Internet Industry Leaders Swap Concerns Over Online File-Sharing

At an Internet summit attended by major industry leaders this week in Dana Point, the hottest topic was not consumer privacy or the sudden bottoming out of dot-com start-up funding.

Instead, everyone was nervous about Napster, the best-known implementer of file-swapping technologies that have made the already rampant exchange of pirated music, video and text a question of a few mouse clicks.

“Downloadable music really is the canary in the coal mine for all types. It’s not just about music, it’s about video, movies, books, etc.,” observed Jim Griffin, chief executive of Cherry Lane Digital, a Los Angeles media and technology company focusing on the wireless delivery of intellectual property.

Media companies, search engines and auction sites hope a lawsuit pending against Napster will eradicate the threat, but a new breed of programs that allow Internet file-sharing without any central control is rapidly becoming a hot investment opportunity and is probably here to stay.

“The genie is not only out of the bottle, but the bottle has been dropped and broken,” said Michael Robertson, president of MP3.com.

Robertson thinks the programs are unstoppable, adding: “The challenge is how do you create a better drug?”

Some new companies say they can do that by charging for copyrighted material--a move that would probably mollify content owners. So far, these so-called peer-to-peer companies have yet to reveal specifics on their plans.

But that isn’t stopping venture capitalists from pouring money into them. Just this week, a company called AppleSoup announced it had received $2.5 million in funding from former Universal Studios Chairman Frank Biondi and others.

And a company formed by one of the creators of the Gnutella peer-to-peer file-sharing program has received funding from Marc Andreessen, inventor of the Netscape browser.

But the question facing the business establishment is how to harness a technology whose very premise is that it is uncontrollable.

Peer-to-peer machines draw on the original philosophy of the Internet itself, which was created by the U.S. military establishment as a decentralized web of interconnected data-transfer machines. If some machines fail, the data finds alternate paths to reach its intended recipient.

The technology does not require centralized server computers like those that Napster uses to provide a clearinghouse for the bootleg music its users exchange.

At the summit that ended Tuesday, EBay Chief Executive Meg Whitman said the online auction giant has formed a working group to examine issues posed by the rise of peer-to-peer computing.

And several hundred people packed a room to hear executives rarely seen together--unless a judge is hearing a lawsuit nearby--debate whether consumers should be required to pay for the music files now available for free over the Internet.

With Napster, millions have created digitized music collections using the MP3 file-compression format and shared them.

“Sharing a file without a license is absolutely within the law, and there are 20 million people doing that right now,” declared Hank Barry, chief executive of Napster Inc., which faces a hearing next week on a lawsuit brought by the recording industry to put it out of business.

Larry Kenswil, president of ELabs at Seagram’s Universal Music Group, argued that the recording industry, with $40 billion in revenue at stake in the U.S. alone, must be paid for its content.

Rob Glaser, chairman of streaming media company RealNetworks, stood in the middle.

“Collectively, all of us have to find a way to make this thing which people want to do legal. Otherwise, it’s corrosive on 50 different levels,” Glaser said.

One thing all agree upon is that the issue will ripple through other forms of digital media.

That was evident in a New York federal courtroom on Monday where a trial opened in a lawsuit filed by motion picture studios to prevent the online distribution of software that descrambles the code meant to protect DVDs from being copied.

The software, developed by hackers, has helped enable consumers to copy feature films from digital versatile discs onto their hard drives.