The site is a tad slow, but it truly could be the next Napster model that scares the crap out of the movie industry.

-Ian.

—- $1 films spook Hollywood By John Borland Staff Writer, CNET News.com February 7, 2002, 4:00 AM PT http://news.com.com/2100-1023-831383.html

A Taiwanese Web site is offering hundreds of videos on demand for just $1 each, trumping Hollywood’s plans to deliver similar services and raising the specter of a new round of international copyright battles.

Despite claims that their Movie88 site is following all local copyright laws, the owners of this new venture are drawing scrutiny from a skeptical Hollywood. Meanwhile, Web surfers drawn by free or cut-rate movies are flocking to the site, overloading servers and clogging data pipes.

Like Napster before it, the site is more than just an everyday pirate Web site: It’s a commercial video-on-demand service that’s comprehensive and easy to use. And it works. With the studios’ film services still in development, that’s a dangerous combination of features.

“It’s not a good sign,” said Ken Jacobsen, the Motion Picture Association of America’s director of worldwide piracy enforcement. “But we will deal with these sites rapidly.”

Movie88 and a handful of other sites and services popping up around the world offer growing proof that the movie industry cannot count on immunity from the digital forces that burst in on an unprepared record industry barely two years ago. Film studios had been insulated partly by the enormous size of high-quality digital video files, which made it relatively difficult to trade movie files over the Internet. But that barrier has been progressively falling thanks to improvements in digital video formats and streaming technology.

Such sites are also a sign that many of the most critical copyright battles are shifting overseas. Legal fights in the United States have laid down preliminary ground rules, even if those lawsuits aren’t over. That’s not yet the case in regions with different laws and different court systems, where broadband data pipes and programming talent abound.

That makes life considerably harder for copyright holders.

“There’s a law of diminishing returns in terms of pursuing and prosecuting these things overseas,” said Aram Sinnreich, a Jupiter Media Metrix analyst. “It’s a lamentable situation for studios, but I think the best thing they can do is develop their own legal alternative to draw people.”

Crossing borders Copyright battles overseas have been developing slowly but steadily, even as the most high-profile Internet copyright court cases have remained in the United States.

Some of the clearest signs have come from the names on the software used and distributed online: The author of the DeCSS program that allegedly can be used to make copies of DVDs was Norwegian. Many of the successors to that software program are distributed on German sites. Russian-language search engines provide a hub for people looking for copyrighted music, software and movies.

Only recently have overseas Net companies been targets in high-profile movie or record industry lawsuits, however. Kazaa, a Dutch company, and Bermuda-based Grokster were both sued by the entertainment trade associations last year for operating peer-to-peer file-swapping networks similar to Napster. But even in that case, the companies were sued in a Los Angeles court.

The problem is, international enforcement is tricky. Most developed nations are parties to international trade agreements that give copyright holders rights similar to what they have in the United States. But legal process, details of copyright registration or notification procedures, and even diplomatic pressures can make enforcement a thorny task.

Some of the groundwork for the new Internet battles has been laid. Several years ago, the MPAA conducted a legal survey predicting which 30 countries were most likely to be Net piracy problems, Jacobsen said. They then hired legal teams to start studying local copyright laws.

Now the MPAA and the record companies use search engines to track down Web sites and servers offering copyrighted materials; they use the legal channels they’ve developed to ask Internet service providers to take down the pirated material.

Kazaa and Grokster required taking this approach a step farther: into court. Movie88 may be the next test.

The next battleground Taiwan’s Movie88 appears to be the most ambitious commercial video service yet to hit the Net, with a huge catalog of English-language, Chinese and Japanese movies that can be streamed on demand at fairly high quality.

The site–whose owners declined to respond to e-mail questions, citing the advice of their lawyers–has jumped the gun on an idea already being pursued by the big movie studios. Movielink and Movies.com, each backed by a coalition of studio conglomerates, are preparing Internet-based video-on-demand services that would provide members with access to a large catalog of films for a relatively small fee.

Movie88’s service looks much like a video rental store. It offers a huge range of films that have been released to video, although it appears to lack the first-run films that are often available online or on pirated DVDs hawked on street corners in some Asian cities. The site says it will charge $1 per movie but give each customer a $5 credit for signing up. At least in its English version, it doesn’t yet appear to have the capability to accept credit cards and add more credit to an account.

The movies themselves are streamed in RealNetworks’ RealVideo format and cannot easily be saved or downloaded to a computer’s hard drive. Each movie is available for three days; afterward, it must be renewed with another $1 credit to be seen again.

