consider the issue. Universal Music Group, EMI Group, Sony, Warner Music Group and BMG accounted for nearly 75 percent of the global retail market share in 2003, the International Federation of the Phonographic Industry reported. And according to the RIAA Web site, the music industry takes in $40 billion globally each year.

Miami firm takes lead role

Karen L. Stetson, an intellectual property lawyer with Broad and Cassel in Miami, has filed the recent complaints and has been active in similar cases in Florida during the last eight months.

Last July, Stetson represented record companies in winning a $1.9-million judgment against Beker Enterprises Inc., a Sebring-area convenience store and gas station that sold, among other things, pirated music CDs, a report in the Entertainment Law Reporter said.

A judge entered a default judgment against Beker for $35,000 in statutory damages for each of the 54 recordings where copyrights were infringed, plus more than $15,000 for the record companies' attorneys' fees.

In another Stetson case in late December, two federal judges in Tampa allowed movie companies to obtain the identities of several "John Doe" defendants accused of operating a peer-to-peer file-sharing system that allows individuals to download movies. The rulings came in two lawsuits filed by Columbia Pictures Industries Inc., Disney Enterprises Inc., Twentieth Century Fox Film Corp., Universal City Studios Productions and Warner Bros. Entertainment Inc.

Defendants allegedly operated a BitTorrent server that allows computer users to trade copyrighted movies without authorization. BitTorrent is a peer- to-peer file-sharing system people use to trade files including music and movies.

According to Entertainment Litigation Report, at issue is whether the BitTorrent server is used for legitimate purposes or for illegal activities and that depends on how that server's operator configures it. The complaints allege that defendants set up their servers to facilitate large-scale copyright infringement of the plaintiffs' movies.

The defendants' Web sites are hosted by Sago Networks, a Tampa Internet service provider. A call to reach someone at Sago for an update on the case was not returned.

Stetson would not comment on any pending cases, a spokesperson said.


Sony BMG Ramps Up CD Copy-Protection Plan
Ed Christman

It looks like music retailers will soon be getting their wish: At least one major is getting aggressive with copy-protected CDs.

Sony BMG Music Entertainment is stepping up the rollout of what it calls content-enhanced and copy-protected CDs, according to company executives. It began with the Chieftains' "Live From Dublin" album, released Feb. 22. Upcoming albums that will receive the treatment are from Kasabian (March 8) and Susie Suh (March 29).
Sony BMG expects that by year's end a substantial number of its U.S. releases will employ either Sunncomm's newly enhanced MediaMax or First4Internet's XCP to address piracy concerns. No matter which technology a CD uses, it will include such extras as photo galleries, enhanced liner notes and links to other features.

"What matters the most to us is the consumer experience," Sony BMG Sales Enterprise co-president Jordan Katz says. "Both technologies offer playability across all standard players, including CD players, boomboxes, DVD players, PCs, Macs, car stereos, video games and clock radios."

Katz says the company wants to alert the industry that it is implementing the content-protection technology, because extensive consumer research indicates widespread customer acceptance of it.

BMG has used MediaMax on a number of titles, including Velvet Revolver's "Contraband" and Anthony Hamilton's solo album. In all, it has shipped more than 5.5 million content-enhanced and protected discs, which have been met with positive consumer reactions, according to Katz.

After testing XCP on promos, Sony BMG is using it for commercial releases. Katz notes that XCP and MediaMax are constantly being improved, and that Sony BMG will test each upgrade on promos before employing it commercially.

The albums coming out now and in the immediate future will allow for three copies to be made. "We haven't set on what the number of copies should be, other than there should be a limited number; it shouldn't be infinite," Katz says. "Our research shows that the consumer thinks that's fair. So you are seeing Sony BMG taking a leadership role in this area, with increasing traction throughout the year in terms of a number of (our) releases."


Moore’s law

Intel Says New Chip-Making Technology on Target
Daniel Sorid

Intel Corp., the world's largest chip maker, is seeing good results with an advanced manufacturing technology it plans to use in products next year, an executive said on Wednesday.

The Santa Clara, California-based company today produces chips with features as small as 90 nanometers, or billionths of a meter. Its plants in Oregon, Arizona and Ireland are currently being upgraded to handle 65-nanometer production, improving efficiency and cutting per-unit production costs.

"All indications today, right now, is that we will be good on 65 nanometers," said Steven Grant, a vice president in Intel's technology and manufacturing group, at a company-hosted technology conference. "It's in very good shape."

Notebook computer chips to be introduced early next year will be the first to be made with the technology.

Intel, which will spend about $5 billion on factories and equipment this year, will probably be the first chip maker to reach high-volume production with 65-nanometer technology, said Risto Puhakka, president of market research firm VLSI Research.

International Business Machines Corpand Texas Instruments Inc. will follow quickly thereafter with 65-nanometer production, he said.

Intel stumbled through several product introductions last year, with at least one delay caused by a manufacturing glitch. The company has tried to put those missteps behind it, and executives have reiterated repeatedly at the conference here that its product introduction plans are on target.

More than half of Intel's 85,000 employees work in its network of factories and assembly plants in the United States, Ireland, Israel, China, the Philippines, Malaysia and Costa Rica.

In an interview, Grant said the company's move to 65-nanometer manufacturing was going about as well as prior transitions to smaller geometries. "I think it's comparable," he said.

Intel has historically moved to smaller chip features every two years, helping to sustain Moore's Law, the 40-year-old industry maxim named after Intel founder Gordon Moore that calls for the continuous shrinking of chip features.

