The Terrors of Tinseltown

Think the VCR scared the motion picture industry? Peer-to-peer file-sharing, which enables users to swap digital content, could cut the major studios out of the distribution loop. Here's a look at the CFOs behind the Napsterization of Hollywood.

And that’s just the beginning. P2P networking (PCs sharing data via the Net, without a central server) is radical, paradigm-altering stuff. While some observers believe serverless networking will eventually make E-marketplaces obsolete, the entertainment business is under siege now.

Don’t let the recent court decision on Napster fool you. “The importance of the Napster decision lies in what it does not address and cannot prevent,” says Michael Graham, an intellectual property lawyer at Marshall, O’Toole, Gerstein, Murry & Borun. “Even if the Napster site is shut down, there are other sites and other software that enable the rapid sharing of computer files between distant computers. Stopping Napster does not stop file-sharing.” Adds attorney Steve Lesavich of McDonnell Boehnen Hulbert & Berghoff: “Peer-to-peer technology is here to stay.”

In Hollywood, the Huns are already banging on the studio gates. Digital entertainment specialist SightSound Technologies Inc. ( recently released the first movie made expressly for distribution over the Net. CFO Alex LePore says he is currently trying to secure more funding for the company. Another upstart, AtomFilms (, renamed Atomshockwave after being bought by Shockwave Inc., uses P2P technology to distribute independent movie shorts and animation, including the wildly popular The New Arrival. According to CFO Eric Cansler, revenues at the company jumped 1,200 percent last year.

Whiz kid Gene Kan, a brilliant, 24-year-old Gnutella software maven, has also advanced the cause of P2P file-sharing. Last year, Kan created a UNIX version of the Gnutella file-sharing software — and has since become the unofficial spokesman for the P2P movement. Kan’s idea — and the idea behind most peer-to-peer networks — is simple. Rather than place huge files of digitized entertainment on a massive server, the files are stored on the individual hard drives of thousands of PCs. That way, bandwidth is shared by everyone. Conversely, in a typical video-on-demand (VOD) setup — the Net distribution model most studios are pursuing — you need pipes the size of the Holland Tunnel to distribute movies.

Ironically, the P2P evangelists say they’d happily license their swell file-swapping technology to motion picture studios, with artists and studios getting their fair share of the profits. There’s only one problem: For the moment, it appears the studios would rather litigate than lunch.

It’s a familiar script. Indeed, if the legal wrangling to stop P2P movie sharing were a movie, it’d be a remake. Several of the same studios that filed suit against Scour also sued Sony and its Betamax VCR in the late 1970s. That case eventually reached the US Supreme Court, which ruled that the VCR offered too many benefits, such as watching home movies, to be banned. The parallels are frightening. “If we had the funds to take this to the Supreme Court, there’s no question in my mind we would have been vindicated,” Kalanick says, noting that Scour was predominantly used to swap noncopyrighted files — including home movies.


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