Early use of the company’s service did display some serious glitches. One attempt by CNET News.com to set up an account and watch the Universal Pictures film “12 Monkeys” worked perfectly. The next day, the same account’s username appeared to be linked to a different account with more than $100 in credit.

The site claims it is operating legally under Taiwanese copyright law by allowing viewers access to the movies for just three days at a time.

“If you are a copyright owner of any materials, movies and films used in Movie88.com, and you feel that your copyright is protected in the Republic of China, kindly contact us,” a note on the site reads. But “the submission…is without our admission to any infringement and/or liability whatsoever.”

But copyright holders’ groups say they haven’t given their permission, and that means a fight is likely brewing. A spokesman for the International Intellectual Property Alliance (IIPA), whose membership list includes the MPAA, said Movie88.com was “clearly a pirate site.”

The MPAA itself stops short of that language, but spokeswoman Emily Kutner says the group is “looking into the site so we can take appropriate steps to deal with it.”

Taiwan has suffered considerable criticism from the United States and other Western countries for being a source of pirated CDs and videos, but it has changed its copyright laws several times in recent years to participate in international trade agreements. It now has essentially the same standards as the United States, and studios would gain full copyright protection there as soon as they release a movie in American theaters, copyright experts said.

Enforcement of copyright laws has been somewhat weaker on the street level, however. This issue goes to the heart of the difficulties copyright holders may see as they increasingly move overseas.

“You see an awful lot of problems, really on the level of local judges and prosecutors,” said Laura Young, a partner at San Francisco law firm Wang & Wang, who has extensive experience in Taiwan. Often “they don’t want to prosecute a local (citizen) for violating the rights of a multinational corporation.”

A day later, in case you live in a #^@$ing cave, Napster got burned at the stake by the San Francisco US Circuit Court, which upheld the earlier ruling that Napster IS in fact liable for the actions of their users. Sploosh! The billion dollar lawsuit will proceed.

This is the most comprehensive article I’ve found in the last couple of days.

Is it already a cliché to assert that Napster is really just the lightning rod for Big Music’s fear of the Internet?

-Ian.

—–

Tuesday February 13 6:31 PM ET Napster Prepares for the After-Life

By Sue Zeidler

LOS ANGELES (Reuters) – It could be curtains for Napster unless it can forge a duet with the recording companies who have been trying to get it thrown off the air.

The wildly popular song-swapping service, which has been told by an appeals court to stop its millions of users from trading copyrighted music, must either find the cash to pay mounting bills to keep a legal fight going or reach settlements with major record labels if it wants to survive.

“The challenge for them is how to go legit and still keep their business,” said Bill Burnham, managing director of Softbank Venture Capital.

Monday, the 9th U.S. Circuit Court of Appeals supported a District Court ruling that would effectively shut Napster down but asked the lower court to modify its original ruling. An injunction could be issued in days or weeks.

As millions of songs were being downloaded ahead of the injunction, Napster vowed to keep up the fight in the courts and in Congress.

Napster’s Chief Executive Officer Hank Barry said the company has the financial resources to keep going and planned to continue discussions with record companies.

The longer Napster is shut down, however, the greater risk it faces of losing fan and brand loyalty, said Aram Sinnreich, analyst with Jupiter Media Metrix.

“This ruling will accelerate settlement talks with other major labels simply because Napster doesn’t want to go for too long time with the service down,” Sinnreich said. He said Napster was likely to sweeten terms to recording companies.

COULD NAPSTER SELL OUT?

Many Napster users, which total more than 50 million, are already looking at alternative file-swapping sites to get their songs from once Napster is shut down.

Research firm Webnoize Tuesday said an estimated nearly 91 million songs were downloaded using Napster Monday following the ruling, compared with 130 million Sunday in anticipation of the appeal court’s decision.

Analysts, such as Phil Leigh, of Raymond James and Associates believe that Napster — which to date has only received about $17 million in venture capital funding and faces potentially billions in liability costs — may run out of money.

Leigh compared Napster’s predicament to that of Scour.com, another file-sharing community that was sued for copyright infringement and which filed for bankruptcy last October.

Scour’s assets, including its name and membership lists were ultimately sold in December for about $9 million in cash and stock to CenterSpan Communications (NasdaqNM:CSCC – news), which plans to relaunch the Web site as a subscription service.

“If Napster’s active membership drops to a fraction of its current total, it may seek to sell its assets, which might include the name and the membership list,” Leigh said.