Grant, however, said he was not yet ready to declare the 65-nanometer technology was home free.

"There are still some problems to fix," he said.


Bad days for Ma Bell

Cable Raises Its Voice
Ben Charny

For 130 years, traditional telephone operators have been kings of the home phone castle. But watch out--Ma Cable is making herself heard.

As never before, cable providers, from the giants on down to small operators like Northland Cable TV, are winning the phone wars against local phone giants BellSouth, SBC Communications, Verizon Communications and Qwest Communications International, collectively known as the Bells.

Each week, cable operators are adding hundreds, thousands, even tens of thousands of new local phone subscribers, while significant numbers of the Bells' local phone customers cut their home phone lines.

The result is the "Revenge of the Cable Giants," as organizers of next week's Spring 2005 Voice on the Net Conference & Expo in San Jose, Calif., put it. Once given no chance in the phone business, cable operators are now at the tipping point of becoming a legitimate threat to topple the Bells.

"It's now cable's show," said InfoTech Research analyst Warren Williams. "The cable operators' voice business is starting to blossom. They have everything to gain, while the Bells have to worry about the effects of price cuts or even (offering) their own VoIP services."

VoIP, short for voice over Internet Protocol, allows a phone to be plugged into a broadband data connection, sending calls mostly over the unregulated Internet--which keeps the service cheaper than traditional telephony. A number of companies sell just VoIP services, but lately, the cable companies have been adding the service and offering it to their millions of existing broadband customers.

To be sure, the Bells still dominate the home phone industry; each still has tens of millions of phone lines in service. There are about 3.5 million U.S. cable phone subscribers. But growth rates are heading in the opposite direction. The number of cable phone subscribers is skyrocketing, with Time Warner Cable reporting a 1,000 percent increase last year.

At the same time, homes served by traditional local phone lines are dwindling. Qwest, the smallest of the Bells, lost about 88,000 lines just in the last three months of 2004. As of Dec. 31, BellSouth had 21.4 million access lines in service, down 4.1 percent for the year.

Top-tier cable operators each add between 6,000 and 11,000 new phone subscribers per week; telephone revenue per operator is set to pass $1 billion this year; and subscriber rolls bulge at a rate of 1,000 percent a year. The Bells, on the other hand, each lost up to 5 percent of their local-line customers last year as local-phone revenues declined hundreds of millions of dollars.

"Cable is definitely leading the charge," Williams said.

And they're charging en masse, which could further accelerate the trend. Most cable operator are getting into the voice business, led by Comcast and Cox Communications, which now have ambitious plans to blanket their territories using a new technology over the next few years. Even scores of tiny cable operators are taking on the Bells at their own game--and winning. Northland, which specializes in very small markets, introduced an unlimited North American calling plan using broadband two weeks ago in a small sliver of North Carolina. About 500 people a week are signing up, many of whom are coming from incumbent BellSouth.

Cable's voice foray not only represents an incursion into the Bells' territory, it's also a defensive move against competition from satellite television. In the 1990s, the cable giants invested an estimated $75 billion to $80 billion to upgrade their networks into their current network of hybrid coaxial lines, a move in response to digital satellite services that could offer more channels and a clearer picture.

The investment is paying off for cable since broadband Internet access has become an incredibly profitable business. Modernizing their networks also opened the door for selling digital cable, high-definition TV, digital video recording and, of course, voice.

The Bells aren't standing still. Each local provider is investing billions of dollars to upgrade its antiquated copper wire networks with much faster, more efficient fiber-optics to better compete with the cable operators and their multifaceted service packages--including TV programming.

Cable VoIP actually represents a second major challenge to the Bells. Much of the Bells’ line loss now is thought to be the result of "cord cutting," in which customers replace their home phone service with a cell phone. But only the hardiest of souls will cut the cord, given cell phones’ notoriously unreliable service. On the other hand, VoIP services feel much like the old-style lines they’re aiming to replace.

Breaking the circuit

The rapidly changing dynamic results from cable's embrace of VoIP, which allows any Internet connection to double as a phone line. The Bells use circuit switches, which--while time-tested--are also antiquated, expensive to operate and wasteful of bandwidth.

The difference between the two technologies is dramatic. VoIP calling plans from standalone providers such as Vonage are about $20 a month cheaper than the Bells', owing largely to VoIP's operating efficiencies and the calls being unregulated, while the Bells face state and federal rules. Cable companies often sell their voice service for significantly more as an individual service, but the cost drops dramatically when packaged with other services.

Also, while it can take years to install traditional phone equipment, VoIP expansion can be lightning-fast. To go into the VoIP business, a company doesn't actually need to own or operate its own network. So VoIP has allowed practically anyone with a modicum of venture capital to become a phone service provider in just a few months.

One such VoIP-only provider, Vonage, is the largest provider of Internet calling in the United States. But Vonage's lead might not last much longer against cable operators, which own their own networks and have huge existing customer bases. At Time Warner Cable's current pace of 11,000 new subscribers a week, it will pass Vonage by year's end.

Rousing the giants

At first, the nation's top two cable operators, Cox and Comcast, were hesitant to invest the time and money in VoIP service, pointing to its untested- in-combat experience. The companies preferred the more expensive, but proven, circuit-switched route used by traditional phone companies. Seven years ago, Cox became the first cable operator to offer voice service, but it used circuit-switch technology to put together its "triple play" offering of voice, television and Internet connectivity.

