Microsoft Using Kazaa as a Marketing Portal

In early September, Microsoft Corp. Chairman Bill Gates staged a Hollywood gala to impress the recording and movie industries with his company’s latest software for digital music and video, Windows Media 9.

A few weeks later, Microsoft started showing off Windows Media 9 to an audience reviled by the entertainment industry: the Kazaa file-sharing network, where users routinely copy digital songs, films and software free.

Microsoft has picked up the tab to distribute at least two companies’ promotional videos on Kazaa in the Windows Media 9 format, representatives of those companies say. The videos not only show off the improved picture quality of Microsoft’s latest technology; they also help distribute it. When Kazaa users download and play either video, their Microsoft media player software is automatically upgraded to Windows Media 9.

The dalliance with Kazaa seems risky, given the network’s reputation for promoting piracy. But to Microsoft, the projects serve a legitimate purpose: to show the entertainment industry how the anti-piracy features of Windows Media 9 might tame the file-sharing beast.

The videos were put on the Kazaa network by Altnet, a Los Angeles-based company that uses Microsoft’s digital-rights-management software to place electronic locks on the songs and videos it distributes. Those locks deter unauthorized copying, enabling companies to take advantage of the virtually free distribution provided by Kazaa without losing the ability to demand payment and limit usage.

“We’re really interested in how peer-to-peer networks can be used for the legitimate distribution of content,” said Jonathan Usher, director of Microsoft’s Windows Media division.

A key question, Usher said, is whether Kazaa users will download an authorized, copy-protected Altnet file instead of songs and videos with no copy protection.

So far, “the number of [authorized] downloads has been pretty promising and actually has been surprisingly high,” he said.

Altnet also helps Microsoft compete with other software companies in the burgeoning field of digital audio and video. Microsoft’s goal is to make Windows Media the dominant format, but it has been overshadowed on popular file-sharing networks by industry-standard formats, such as MP3 for music. And for online movie trailers, Hollywood studios have favored the QuickTime video format from Apple Computer Inc.

Analyst P.J. McNealy of GartnerG2, a technology research and consulting firm, said Kazaa gives Microsoft a low-cost way to show media companies a variety of benefits that Windows Media 9 offers.

Still, McNealy added, “This smacks of a government wanting to do legitimate business with a known drug dealer.... I’m as surprised at Microsoft wanting to work with Kazaa as Bertelsmann wanting to work with Napster.”

Bertelsmann, the global media conglomerate that owns the BMG recording and music-publishing companies, funneled more than $85 million to Napster Inc. before the pioneering file-sharing network shut down. A group of creditors recently sued Bertelsmann, claiming it sustained Napster’s copyright infringements.

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Paying for Distribution

Microsoft has paid Altnet an undisclosed sum to distribute promotional videos for Tony Hawk’s Boom Boom HuckJam -- a touring extravaganza of skateboarding, cycling and punk rock -- and “The Rules of Attraction,” a film by Lions Gate Entertainment, an independent studio in Marina del Rey. In addition to an upfront fee to start the distribution, Altnet charges Microsoft every time one of the videos is downloaded -- a fee that it splits with the company behind Kazaa, Sharman Networks Ltd. of Vanuatu, a tax haven in the South Pacific.

The major film and music companies are suing Sharman and other companies involved with the Kazaa software, accusing them of aiding copyright infringement on a massive scale. Sharman contends that its software has legitimate uses, adding that the company is not liable for what consumers do on the network.

A good illustration of how Microsoft uses Kazaa to promote its format is the eight-minute promotional video for the Boom Boom HuckJam tour, a production of Mission Viejo-based Tony Hawk Inc. Craig Sneiderman, the tour’s promoter, said the video was posted on the tour’s Web site in QuickTime format and sent to sporting goods stores, but he wanted an inexpensive way to reach a much wider audience.

In particular, he wanted to use Altnet to reach the tens of millions of consumers on Kazaa. When the show’s backers refused to cover Altnet’s fees, Sneiderman’s fellow promoter, Mike McGinley, turned to Microsoft, which agreed to cover the costs of distributing a Windows Media version of the video.

Microsoft even bought ads on Kazaa to promote the Boom Boom HuckJam video, said Sharman spokeswoman Kelly Larabee.

The Altnet projects pose at least two risks for entertainment companies: They encourage consumers to use Kazaa by making high-quality videos available there, and they bolster the arguments by Sharman’s lawyers that the network has a substantial legitimate use.

“We think it’s an excellent example of the growing commercial uses of peer-to-peer technology,” Larabee said of Microsoft’s work.

On the other hand, a lawyer close to the Hollywood studios said the projects may be a boon to their lawsuit against Sharman. Contrary to the company’s claims that it can’t control infringements on the network, the source said, the Microsoft videos show “you can run a peer-to-peer system and protect copyrights.”