Under a deal announced in October, German media giant Bertelsmann AG (BTGGga.D) agreed to loan Napster an estimated $50 million to keep the site operating and help transform the service into a viable, fee-charging subscription service.

Leigh said Bertelsmann might be a logical buyer of Napster’s assets, which could then relaunch the service with BMG content.

“Bertelsmann is also attempting to purchase EMI Group Plc’s EMI Music Plc (EMI.L) and if it can get access to the EMI catalog, the reborn Napster under BMG ownership might have enough content to make an interesting subscription service,” he said.

Some Believe Settlements Now Likely

The recording industry knows that in order for any music subscription to work well, it needs offerings from all the labels. Now that the record industry has won the appeals court ruling, settlement talks may speed up between the labels and the service that rocked the music world.

“No other major record companies have struck a deal with Napster since Bertelsmann and that could be because the business model wasn’t adequate from their perspective and also because they wanted a strong legal opinion,” said Cary Sherman, general counsel for the Recording Industry Association of America (RIAA), which represented the labels against Napster.

“Now that they have gotten a ruling they may be more receptive to negotiations that lead to a viable business model for this kind of service,” Sherman said.

Sinnreich said the heat is on Napster to relaunch a subscription service.

“Napster can offer the labels higher royalty rates, bigger equity stakes. They’ll bend even further backwards,” he said. ”I wouldn’t be surprised if the next company on board was either EMI or (AOL Time Warner’s (NYSE:AOL – news)) Warner Music.”

He cited EMI because it is in merger talks with Napster’s partner, Bertelsmann, and Warner because its new parent, AOL, is planning to launch its own subscription service.

“I think a Warner deal with Napster is very possible. It would make sense for Napster/Bertelsmann to have a reciprocal deal with Warner, which could then use Bertelsmann content on the AOL service,” he said.

Both EMI and Warner Music declined to comment on settlement discussions with Napster.

“EMI is open-minded and is prepared to do business with people who come up with viable business models that help us achieve the widest distribution of our music to consumers,” said Amanda Conroy, a spokeswoman for EMI.

But many music industry executives remained skeptical about settlements with Napster and said that efforts to launch other subscription services would likely garner more attention.

“There are many impediments to Napster relaunching a service. They’ll have to pay for past infringements, which would be part of a settlement, and raises the question of whether or not the business would be sustainable,” one record executive said.

People who use Napster and other file-swapping networks to trade MP3 files are more likely to boost their music spending than those who don’t use such services, according to a new study from Internet research firm Jupiter Communications. The study is the latest attempt to gauge the economic impact of file-swapping services such as Napster and Scour.net, both of which stand accused of encouraging brazen Internet piracy and untold damages in lost CD and video sales.

Earlier research, released by Soundscan in May, showed declining CD sales at stores near universities, which some have taken as evidence that Napster has already cut into music industry revenues, despite sales growth of 8 percent last year. The Recording Industry Association of America (RIAA) submitted the Soundscan study as evidence of economic harm in its recent lawsuit against Napster.

Jupiter’s report concludes the opposite, finding that Napster usage is a leading indication of increased music spending compared with other factors including age, income and gender.

Jupiter said it surveyed more than 2,200 online music fans about whether the money they spent on music purchases had increased, decreased or remained the same since they began visiting music destinations on the Web. People between the ages of 18 to 24 who spend less than $20 on music within a three-month period indicated that they were likely to remain at a constant purchasing level despite online music use. All other groups said they had increased spending as a result of online music use, Jupiter reported.

“Because Napster users are music enthusiasts, it’s logical to believe that they are more likely to purchase now and increase their music spending in the future,” Jupiter analyst Aram Sinnreich said in a statement. Sinnreich said the report is a further indication that the music industry should embrace file-sharing technology rather than pursue lawsuits aimed at shutting down the companies behind it.

In an interview earlier this month, RIAA chief executive Hilary Rosen told CNET News.com that the industry stands by the Soundscan report. But she also argued that unauthorized file swapping allowed by Napster is wrong whether or not it can be ultimately proven to cause economic harm.

“I don’t think it matters at all whether we’ve been economically hurt,” she said. “I think that if I own my shirt and you borrow it, it doesn’t matter whether or not I have another shirt. You’re just not entitled to borrow it without my permission. And if you have a copyright asset, that is the principle of copyright–that you get to control and own your own work, and other people don’t get to profit from it without your permission.”