That move mostly earned Cox jeers--critics said "Ma Cable" had no place in the phone business. But with the Bells only able to counter with a double-play bundle of voice and data, Cox began to draw customers. At present, the cable carrier has about 1.2 million phone customers using circuit switches.

And in the last several months, Cox has aimed to increase that success with a complete embrace of VoIP. After using VoIP services to expand into five new markets, Cox plans on blanketing the rest of its territory using the technology. At the same time, Comcast has made a similar commitment, with plans to use the software to reach 15 million or more homes this year.

Other cable providers are making similar moves. VoIP service suppliers such as Net2Phone have made it possible for even the smallest of cable operators to get into the phone business, forcing the Bells to brace for an assault on more of their turf.

"It's one thing when the big cable companies can do it; Cablevision, Time Warner Cable, Comcast, they all have the resources," said Sarah Hofstetter, a cable phone veteran at Net2Phone, which supplies cable operators with VoIP to resell. "But when even the small guys can go head-to- head with the Bells, then (their) competitive edge of even the last mile is lost."


Port blockers busted

Telco Agrees To Stop Blocking VoIP Calls
Declan McCullagh

A North Carolina telecommunications company accused of deliberately blocking Internet phone traffic has reached a deal with federal regulators to halt the controversial practice.

The Federal Communications Commission said Thursday that Madison River Communication will "refrain from blocking" VoIP, or voice over Internet Protocol, calls and will pay a $15,000 fine to the government.

"We saw a problem, and we acted swiftly to ensure that Internet voice service remains a viable option for consumers," FCC Chairman Michael Powell said in a statement. The consent decree prevents Madison River from VoIP blocking for 30 months.

Based in Mebane, N.C., Madison River reported $194.4 million in revenue for the 2004 calendar year from 120,649 residential voice subscribers, 60,563 business voice subscribers, and 39,562 DSL customers. The company has filed a registration statement for a proposed initial public offering.

VoIP provider Vonage confirmed that Madison River was the broadband provider it complained to the FCC about earlier this month, leading to the FCC's investigation.

"We're very pleased that the commission took very swift action to address the concerns that we had regarding an Internet service provider's ability to block our customers' communications with each other," Vonage CEO Jeffrey Citron said. "This sends a clear message that port blocking will not be tolerated."

Port blocking occurs when a company may prevent certain types of Internet traffic from traveling through its networks, for instance in an attempt to prevent voice subscribers from switching to VoIP.

Port blocking isn't reserved for high-profile VoIP carriers like Vonage. Nuvio, a small Net phone service provider based in Kansas City, Mo., says its customers' calls have been affected by at least one cable operator. Nuvio has yet to make any formal complaint to the FCC, however. In September, Nuvio told the FCC that port blocking was inevitable, given just how easy it was to do and the economic incentives for doing so.

Vonage's Citron said Madison River was the largest company to attempt port-blocking against Vonage customers. "We've identified one or two others that are very small," Citron said, adding that the information will be forwarded to the FCC. Many large cable companies have pledged never to engage in the practice.

Madison River did not immediately return phone calls.


Local news

Tool Helps Seize Cars of Tax Delinquents
John Christoffersen

NEW HAVEN, Conn. (AP) -- Sam Byers heard a commotion outside his house, but by the time he got to the window his Ford Explorer was gone. City marshals, armed with a new tool that photographs auto license plates and instantly matches them against a tax scofflaw database, had towed Byers' car right out of his driveway.

"That's like kidnapping your car," Byers, a 58-year- old truck driver said as he stood, leaning on the crutches he got after a foot operation. Byers was in a long line of people outside the New Haven tax collector's office who were waiting to make delinquent payments so they could get their vehicles back.

Cash-strapped New Haven is a pioneer in using the so-called BootFinder system. The objective: snare people who haven't paid car taxes. (Connecticut is among a handful of states where local governments levy annual fees, typically a few hundred dollars per vehicle, based on the value of residents' automobiles.)

New Haven officials are overjoyed at the results. They've towed about 1,800 cars and recovered more than $1 million in delinquent taxes since the program began in September, including from people whose cars they removed from a Wal-Mart parking lot.

But privacy advocates are concerned.

To them, BootFinder, originally developed to help police departments identify stolen cars, represents yet another ominous step in government surveillance of the citizenry.

The BootFinder system was first introduced for catching tax laggards by Arlington County, Va. So far, New Haven is the only other municipality using it, though Connecticut's largest city, Bridgeport, is among those considering a purchase.

The system is comprised of an infrared camera that rapidly scans license plates and, connected to a laptop computer in the New Haven system, scours a list of car tax delinquents. Previously, New Haven officials had to rely on mailed notices and phone calls to try to collect overdue car taxes.

The car tax collection rate, at 80 percent before BootFinder, has now risen to 95 percent, said C.J. Cuticello, New Haven's tax collector.

"I think the results are fantastic," he said. "We're going to continue it until we exhaust every vehicle in New Haven."

Arlington County has had similar success, reaping about $100,000 in unpaid car taxes and parking tickets since employing BootFinder despite not towing tax delinquents' cars. Its treasurer, Frank O'Leary, says the county is expanding the program this month to go after delinquent business and meals taxes owed by restaurant delivery companies.

"We're expanding to include all the items we can think of," he said.

That is precisely what alarms privacy advocates such as Cedric Laurant, policy counsel for the Washington, D.C.-based Electronic Privacy Information Center.

"It's a very slippery slope into which the authorities may be tempted to go," Laurant said. "You could use that technology to enforce any type of law that requires people to file their taxes."

Privacy advocates fear BootFinder could lend itself to "function creep", in which a technology intended for one purpose evolves into other uses.

