Offering the High Road for File Sharing

Capitalizing on the burgeoning phenomenon of online piracy, a group of upstarts is trying to sell copyright owners the opportunity to compete against their own pirated material.

The first of these services, from Altnet Inc., makes its debut today by piggybacking on Kazaa, a powerful online network that lets consumers make unauthorized copies of music, movies and software freely from one another’s computers.

The service already has drawn flak from Kazaa users, who installed Altnet software with the Kazaa program without realizing what it could do--offer users the chance to pay for authorized copies of material they almost certainly could download for free.

“We feel that, fundamentally, users of any of these [file-sharing] networks are honest people,” said Kevin Bermeister, chief executive of Brilliant Digital Entertainment, the Woodland Hills animation company that owns 51% of Altnet. “Users want secure content; they want content from a credible source. They don’t mind paying for it, provided that it’s easy and intuitive and reasonably priced.”

Controversy aside, Altnet is just one of several emerging efforts to use online file-sharing networks to distribute digital goods without violating copyrights.

Some of these efforts, such as Wippit and CenterSpan Corp.’s Scour, are built on secure networks that don’t allow consumers to trade pirated goods. Sony Music recently put five free songs by emerging artists on Scour, the first tentative step by a major label toward file sharing.

But Wippit and Scour have small audiences compared with those of the leading file-sharing networks, which let users copy any digitized song, movie, game or program offered by other users regardless of copyright. Other efforts focusing on these so-called peer-to-peer networks are hoping to inject copy-protected songs and videos into the flood of pirated material. The copy-protected goods could be downloaded for free, but users would have to make some kind of payment in order to play them.

One--by Streamcast Networks Inc., owner of the controversial Morpheus file-sharing network--is MusicCity.com, which would let artists offer copy-protected songs through Morpheus. A second, from FileFreedom, lets copyright owners market their wares directly to users of Grokster, another file-sharing network rife with pirated goods.

Altnet takes a hybrid approach. Its TopSearch service is integrated into Kazaa, enabling copyright owners to offer authorized, copy-protected files to any user who searches the Kazaa network for their works. In a few months, Altnet plans to launch a separate network that can distribute digital goods securely without mingling them with unauthorized copies.

The goal of the new services is to make money directly from copyright owners, not as file-sharing services do by selling advertising. Streamcast, for example, plans to take a 30% cut of the money artists make from the songs they sell through Morpheus.

Altnet plans to sell TopSearch services to copyright holders, promising to make their copy- protected works stand out from the clutter on Kazaa. When Kazaa users search for works by artist or title, Kazaa’s software returns a list of links to files that can be copied from other users’ computers--with links to copy-protected TopSearch files arriving first and staying at the top of the list.

For example, if the band U2 wanted to distribute a copy- protected version of the song “One,” whenever a Kazaa user searched for U2 or “One,” TopSearch would ensure that links to the authorized files are displayed first. But users still could scroll down the list and find an unauthorized copy that they could download for free.

Bermeister of Brilliant Digital Entertainment said companies that have agreed to try out TopSearch include 2K Sounds, an independent label distributed by EMI Recorded Music, and Infogrames, a major video game developer.

The major record companies have had little success selling digital music files over the Internet. Analysts estimate that fewer than 100,000 consumers have signed up for any online subscription service for music, which typically charges 99 cents to $2.50 an item.

One of the performers using MusicCity.com is Thomas Dolby, a former EMI artist now recording independently.

“I’ve always been very against the free distribution of my music personally, or any artist’s music,” he said. “I looked at MusicCity’s approach, and I felt that it may not be perfect--it may just be one more step in this whole sort of evolution--[but] ... I felt that there was a genuine desire to try to improve the situation for everybody.”

Matt Oppenheim, senior vice president of business and legal affairs for the Recording Industry Assn. of America, was more cautious in his assessment of the new systems.

“The concept of a secure system trading works for which permission has been granted by the copyright owner is a great idea,” he said of Altnet. “It’d be nice to see it implemented by those whose hands are not already dirty.”

Altnet has not just garnered global distribution for its software from Kazaa. It also is closely tied to the engineers who developed Kazaa’s technology and the company that oversees the current network.

Kazaa was developed by Consumer Empowerment of Amsterdam, whose principals now own 49% of Altnet, according to securities filings. Consumer Empowerment licensed its technology and sold the Kazaa brand to Sharman Networks of Vanuatu, an island nation in the South Pacific. Sharman uses Brilliant Digital Entertainment’s technology to deliver animated ads through Kazaa.

By piggybacking on Kazaa, Altnet’s TopSearch software already has found its way into about 25 million computers, and Bermeister said that at least 2 million more are coming online each week. Before it activates its secure file-sharing network, Bermeister said, Altnet will need a limited number of Kazaa users to sign up and download a final piece of software.

The secure Altnet Resource Network will act not only as a low-cost distribution service for digital goods but also as a source of computing power for rent. By sending computing tasks to thousands of idle machines, the network can effectively act as a supercomputer. And by storing copies of files on hard drives around the globe, the network can deliver large quantities of digital goods for much less than it would cost to send them from a single computer.

The challenge for Altnet will be to persuade consumers to be part of the new network. The initial revelations about Altnet spurred alternative file-sharing networks that don’t come bundled with Altnet, such as Kazaa Lite, a variation that Sharman Networks has been battling with cease-and-desist letters.

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