Sneaky Sharing

Despite well-publicized wins by piracy foes, illegal digital music and movie trading continues to flourish in underground havens.

Additional reporting provided by Liane Cassavoy and Mark Sullivan.

Where has all the good illegal peer-to-peer action gone? Underground. In some cases, waaaaay underground. Fearful of reprisals from the major entertainment companies and worried about virus-laden, corrupted, or spoofed files, many users are shying away from the big-name file-sharing networks like Kazaa and WinMX, and have gone straight, buying their music and video from legal sources. That's a win for Hollywood.

But it is also clear that large numbers of music and video pirates are simply looking elsewhere for their booty and have turned to lesser-known P-to-P networks, Usenet, and even invitation-only networks.

"Users are very much moving around...rather than moving out," says Eric Garland, the CEO of BigChampagne, a market research firm specializing in P-to-P activity.

To combat the new threats, Hollywood has turned to old standbys: new legislation, more lawsuits, and improved copy-control technology.

Once boasting over 30 million users, Kazaa is now down to about 16 million, according to research firm ComScore Media Metrix. WinMX users have dropped from a high of 6.8 million down to 6 million this May, the firm says. If you looked just at these results, it would appear that entertainment companies are winning the war. But these statistics show only a partial picture of the piracy problem.

Still Trading

Have users really reformed? Not really: Many are flocking to smaller P-to-P networks like BitTorrent, EDonkey, and EMule. According to ComScore, BitTorrent nearly doubled in users, from about 200,000 to more than 400,000 between November 2003 and May 2004; EMule grew from under 100,000 users in February 2003 to nearly 300,000 a year later. EDonkey, which ComScore did not track in its survey, has made even bigger gains, says Garland.

Their usage numbers may not be on the same scale as the old Napster's, but these services may pose a greater threat to content owners than previous P-to-P networks. All three use an advanced technique called swarming, in which portions of files are downloaded from multiple sources and immediately offered to the network. The result: potentially faster downloads and more rapid propagation of content.

And there are other options for pirated content.

Internet newsgroups, best known by the collective name Usenet, offer a vast reservoir of music, movies, and software, at connection speeds that can put the better-known P-to-P services to shame.

In the past, the difficulty of using newsgroups, combined with limits ISPs place on file transfers, has stunted the growth of piracy on them. That could change, particularly with the emergence of user-friendly software--such as the freely available Xnews reader--that makes accessing content in newsgroups easier than dealing with the more unpredictable P-to-P services.

But even if newsgroups become a more popular venue for illegal file trading, they are generally still public and therefore trackable. Private networks set up by file traders are harder to track or quantify.

"John," an IT manager for a financial services firm in the Midwest, says that he and his friends have traded files over an encrypted virtual private network they set up expressly for that purpose. And more and more music and video is being traded face-to-face.

"If it's music, it's almost always sneakernet," John says. "It's just so much easier to hand someone a USB drive and say, 'Bring it back to me next week.' It's easy to trade someone 20 gigs of music for 20 gigs of music."

Going Straight or Dropping Out?

The good news for Hollywood is that the piracy crackdown in the last two years has persuaded substantial numbers of people to go legit. A Pew Internet Project report reveals an increase in those who say they download music files, from 18 million in December 2003 to 23 million in February 2004--17 percent of whom use legal services like ITunes or Musicmatch. And ComScore data shows that the six largest online music shopping services drew more than 11 million visits from U.S. users in March alone.

That's as it should be, says Marc Morgenstern, vice president and general manager of Loudeye's Digital Media Asset Protection Business. The company sells online-content-protection services to the music, movie, game, and software industries. Its Overpeer service line is responsible for some of the decoy files masquerading as copyrighted content on P-to-P networks. The aim: to make file sharing so inconvenient that consumers will pay for a more predictable and satisfying experience.

"[The file-sharing community is] starting to notice. If you go on bulletin boards, you will see that people are getting frustrated by this activity," says Morgenstern.

But while file-sharing old-timers may be frustrated, Hollywood's aggressive antipiracy campaigns may also be scaring off potential customers for legal download services.

The Pew study shows that the Recording Industry Association of America's legal actions are discouraging potential first-time users of legit services. About 60 percent of those who have never tried downloading don't want to go to any source of downloaded music--legal or not--for fear of lawsuits, the study says.

The much-publicized antipiracy lawsuits aren't the only reason users might be confused as they consider buying digital tunes. It can be hard to tell the good guys from the bad. Some legitimate music services such as Great Britain's Wippit use the same basic peer-to-peer technology that powers pirate havens like Kazaa, while the Russia-based Allofmp3.com, for example, has a download music store with appealingly low prices--but its licenses are based on Russian copyright laws, so its content may be illegal for users outside of that country.