Indeed, the president of the company that developed BootFinder, Andy Bucholz of Alexandria, Va.-based G2 Tactics, says he is in talks that he hopes will one day lead to a BootFinder-like system getting access to the National Crime Information Center database.

Bucholz said the talks are addressing privacy and security.

Such issues were paramount to a number of states that pulled out of a federally funded database program launched in 2002 called the Multistate Anti-Terrorism Information Exchange - "Matrix" for short - that was compiling billions of pieces of information on potential criminal suspects.

Laurant complained, additionally, that New Haven's towing regimen is disproportionate punishment for relatively small tax bills.

Kathy Martone was doing her dishes one night last week when the city came to get her Plymouth Neon, for which she owed $85 in taxes.

"I didn't know till I went to walk my dog," Martone said.

Motorists who have had their vehicles seized say they are given little warning and must miss work to get their car back.

New Haven officials say, however, that delinquent taxpayers are given five notices and warnings before their vehicles are seized.

In Bridgeport, Mayor John Fabrizi got a demonstration of BootFinder last week and said that within five minutes he had identified three cars whose owners owed a total of $900 in taxes.

"I was very impressed," Fabrizi said. "I feel we're going to go with the program."

The city's tax collector, Bob Tetreault, says it is currently owed more than $20 million in car taxes and its collection rate is below 70 percent, "which is just embarrassing."

The BootFinder remains a work in progress.

O'Leary of Arlington County said it sometimes fails to work when lighting conditions are variable due to cloudy weather. But he predicts big things for the technology.

"I compare it to buying a plane from the Wright brothers 100 years ago," O'Leary said. "It's a very clever device. This thing will fly. Give it a little time."


Heels dug in

European Commission Stands by Patent Proposal
Matthew Broersma

The European Commission has turned down the request that a controversial IT patenting proposal be thrown out, the latest twist in the European Union's software patents drama. The decision gives the go-ahead to send the proposal through to the next stage of the legislative process.

The proposed European Union-wide law on the "patentability of computer-implemented inventions" is heavily opposed by the European Parliament, which believes the measure would legalize software patents in Europe—bringing the EU closer to U.S. patent practice

The implications for intellectual property issues worldwide are far-reaching, given the amount of legal entanglements between software (and operating system) competitors in the United States over patents—as in The SCO Group's lawsuit against IBM, Novell Inc. and others.

The current proposal, which dates from May 2004, is opposed by open-source organizations and SMBs (small and midsized businesses), but it is backed by many larger IT companies, including Microsoft Corp.

In a letter Friday, European Commission President Jose Manuel Barroso told the president of the European Parliament that its request for a restart would not be accepted. In the letter, Barroso said the commission will not submit a new proposal on the IT patents issue, an EC spokesperson confirmed to eWEEK.com.

Read also: EU Patent Crisis: Pressure Mounting to Scrap IT Changes.

Barroso went on to say that the EC expects the EU Council—the third branch of EU government—to formally adopt the proposal "as soon as possible," after which the proposal would pass to the EP for a second reading. All of the views expressed would be considered during the second reading, Barroso said.

Critics of the current proposal have sought to block it from going into a second reading, which operates to a strict timetable and where any changes must be supported by more substantial majorities than in a first reading.

The EU Council, comprising representatives of the EU's 25 national governments, approved the proposal's current version last May, but even most EU Council members now formally oppose the draft, partly because of the arrival of new member states. The council still has not formally adopted the May 2004 draft, due partly to the opposition of Poland and other EU member states.

Click here to read about Poland's stand against the patent proposal.

The national parliaments of Spain, the Netherlands and Germany have recently approved formal resolutions supporting the EP's call for a restart.

The EP itself has bolstered its stance with three decisions: On Feb. 2, the legal affairs committee decided to ask the EC for a restart, and on Feb. 17 the decision was ratified by the EP's Conference of Presidents, the chairs of the various groups. On Feb. 24, in a plenary session, the EP unanimously approved a motion urging the EC to take action.

In the face of such clearly expressed political will, many of the proposal's critics expected the EC to comply with the parliament's request. The EC's decision "negates democracy," said Florian Mueller, manager of the NoSoftwarePatents.com campaign.

The EU Council is now expected to adopt the resolution on March 7, in a session of the Agriculture and Fisheries Council. Because the text was discussed during the negotiation of the "Common Position" of May 2004, it can now be adopted without discussion by any of the council's specialized bodies.

"We call on the EU Council to demonstrate a more democratic attitude and to reopen negotiations of its Common Position," Mueller said in a statement.

It is possible, though unlikely, that the council will choose to conduct further discussions of the proposal rather than immediately adopting it. If the current proposal proceeds to a second reading in the EP, it is possible that ministers will be able to summon the voting power to substantially modify the proposal or effectively throw it out, Mueller said.

Check out eWEEK.com's Enterprise Applications Center for the latest news, reviews and analysis about productivity and business solutions.


China Toughens Internet Censorship During Annual Parliament Session

China said it will toughen its already rigid censorship of the Internet during its annual parliamentary session to keep at bay those with "ulterior motives".

