- The Washington Times - Thursday, July 14, 2005

Has the balance finally tipped toward legitimacy in the online music market? “We certainly hope so,” says Recording Industry Association of America President Cary Sherman, the music industry’s point man in the battle to bring Internet file-sharing out of the shadows and into the grasp of record labels’ revenue collectors. “We’ve seen a lot of encouraging signs.”

First, a hotly anticipated Supreme Court ruling last month in the case of MGM vs. Grokster said file-sharing services could be sued for illegally proliferating copyrighted music — a much-needed victory for the RIAA, whose legal strategy to this point has amounted to thousands of lawsuits against individual users, including, notoriously, a 12-year-old girl.

Previously, the legally ambiguous, often stealthy file-sharing companies could claim they weren’t directly responsible for the content of their peer-to-peer networks; rather, they were innocent conduits for file-swapping, much as VCR manufacturers claimed in the 1980s when Hollywood cried foul over illegal movie-copying.

No longer.

File-sharing services are now “liable for the resulting acts of infringement by third parties,” Justice David H. Souter wrote for the court.

The relative success of industry-authorized services such as Apple Computer’s iTunes aside, Mr. Sherman is seeing what he’s wanted to see for years: a combination of legal pressure and financial incentives to induce still-thriving peer-to-peer networks such as Kazaa, MusicCity and EDonkey to go legit.

Venture capitalists are looking to sink millions into above-board online operations, he says. And advertisers are becoming leery about associating with companies that cast a blind eye to content, which frequently carries viruses, spyware and, in some cases, child pornography.

“What we’re seeing is all of the collateral forces that derive from the Supreme Court’s clarifying the law at work,” he says.

Unlike anarchic pirate sites, the file-sharing services that cooperate with the industry “don’t have to hide from the knowledge of who their customers are,” Mr. Sherman contends. “The illegal peer-to-peers have had to close their eyes and ears … in order to avoid copyright liability.”

One such company is banking on the chance that Mr. Sherman is right.

Immediately following the Supreme Court’s Grokster ruling, the popular file-sharing service IMesh announced it will unveil an authorized peer-to-peer model by year’s end. The company, founded in 1999 in Tel Aviv, now based in New York, had already stepped forward to settle an industry-backed lawsuit, agreeing last year to pay $4.1 million in compensation for copyright infringement.

In another signal of good faith, IMesh also recently named Robert Summer, former president of RCA Records as well as Sony Music International, as its executive chairman.

Mr. Summer says the new IMesh model will offer a “full range of digital music.” The company has reached a distribution deal with Sony BMB Music Entertainment, and Mr. Summer says agreements with other labels are in the offing. The site will offer both fee-based music from labels and free downloads from independent artists.

Still, he says, “the risk equation hasn’t been altered.” There’s the large-looming specter of regular IMesh users jumping to free, unlicensed competitors as soon as the company launches its fee-based model.

The cautiously optimistic Mr. Sherman agrees: “You just can’t predict what is going to happen when it comes to the Internet. We’re never going to completely eliminate Internet piracy.”

“They can’t suddenly change a service so radically,” Larry Kenswil, president of ELabs, a technology division of Universal Music Group, told the San Jose Mercury News. “All that happens is everyone will move off it to something else that’s free.”

A key unanswered question is whether fee-based swapping networks will be able to compete with online retailers such as ITunes and Rhapsody.com, with their easily searchable databases.

Mr. Summer says IMesh is “marketing right to the core of current peer-to-peer services, both former IMesh users and many of the other active sites.

“Our job is now to take the next step and say, ‘Peer to peer really works,’” he said.

He promises a “completely clean experience” — something the unauthorized networks can never guarantee — and better “community interaction” between users.

“People are going to get better products than they can from illegal peer-to-peers,” Mr. Sherman predicts.

If consumers don’t get better products, or if they fail to realize they can, then the chaotic underworld of file-swappers will probably never be absorbed into the mainstream.

“We’ve always said this ultimately has to be resolved in the marketplace,” Mr. Sherman says. “It’s the long-term solution. Everything else” — the litigating and lobbying — “is just a mechanism to get there.”

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