Upping the Ante

Despite an overall drop in P-to-P activity, the RIAA, the Motion Picture Association of America, and the BSA continue to publish apocalyptic estimates of revenue lost to online and offline piracy. The BSA, for instance, maintains that in 2003 nearly $29 billion worth of pirated software was installed on PCs worldwide. The music industry primarily blames file sharing and music piracy for drops in U.S. sales, from a peak of $14.6 billion in 2000 to $11.9 billion in 2003. What's more, as worldwide broadband adoption continues to grow--especially in Asia--these groups expect the problem to worsen.

Widely available broadband has enabled pirates to expand beyond music to other kinds of digital media. "Accesses for movies and games are increasing dramatically," says Morgenstern. "As soon as a game or movie is released, there is a race out there to get it onto peer-to-peer."

How are antipiracy groups responding? For one thing, they're pushing for more targeted legislation to strictly limit behaviors and technologies that can encourage copyright infringement, points out BigChampagne's Garland.

A flurry of such bills is advancing through Congress, including the Inducing Infringement of Copyright Act (S 2560), which would effectively criminalize P-to-P networks that encourage trading of copyrighted material (see "Top Legislative Billing" for details on this and other bills).

The legislative effort won't end the cat-and-mouse game, says Morgenstern, because some of these P-to-P software vendors, such as EDonkey, are offshore. And with Gnutella, a popular open-source P-to-P program, "there is no there, there," he says--it's a super-distributed network. "This is a gnarly, worldwide problem. Peer-to-peer networks are not going to go away."

So in addition to new laws, entertainment and computer companies are bringing new technologies to the content-protection table. One of the more notable is in Microsoft's upcoming Windows Media Digital Rights Management 10 software, formerly code-named Janus. Though it's meant to facilitate the secure downloading of content from subscription services to portable players, its mission could expand. Janus includes a protected, real-time clock in digital media that permits playback only after verifying that a license is valid. Microsoft has a bevy of partners; expect compatible devices and digital media offerings this year.

Microsoft's software could also work with another DRM scheme called Advanced Access Content System. AACS is intended for use with next-generation optical discs, such as Blu-ray and HD-DVDs. It's in the development stage and should work with other existing DRM technology; it may also let users copy a disc onto a compliant movie server in their home or onto select portable devices. AACS has backing from Disney and Warner Brothers, as well as from several major computer firms like IBM, Intel, Microsoft, and Sony, among others.

TiVo's upcoming digital broadcast security technology, recently blessed by the Federal Communications Commission, permits some sharing of DTV broadcast content over the Internet. It allows a TiVo user to send recorded free, over-the-air DTV programs via the Net to other TiVo boxes or PCs registered to that user.

File sharing is here to stay, and the new DRM technologies do acknowledge that and plan for it. Whether they will give users enough rights to make illegal sharing no more than a blip in the digital media market remains to be seen.

Software on the Sly

Hollywood is not alone in feeling the pinch of online pirates. The software industry also faces a significant and growing threat from pirates who spam users relentlessly, marketing cheap, bare-bones copies of popular software such as major products from Adobe, Intuit, and Microsoft.

The e-mail originates largely from Eastern Europe, says John Wolfe, the Business Software Association's manager of investigations. While the spam often describes these copies as being for personal "backup" purposes, Wolfe emphasizes that the practice clearly violates copyright law: The sites make no effort to verify that buyers already have a license for the software, and many offer cracks that let buyers avoid the software's copy protection.

Most such sites have sprung up in the last 12 months, according to industry investigations. And though illegal software sales are difficult to track, Sean Myers, manager of Internet antipiracy at the Software Information and Industry Association, says that, based on his observations, sales of sham backup copies have tripled in the past year.

The BSA and similar groups have a very limited ability to confront offshore pirates. So as with P-to-P file sharing, scrutiny could fall on those who buy the illegal copies of applications.

Top Legislative Billing

Congress is hard at work on file sharing and digital copyright issues. Keep an eye on the following bills:

S 2560 (Inducing Infringement of Copyright Act) would hold technology and service companies liable if their products or devices were found to encourage or "induce" copyright violations, such as by making illegal copies of songs or movies. This legislation paints a virtual bull's-eye on P-to-P software vendors, but also could have far-reaching consequences for other copying technologies. The bill could go up for a vote this year.

HR 107 (Digital Media Consumers' Rights Act) would allow consumers to make backup copies of DVDs, an activity currently prohibited under the DMCA. It would also allow companies to create products that enable lawful copying or backing up of copyrighted content. The bill remains far from a vote, but could figure into the final crafting of the Induce Act.

S 2235 (Protecting Intellectual Rights Against Theft and Expropriation Act)--better known as the PIRATE Act--would enable the Department of Justice to bring civil suits against suspected copyright violators. Civil actions have a lower burden of proof than criminal proceedings, making meaningful penalties against violators much more likely. This act was recently passed by the Senate.

HR 4077 (Piracy Deterrence and Education Act), now in full committee, lowers the bar for proving criminal misconduct in the sharing of copyrighted content by electronic means. Individuals who "with reckless disregard" make more than 1000 works--or works with a value of more than $10,000--available for transfer can be jailed. It would also establish a public education program on copyright infringement.