The Xinhua news agency said there would be strict 24-hour monitoring of Internet chat rooms and forums of major Chinese portals by "security guards". "Any messages submitted by Internet users will go through rigid censoring and filtering before appearing on the Internet," it said Tuesday. Qin Rui, deputy director of the Public Information and Internet Security Supervision Bureau, added that "some messages on the Internet are sent by those with ulterior motives". He did not elaborate. While communist China welcomes the Internet, as it helps the economy leapfrog into the 21st century, it is also worried about the way it enables people to access information considered subversive or politically sensitive. It closed down more than 12,000 Internet bars last year alone. Chinese lawmakers begin their annual parliamentary session on Saturday with tight security throughout the Chinese capital. The government expects China to have a total of 120 million Internet users by the end of this year, consolidating the country's position as the second largest cyber market in the world after the United States.



China Predicts 120 million Net Users By Year-End

Internet usage in China is expected to accelerate this year, as personal computers find their way into more homes and access to telecommunications networks grows, according to a report released Tuesday.

China's Internet user base is expected to grow 28 percent this year to 120 million, according to the official Xinhua news
agency, which cited an official with China's Ministry of Information Industry, or MII. The gains would represent an increase over 2004, when the number of Internet users grew 16 percent to 94 million.

China is the world's No. 2 PC market, with nearly 16 million units shipped last year and the number expected to grow another 13 percent in 2005, according to IDC.

It is also the world's largest telecom market in terms of subscribers; there were 316 million fixed-line users and 340 million mobile users at the end of January, Xinhua reported Tuesday, citing new data from the MII.

The new fixed-line figure represented an increase of 3.2 million subscribers from the end of December, while the mobile number represented a gain of 5 million.

Experts predict that China will have 402 million mobile subscribers by the end of this year, with fixed-line subscribers expected to reach 360 million, according to Xinhua.

China's telecom industry is dominated by fixed-line players China Telecom and China Netcom Group, and mobile carriers China Mobile and China Unicom.


Microsoft Trades Windows Discount For Piracy Info
Winston Chai

Microsoft has extended its antipiracy olive branch to China, offering users of bootleg copies of Windows a 50 percent discount on a legitimate version if they come clean on how they got their pirated copy.

As part of a two-month promotion that started in February, the company is offering a Chinese version of Windows XP Home Edition and Professional Edition at 786 yuan ($95) and 1,270 yuan ($153) respectively. According to Microsoft's Web site, the two products normally retail for about $199 and $299.

To qualify for this offer, users with unlicensed copies of Windows installed on their machines need to complete an online form in which they disclose how they obtained the bogus software.

For example, they will have to specify whether their existing Windows packages were installed by an independent reseller, bundled with their PCs at the point of sale or purchased from street peddlers. A discount voucher will then be e-mailed to these users following their submissions.

The promotion mirrors a similar effort introduced in the United Kingdom last November, where Microsoft offered to swap fake copies with genuine versions of Windows XP for free. However, the piracy rate in China is much higher than it is in the United Kingdom, which could significantly raise costs for the Redmond, Wash.-based software giant if it were to go with a similar approach.

In a further attempt to stem piracy, Microsoft now requires businesses and consumers in China to verify that their copies of Windows are genuine before they're allowed to download security patches and other OS updates.

The mandatory validation measure, which was also implemented in Norway and the Czech Republic last month, will be expanded to all other countries by the middle of this year.


Code busters

A Sense Of Insecurity
Robert Lemos

Last year was a bad year for the Secure Hash Algorithm. This year has been worse.

A key technology used in digitally signing documents and programs, the Secure Hash Algorithm, or SHA, is used by U.S. federal agencies and by corporations. It's used to reduce long documents to a smaller unique digital fingerprint, or hash, which is then signed using public-key encryption.

Last year, researchers found holes in various techniques used to create the numerical fingerprints. Among the results was a successful attack against the first version of the SHA algorithm, SHA-0.

This year, two of the researchers responsible for finding that attack--Xiaoyun Wang and Hongbo Yu of China's Shandong University--teamed up with Yiqun Lisa Yin, an independent security consultant in the United States. Together, they broke the more popular version of the algorithm, SHA-1. The paper describing that break will likely be published in May.

Though the complexity of the technique for attacking SHA-1 means it is not practical with today's computers, the research will have far-reaching consequences. CNET News.com recently spoke with Yin to learn about the ramifications of the team's research and whether security can be more than fleeting.

Q: When did you start analyzing SHA-1 for weaknesses?
A: Last October, I went back to Beijing to visit Tsinghua University and met with Professor Wang, who was also visiting there. We decided to do the research together.

What gave you the idea to try and break the algorithm?
Professor Wang and her students have been doing research in hash functions since 1996. Over the years, they have developed a set of powerful techniques that led to their breaks of several hash functions.

In addition, there were two other major results reported last year on hash functions at the Crypto 2004 conference. One team found a way to produce collisions in SHA-0. (A collision is when two different files result in the same fingerprint, or hash, and is considered a failure in the system. --RL) Another team found that reduced versions of SHA-1 can been broken.

We thought that there was the possibility of combining these existing techniques and some new techniques to create a new method for breaking the full version of SHA-1.

It was estimated that the existing techniques cannot be used to attack SHA-1 greater than 50 rounds.

What is a round--a measure of complexity?
SHA-1 consists of 80 steps of operation. Each step is also called a "round." Usually, more rounds imply more security, and hence harder to break.

What is the difference between SHA-0 and SHA-1? Is SHA-0 used anymore?
SHA-0 was issued by the (National Institute of Standards and Technology) in 1993 as the secure hashing standard. Then in 1995, NIST issued SHA-1 as a more secure version of SHA-0. The only difference between the two is an extra operation in the file preprocessing step, before the execution of the 80 rounds.

