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.

Long term is the key. Getting the capital to keep these “intertainment” companies afloat won’t be easy. Choy says Angry Coffee is in talks with “a major international entertainment company” to provide money to distribute products over Percolator. Atomshockwave has rounded up $28 million in two venture capital rounds so far. And SightSound completed a $17 million financing round in 1999 (as of press time, a deal to raise another $10 million in venture capital had not closed). But like other dotcoms, SightSound shelved a planned IPO because of economic conditions. “We’re pursuing alternative ways of funding our operations,” says LePore, who declines to elaborate.

Given the cash crunch, avoiding litigation is an absolute must. “And you do that,” Scheirer points out, “by convincing Hollywood that you’re a bunch of nice guys.”

A Neighborhood the Size of Cleveland

That may take some doing. As of now, the only way to watch full-length movies on the Web is to use Gnutella P2P software. The MPAA’s Valenti insists such an act is illegal.

Kan disagrees. He argues that sharing movies over the Internet is no different — or less moral — than crossing the street and lending a neighbor your copy of The Lion King. “Why does Hollywood turn its back when you rent or buy a film and invite friends over to watch it, but is intent on creating boundaries when it comes to Internet sharing of that film?” Kan asks.

The answer is obvious. P2P technology enables one person to walk across thousands of streets and share with thousands of neighbors. “It’s a question of scalability,” notes Mark A. Fischer, a copyright law expert and partner at law firm Palmer & Dodge LLC. “The occasional act of copying a music tape or videotape may be what the law allows for in what is called ‘fair use.’ This breaks down when you’re talking thousands — if not millions — of copies.”

But Kan argues that “only 5 percent of the world is online. And not many of those who are online use any file-sharing service.” Nevertheless, even Kan seems to understand the entertainment industry’s concern about P2P file-swapping. “The Internet creates a totally fluid sharing experience,” he grants. “By making sharing so easy, it has sounded alarms over its legitimacy.”

It also tends to make a mockery of intellectual property. “Copyright law encourages creativity by giving economic incentive to the creators to create,” Fischer says. “Without it, society as a whole suffers.”

Whether Hollywood suffers remains to be seen. But make no mistake, if the film industry gets Napsterized, if it loses substantial revenues to digital disintermediaries, heads will roll at the major studios. This scenario may explain some of the vitriol coming out of La La Land of late. For his part, copyright expert Fischer stops short of condemning the new-media revolutionaries: “Frankly, all but the most vicious critics of Scour and its workers recognize the brilliance of their technology, their intelligence, and their energy.” He also believes these terrors of Tinseltown play an important role, breaking uncertain ground despite the risk. “One could have wished for a more graceful process, however,” he adds.

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