The Kazaa file-sharing network attracted tens of millions of fans -- and angered record labels and Hollywood studios -- by enabling users to copy songs, movies and other digital files from one another's computers for free.
Now, one of Kazaa's partners is trying a novel strategy to reduce piracy and win over the labels and studios: paying users to share files authorized for distribution.
The incentive program is being launched Wednesday by Altnet, which uses Kazaa's peer-to-peer network to distribute songs, games, movie clips and other files authorized by copyright owners. Unlike most of the material available through Kazaa, Altnet's files are protected by electronic locks that control how files are opened and used.
The "peer points" program offers $250,000 worth of prizes each month to people who transmit the most files to other Kazaa users. But the only files that earn points are the Altnet ones, not the pirated wares that dominate the network.
The move is a bid by Altnet, a unit of Woodland Hills-based Brilliant Digital Entertainment Inc., to attract more entertainment and software companies to its fledgling service.
The first reaction from the Recording Industry Assn. of America, however, was guarded.
"We think it's great when there are systems out there that respect an artist's choice over whether or not to distribute their music for free," said Matt Oppenheim, the RIAA's senior vice president of business and legal affairs. "While Altnet does it some of the time, the [Kazaa] system by and large doesn't do it, and that's a problem."
Altnet has been shunned by the major record companies and Hollywood studios because of its association with Kazaa, which the companies are suing for copyright infringement. Meanwhile, video game publishers, independent record labels and other copyright owners are using Altnet to deliver about 20 million files per month, making it the largest distributor of content protected by Microsoft Corp.'s anti-piracy technology, according to Altnet Chief Executive Kevin Bermeister.
In a peer-to-peer system like Kazaa, a user can act as both consumer and distributor. User Smith, for example, is a consumer when she downloads a copy of Madonna's "American Life" music video from another Kazaa user. And she's a distributor when she puts the video in a shared folder and another Kazaa user downloads it from her.
She's also a pirate, in the judgment of several federal courts, unless she's copying and distributing files with the copyright holder's permission. And that's where Altnet comes in.
When someone searches for "American Life" on Kazaa, the program produces a list of links to files called "American Life" on other users' computers, with Altnet's authorized files at the top of the list. If Madonna had a deal with Altnet to distribute a pay-per-view version of the "American Life" video, links to that video would appear first, followed in all probability by links to unauthorized, free versions of the video and the song.
Altnet's new prizes give users like Smith incentive to take unauthorized files out of the folders they share on Kazaa and replace them with Altnet files, thus increasing their chance of collecting points. Because they don't need to open or use files to collect points, users don't care whether the files they share carry a price tag. They simply want to distribute as much authorized content as they can.
By trying to drive unauthorized files out of the folders that Kazaa users share over the Internet, Altnet's program pursues the same anti-piracy goal as the Recording Industry Assn. of America. The difference is that the RIAA has been using a stick, while Altnet is offering carrots.
Analyst P.J. McNealy of GartnerG2, a technology research and consulting firm, said the points program may be based on a flawed assumption: that the files Altnet wants to provide are compelling.
Beyond that, McNealy said, Kazaa attracted a huge audience by enabling people to copy other people's intellectual property for free, without restriction. "Instead of preventing the uploading of unauthorized materials, they're turning a blind eye to it," he said.
Bermeister disagreed, saying both Altnet and Kazaa want the program to change the behavior of Kazaa users. The goal is to shift behavior so dramatically that by the end of next year, most of the downloads on Kazaa are authorized copies.
But he acknowledged that the shift will happen only if the major entertainment companies support Altnet's efforts, "and that's a very, very, very big 'if.' "
Several entertainment-industry executives have said they're intrigued by Altnet but are reluctant to support it while the lawsuit is pending against the company distributing Kazaa's software, Sharman Networks. Based in the South Pacific tax haven of Vanuatu, Sharman has countersued the labels and studios for allegedly colluding to withhold music and movies from its partner Altnet.
Just under 50% of Altnet is owned by Joltid, a privately held company whose principal owners launched Kazaa. After the entertainment companies sued them for copyright infringement, however, they sold Kazaa to Sharman Networks.
The points program relies on software that Kazaa plans to include in a new version of its program, which is slated to be released in a preliminary form Wednesday. The software will enable Altnet to distribute files to non-Kazaa users through the MySearch.com site, expanding Altnet's reach to an estimated 75 million users, Bermeister said.