In general terms, what weaknesses of SHA are being exploited by your analysis techniques?
This is quite difficult to explain in general terms. Roughly, we exploit the following two weaknesses: One is that the file preprocessing step is not complicated enough; another is that certain math operations in the first 20 rounds have unexpected security problems.

Should companies worry that their data might be at risk because of this?
There is no immediate threat. It just shows that SHA-1 should be phased out faster than people originally anticipated.

The estimate that we made is that a collision could be found in about 2 to the 69th operations (about 590 million billion operations). Finding the collision in SHA-0 last summer took about 2 to the 50th operations, requiring more than 80,000 hours of supercomputer time.

That means that finding a collision of SHA-1 using our method will take 2 to the 19th times longer (about 5 million years). That is certainly out of the reach of our computing resources.

So finding one of these collisions is still nearly impossible?
No, that's not true. A distributed computing effort cracked a RC5 key three years ago. (That effort took almost 6 years. --RL) That was 64 bits, so the 69 bits of security for SHA-1 is not that far away.

And doing those years of calculations would break a digital signature?
No, it only allows you to find a pair of collisions.

Let's imagine we can find a pair of collisions every minute. That doesn't give you an immediate threat, because the pair of collisions is generally garbage messages. You would have to find meaningful messages. However, it is possible that with all these new techniques we will be able to improve this in the near future and find meaningful messages.

Are there unbroken hashing functions that can be used instead of SHA? What makes them stronger?
NIST issued several new hash functions (SHA-2) in 2002. They are, generally speaking, more secure than SHA-1, since the size of the hashes (fingerprints) are much larger, and so the expected security level is much higher.

Would your techniques help find problems in those other algorithms?
It's still too early to tell. Historically, though, major advances in cryptanalysis tend to have broad applications. The new techniques can give cryptographers more tools to tackle other hash functions.


Alleged Piracy Ring Member Pleads Guilty

A man accused of being a part of an underground network that distributed pirated software, games, movies and music over the internet pleaded guilty to criminal charges, US officials say.

Joshua Abell, 24, of San Antonio, Texas, entered the plea before US Magistrate Judge Nancy Nowak in San Antonio, Texas, the Justice Department said on Monday.

According to court documents, Abell was a member of the "warez scene" - an underground online community using the internet to engage in the large-scale, illegal distribution of copyrighted works.

Officials say warez groups often obtain copyrighted products such as Hollywood films before they are available to the general public, sometimes circumventing digital copyright protections, and making them available on the internet.

Abell is the third person to be convicted in what officials called "Operation Fastlink," described as the largest multi-national law enforcement action ever taken against online software piracy.

Abell pleaded guilty to a two- count felony information charging copyright infringement and conspiracy to commit copyright infringement, officials said.

Abell faces a maximum sentence of 10 years in prison when he is sentenced on May 26.

"Today's conviction, the third in conjunction with Operation Fastlink, demonstrates the Department of Justice's continuing commitment to the aggressive pursuit of intellectual property criminals," said Assistant Attorney General Christopher Wray.

"The Department is committed to prosecuting all forms of intellectual property theft, including piracy over the internet, and today's felony plea sends a clear signal to others that online piracy is not a consequence-free activity."

Operation Fastlink, which is still ongoing, resulted in some 120 searches in 27 states and 12 foreign countries, and has identified about 100 individuals as leaders or high-level members of various international piracy organisations.


Industry Sues 753 More People For Music Swapping
Joyzelle Davis

The US recording industry has filed lawsuits against another 753 people as part of its legal fight against individuals who it claims swap music illegally over the internet.

The suits include complaints against people at 11 universities suspected of using the colleges' computer networks to send music over the internet. The people who were sued used a variety of file-sharing services, including eDonkey, Kazaa and Grokster, the Recording Industry Association of America said in a statement.

The $US32 billion ($40 billion) music industry credits the crackdown on piracy with helping US music album sales rise 1.6 per cent in 2004, the first increase in four years. Legal music downloads in the US and Europe leapt tenfold last year after demand surged for Apple Computer's iPod digital music players. Record companies including EMI Group and Universal Music Group have stepped up efforts to make their catalogues available online.

"The lawsuits are a critical deterrent," RIAA president Cary Sherman said in a statement. They had helped "arrest the extraordinary growth of illicit" online file sharing.
RIAA members include Sony Corp's Sony BMG Entertainment and Warner Music Group.

The music companies have sued more than 6500 people on allegations of copyright infringement. Most of them have opted to settle for about $US3000 to $US5000 rather than face a court battle.


British Record Industry Extends Illegal Filesharing Battle To Eight P2P Networks
Jennifer Whitehead

LONDON - The British record industry is stepping up its war on illegal filesharing with 31 new cases against users of major filesharing sites including eDonkey and Soulseek, as it revealed that 23 internet users had paid compensation.

The compensation has been paid to settle 23 out of 26 cases brought by the BPI in October last year against people who had been sharing files over the internet.

The users, 17 men and six women, have paid an average of more than £2,000 to settle their cases, while two of the filesharers are paying over £4,000 each. They have also undertaken not to fileshare illegally again.

Kazaa and Grokster users were the biggest targets in the first swoop, accounting for 17 out of the 23 settlements. The BPI said that they ranged from students, to a local councillor and the director of an IT company.

However, the BPI, which represents UK record companies, is not stopping there and said today that it was undertaking further litigation in the UK to cover all of the popular peer-to-peer sites.

It said it would go to the High Court to seek orders for the disclosure of the identities of a further 31 people who have been illegally sharing files on networks including Kazaa, eDonkey, Grokster, Soulseek, DirectConnect, Limewire, Bearshare and Imesh.

