Posted on 24-9-2002

Music-Swapping Service Gains Stature
in New Deal
By MATT RICHTEL, NYT

The operator of the KaZaA (www.kazaa.com) music-swapping service plans to
announce a partnership today with one of Europe's major Internet access
providers in a deal that underscores their mutual benefit from a method of
exchanging songs that has raised the ire of record companies worldwide.

The deal, the first of its kind, appears to give KaZaA a new ally in the
fierce legal and policy debate that has pitted the record companies against
KaZaA and similar services, including their renowned — but now dead —
predecessor, Napster. The record companies have accused the services of
abetting the illegal free exchange of billions of music files, and, in
turn, of causing a decline in record sales. The deal also underscores the
potential common interests of high-speed Internet access providers and
organizations that deliver complex digital media. Internet providers,
including Tiscali, have said that one way to convince consumers to pay for
more expensive high-speed access is to offer them content, like movies and
music, that takes more time — an often excruciating amount of time — to
download using slower dial-up connections.

Mario Mariani, senior vice president for access and media business of
Tiscali, a public company based in Cagliari, Sardinia, that is listed on
the Nuovo Mercato in Milan, said he hopes for "great success" in adding to
Tiscali's modest base of 100,000 high-speed users. The rest of the
company's customers access the Internet through dial-up phone lines. Mr.
Mariani said he did not believe, as the record companies assert, that KaZaA
promotes music piracy, and stated, "We are really against piracy." He added
that he believes that KaZaA and other music swapping services will put
pressure on major record companies to develop new forms of distribution,
and that the deal with Tiscali will help prompt such development. "This is
an important step in creating a legal market," Mr. Mariani said. "Music and
the Internet is the biggest market where there is a big demand, but not yet
an offer to meet the demand."

In fact, though, there is a nascent legal market, and Tiscali profits from
it as well. On the company's Web sites in the various countries where it
operates — among them Britain, France, and Germany — Tiscali offers music
from major record companies in the United States and Europe through a
service called OD2. Record companies in the United States and Europe,
facing wide criticism that they have fallen behind in technology, have said
they cannot afford to emulate KaZaA and services like it, which allow users
to exchange songs for free over the Internet through their home computers.
The companies say they are trying to find a balance between meeting
consumer demands and making a level of profit they deem acceptable.

Sharman Networks, which is based in Australia, boasts that 120 million
people have downloaded its KaZaA software; the announcement of the deal
with Tiscali is part of the latest release of KaZaA's software, called the
KaZaA Media Desktop.

Whether a new legitimacy will result from the deal with Tiscali and whether
it will be blessed with legality remain to be seen. The Recording Industry
Association of America, which represents the major record companies, has
sued KaZaA in federal court in Los Angeles, alleging copyright
infringement. The association is hoping for an outcome similar to that in
its case against Napster, which was forced to shut down after a judge found
it guilty of assisting copyright infringement. For its part, Sharman
Networks contends that KaZaA is different from Napster in at least one
fundamental way: its service is a pure form of "peer-to-peer" exchange, in
which the company's own computers play a more limited role in enabling the
exchange of music than did the computers of Napster. Users of KaZaA and
similar services, like Morpheus, store music on their own computers, but
they also use their own computers to help others search for the music they
want. Specifically, the software looks around the network of users for
those with the most powerful computers, turning those computers temporarily
into hubs that other users can tap into to search the rest of the network.

As Napster did before it, Sharman Networks argues it cannot control how the
KaZaA service is used and cannot be held responsible for users who exchange
copyrighted files without the permission of the copyright holder. Earlier
this year, a Dutch appellate court agreed, saying the responsibility lies
with the users, not the music service. But a number of American legal
experts have said KaZaA and other such peer-to-peer services are less
likely to prevail in United States courts. They point out that while
KaZaA's servers are not implicated in each music search, those computers do
serve up advertising to KaZaA users; as a result, KaZaA profits directly
from the free exchange of copyright music files. Jonathan Zittrain, an
associate professor at Harvard Law School, said the significance of the
deal between Sharman Networks and Tiscali is likely to be more a cultural
one than a legal one, noting that "all hands to this conflict recognize
we're at a cultural point of inflection." This deal, he said, implicitly
lifts peer-to-peer networks out of the online demimonde of casino sites and
tasteless pop-up windows to the better tended world of Internet access
providers.