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Facing the online music

| Tuesday, Jan. 3, 2006

LOS ANGELES -- Weeks before the original Napster shut down for good in 2001, Internet users were flocking to alternative song-swapping programs. Nearly 20 million people used Morpheus in its first four months, for example, to trade music and other files for free online.

But the man behind Morpheus was worried. Michael Weiss figured popularity could bring its own perils.

As he feared, the notoriety led Hollywood studios and recording companies to sue Weiss' StreamCast Inc. for copyright infringement. It was part of the entertainment industry's wider effort to contain Morpheus and other Napster clones such as Kazaa and Grokster from taking up where Napster left off.

Now, like Napster founder Shawn Fanning before them, Weiss and other file-sharing barons are facing their own day of reckoning after a landmark U.S. Supreme Court decision last summer.

Over the last four months, several Napster heirs have shut down and others are contemplating what they once couldn't abide -- doing business by the entertainment industry's rules to survive.

"We can take a look at another four years of legal battles and spending millions of dollars on both sides, (but) is that where I want to spend the next four years of my life?" said Weiss, 53. "It's better to focus the company's energy on creating new technologies."

Wayne Rosso, who built a reputation criticizing the recording industry as head of Grokster Ltd., is also pursuing a decidedly more cordial relationship with music labels as he prepares to launch a copyright-friendly file-sharing service.

"It's pretty clear who won," Rosso said. "We always knew that this free trading of all this copyright material couldn't go on. It just wouldn't work."

Such capitulation was once unheard of among the file-sharing operators who lobbied against Hollywood and the recording industry. They billed themselves as defenders of technological innovation who shouldn't be held liable because some people used their software for piracy.

But the high court's ruling in June opened file-sharing operators to potential liability -- something the entertainment industry underscored when it sent notices to seven file-sharing software operators in September warning them to shut down or prepare for court.

Companies behind once-popular file-swapping programs like i2hub and WinMX shut down after receiving the notice. LimeWire, BearShare and others also put on notice have yet to make their decisions public.

Separately, an Australian court ordered Sharman Networks Ltd., which distributes Kazaa, to ensure that new versions of the software filter out unlicensed copyright material.

Still, the amount of file-sharing has continued to increase since the days of Napster, and that's not likely to change much, said Eric Garland, chief executive of BigChampagne LLC, which tracks activity on file-sharing networks.

"These Web sites and these businesses were shut down but it doesn't shut down the software, it doesn't shut down the (file-sharing) networks," Garland said. "The open-source community will continue to build new, uncensored versions."

Mitch Bainwol, head of the music industry trade group Recording Industry Association of America, concedes some file-sharers will find other means of obtaining pirated music online.

"There will always be new technological challenges," Bainwol said.

But he noted a sea change since Napster fell: Propelled by the success of Apple Computer Inc.'s iTunes Music Store, young music fans now have more legal options for obtaining music in digital form than they did back in 2001.

Ultimately, the entertainment companies are banking that the new-look file-swapping services that emerge from the ashes of Napster's heirs will draw computer users away from illegal services. To persevere, file-sharing providers that seek to steer clear of copyright lawsuits will have to hope for the same.

"I don't think anybody wants to see a replay of what happened to the entertainment industry when Napster shut down," Weiss said. "The company or companies that find the most effective method for transforming downloaders into consumers will be the biggest winners in 2006."

So far, iMesh has been the only one to complete the transition from being sued by the recording industry to relaunching as a new service with the music labels' seal of approval. But others are hoping to follow.

Rosso's new industry-blessed file-sharing venture, Mashboxx, has been in the works for more than a year and is now expected to launch in early 2006.

Grokster settled its long-running copyright lawsuit for $50 million and is slated to re-emerge as a licensed service, while executives at MetaMachine Inc.'s eDonkey have also opted to transform.

"We're going to go legit," said chief executive Sam Yagan. "The eDonkey of the future will be very much different from what it has been and will be largely dictated by what the recording industry wants."

Rosso, Weiss and other file-sharing proponents insist that over the years, they have sought the recording industry's blessing in one form or another. But such offers were often rejected by major labels that saw the unfettered sharing of their artists' songs as unacceptable.

"We were always in the background trying to get licenses and in those days we would get one of two responses -- either, 'We're not going to reward pirates,' or 'Shut down and we'll talk about it,"' Rosso said.

Still, despite millions of dollars in legal costs and often-public acrimony between music companies and file-sharing executives, people on both sides are playing up the spirit of cooperation.

"For most of the participants in this drama, this isn't about personal relationships. It's about our ability to sustain a marketplace," Bainwol said. "Those folks that are helping to power this transition are doing the right thing."

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