Geoff Taylor, general counsel for the BPI, said: "If illegal filesharers think that they can avoid getting caught by staying away from the most popular networks like Kazaa, they're wrong.

"We are going to continue bringing cases against people who distribute music illegally, whichever filesharing network they use, for as long as it's necessary. Legitimate music services can only prosper if we continue to fight the theft of music on the internet."


Tech Industry Outlines File-Sharing Argument
Jefferson Graham

Imagine a future where the iPod and the TiVo TV recorder weren't allowed to exist.

That's the picture the tech industry tried to paint Tuesday as it outlined its opposition to the potential overturning of a digital file-sharing case to be heard by the Supreme Court later this month.

"No case is more important to the future of our industry," said Gary Shapiro, CEO of the Consumer Electronics Association. "It's about the principles that have allowed our economy to surge ahead for the last 20 years."

The entertainment industry wants the Supreme Court to overturn two lower-court rulings that said the owners of file-sharing services Grokster and Morpheus aren't liable for unauthorized downloads via their software — their users are. The court will hear arguments on March 29.

The CEA filed briefs Tuesday to counter earlier written arguments from the music and film industries. Joining in the paper trail: chipmaker Intel, Internet providers Verizon and SBC, associations representing computer manufacturers and libraries and many law and computer science professors. Recording artists also chimed in, including Ann and Nancy Wilson of Heart and songwriter Janis Ian.

"What's at stake here is whether Hollywood will get to control technological innovation," said Michael Weiss, CEO of Los Angeles-based Morpheus.

The techies are worried the court might gut its 1984 "Sony Betamax" decision, which ruled that devices with "substantial non-infringing" uses such as the VCR were legal. That led to a host of new copying devices, such as the CD burner, iPod music player and scanner.

Former solicitor general Ted Olson, who is working with the studios and record labels, says his law firm won the Sony case then and opponents are "exaggerating" the decision. Grokster and Morpheus "were designed for unlawful uses," he says. "Technology will not stop if the court rules in our favor. Technology will be stopped if the inventors and creators are not protected."


Court Is Urged to Shield File-Sharing Companies
Jon Healey

An array of companies, musicians and academics from across the political spectrum urged the Supreme Court to uphold an appellate ruling last year in favor of companies behind the popular Grokster and Morpheus file-sharing networks.

The 23 briefs, whose authors included Intel Corp., the Consumer Electronics Assn., the American Conservative Union and the American Civil Liberties Union, urged the court to maintain the principle it set in the 1984 Sony Betamax case: Companies that produce technologies with substantial legitimate uses are not liable for acts of piracy committed by their users.

The high court is set to hear arguments March 29.

Last month, the Bush administration and copyright holders, technology firms and academics joined record firms and studios in urging the court to reverse the ruling.


Unlikely Alliances Form In File-Sharing Case
Alex Veiga

Religious and other conservative groups have shown little love for Hollywood or the recording industry over the years, decrying everything from explicit rap lyrics to Janet Jackson's bared breast at the Super Bowl.

But a cadre of those groups are stepping up to back the entertainment industry in its moment of need: a high-stakes battle against online file-sharing services that has reached the nation's highest court.

File-swapping services make pornography easily accessible to minors, the social conservatives submit. The entertainment companies, meanwhile, blame sharing for declining sales and lost revenue.

An unlikely alliance thus formed.

"Hollywood is definitely a strange bedfellow to most of us," said Jim Backlin, vice president of legislative affairs for the Christian Coalition of America. "Our goal was to cut down child pornography and other kinds of pornography, and if for some reason we were allied with the Hollywood types this time, so be it."

On the other side, the file-sharing companies have also found unlikely allies, including libraries concerned that tighter copyright controls would stifle free speech.

The Supreme Court is scheduled to hear arguments March 29 in the Internet file-sharing case, with briefs from defendants and their allies due on Tuesday.

The case stems from a lawsuit filed by Hollywood movie studios and recording companies against Grokster Inc., which distributes the Grokster peer-to-peer software, and StreamCast Networks, which runs Morpheus. Lower courts have ruled that the companies are not liable for what computer users do with their software, even if it's illegal.

Literally billions of dollars are at stake.

On the entertainment side of the dispute are online services that legally sell music or movies, including Napster Inc., MusicNet and CinemaNow as well as professional sports leagues including the National Football League and the National Basketball Association that worry about unauthorized distribution of their broadcasts.

Attorneys general for 39 states and Guam, meanwhile, have sided with the social conservatives, raising concern over the potential for minors to stumble upon pornography.

The federal government also filed a brief. It argues that while file-sharing technology has legitimate uses, Morpheus and Grokster profit by encouraging computer users to copy music and films without paying for them.

Not to be outdone, file-sharing companies have support from a big slice of the technology sector.

"If Hollywood gets its way, they'll be granted de facto control over, frankly, the vast majority of communications and technology today," said Will Rodger, director of public policy for the Computer & Communications Industry Association, which represents Sun Microsystems Inc., Verizon Communications Inc. and 28 other companies.

The Consumer Electronics Association, which represents upward of 1,700 technology companies, including Sony Corp., Intel Corp., TiVo Inc., is also planning a brief in support of Grokster and StreamCast.

The companies fear a ruling against the file-sharing services would leave them susceptible to lawsuits if they develop devices or technologies not approved by the entertainment industry.

They point to a long history of copyright holders trying to quash new distribution models or products, going back to the player piano and including the VCR, MP3 player and digital video recording pioneer ReplayTV.

"This is the Hail Mary pass on the part of the content industry to try to put the entire technology sector under their thumb," said Fred von Lohmann, an attorney with the Electronic Frontier Foundation, which is representing StreamCast. "That's something they could never get Congress to do, but that's precisely what they would like the Supreme Court to do for them."

Four other trade associations officially are not supporting either side but oppose tinkering with established copyright law.

"We think there's a distinction between analyzing the legality of a technology and analyzing the legality of a company or a company's behavior," said Jonathan Potter, executive director of the Digital Media Association, which counts Apple Computer Inc. and Microsoft Corp. among its members. "We don't think companies who create technology should be liable for other uses of the technology."

The outcome of the case and its impact on current copyright laws will undoubtedly shape the ongoing relationship between the entertainment industry and companies that make the products people use to watch movies or listen to music.

Mitch Bainwol, chairman of the Recording Industry Association of America, says the industry understands its future is intertwined with the technology sector.

"We have no interest in getting in the way of legitimate business," Bainwol said. "We simply say that you have to find a balance ... all of innovation, both technological innovation and creative innovation, has to be protected."

In building a wider coalition of support, Bainwol said he sought to find a way to ensure that the "mainstream of America would embrace our position."

Bainwol's predecessor, Hilary Rosen, doubts a cozier relationship between conservatives and the entertainment industry will ensue.

"There is a bizarre but cool irony to the conservatives who hate the media we produce but defend to the death our right to make money when we produce it," added Rosen, whose tenure at the RIAA coincided with the 1999 congressional hearings over violent lyrics that followed the Columbine High School slayings.

Several artists, including Don Henley, Avril Lavigne, the Dixie Chicks and Sheryl Crow, are lending their names to the entertainment industry's case, saying they lose potential royalties to file-sharing.

It's unclear whether any well-known performers will step forward in support of the defendants.

Not unclear at all. See above. – Jack.


Dell CEO: Less Regulation on Digital Movies, Music
Ed Oswald

Dell CEO Kevin Rollins told the Associated Press in an interview Wednesday that he thinks the government and regulators should step back and resist any temptation to regulate the digital movie and music industry.

He also suggested that entertainment companies should try to be a little more cooperative with the technology industry in creating new ways to deliver digital movies and music to consumers.

"There are many new ways to deliver content to users without having to bar them from access to content or entertainment," Rollins explained, saying that such action stunts growth rather than promoting it.

On Tuesday, Dell partner Intel told the Supreme Court to not get involved with the argument between the entertainment industry and file sharing networks over peer-to-peer file sharing. Even some artists have come out in support of file sharing networks, saying it gives them exposure they'd otherwise not receive.

Rollins did want to make it clear, however, that Dell as a company was not coming out in support of illicit P2P activity. Instead, Dell and other technology companies would like to work with the industry on standards and innovating delivery of content to users "rather than try to put artificial barriers up."

Dell does have a financial interest in digital music's success, as it produces several portable audio players.


MGM Takes Heat on Anti-P2P, File-Sharing Court Action

A confederation of consumer, industry and public advocacy organizations is strongly urging other such groups and individuals to intercede at the U.S. Supreme Court with amicus briefs aimed at upsetting a Metro-Goldwyn-Mayer Studios (MGM) lawsuit which effectively wants to hold peer-to-peer (P2P) software product developers indirectly responsible and liable for users’ copyright infringement violations via on-line file-sharing.

The MGM case against P2P developers Grokster, Ltd. and StreamCast Networks appears to seek judicial imprimaturs - and even on-going court reviews - of potential prior knowledge-type violations by P2P vendors whose products could be used in purported acts of Internet piracy and copyright infringement. This ostensibly goes well beyond the entertainment business’s successful legal actions against the likes of Napster, the service provider whose P2P enterprise served as a platform for alleged illegal swapping and downloads of music and videos among Internet users.

Attorneys for Grokster and StreamCast as well as representatives of advocacy groups Public Knowledge, the Electronic Frontier Foundation (EFF), the Consumer Federation of America, the Consumer Electronics Association and the Computer and Communications Industry Association yesterday led a 90-minute press conference in Washington, DC to blast the MGM petition. EEF has seemingly led the charge against MGM with an amicus brief at the Supreme Court, but the session revealed that large numbers of such positions were being filed, including by individual academic experts.

The collection opinion in favor of Grokster and StreamCast was that there are numerous historical cases and legal decisions which adequately enforce copyright infringement, yet never at the expense or accountability of technology developer/ provider initiatives; the concern expressed was that any success by MGM essentially could result in a dampening of invention, innovation, investment and deployment of state-of-the-art P2P technologies and file-sharing applications for both personal and business purposes.

The groups also said policy shifts on such matters are supposed to be the prerogative of the U.S. Congress and not the courts. The current legal standard regarding the entertainment establishment's infringement complaints about technology stems from the 1984 case against Sony; which was sued by the movie industry over its then-emerging Betamax recorders because copying TV programs allegedly violated copyright laws. The Supreme Court, however, ruled that making a copy for later viewing was an acceptable personal use plus it broadly held that device makers were not responsible for users’ illegal acts if their products were merely capable of substantial violations.

Until next week,

- js.


Current Week In Review.

Recent WiRs -

February 26th, February 19th, February 12th, February 5th, January 29th

Jack Spratt's Week In Review is published every Friday. Please submit letters, articles, and press releases in plain text English to jackspratts (at) lycos (dot) com. Include contact info. Submission deadlines are Wednesdays @ 1700 UTC.

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