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Snocap's Song: Luring File Sharers?

By Heather Green The welcome mat is out at Snocap, the startup founded by Shawn Fanning of Napster fame to help the music industry fight illegal file sharing. Starting June 13, any indie artist or music label can sign up to be part of the Snocap service.

It's the latest step in Fanning's efforts to build a database of music files large enough to let others create digital music offerings to take on the hotly contested, free file-sharing services (see BW Online, 12/3/04, "Shawn Fanning's New Tune: Snocap"). Snocap's aim is to increase the amount of legally available music and create a tracking system that will allow labels to ensure they get paid for downloaded or shared files.

BIG TURNAROUND. By letting anyone register, Snocap is reaching out to the thousands of independent music labels and artists interested in taking the service for a spin. Until now, the San Francisco-based upstart has focused -- mostly successfully -- on signing up the major music houses and larger indie labels. Of the majors, Universal Music Group, EMI Music, and Sony BMG Music Entertainment are all onboard.

Warner Music Group (WMG) is the only holdout, though Snocap is negotiating with the newly public company. "We provide a huge incentive to labels to work with us," Fanning says. "It's clear that they don't have the pieces to facilitate a large-scale system."

It's a turnaround for Fanning, who was sued by many of these same partners five years ago for creating Napster, which was once wildly popular but is now defunct as the pioneering file-sharing service it once was. During the last days of that Napster, Fanning was laying the groundwork for a way to compensate artists for songs traded on free file-sharing networks.

CARROTS AND STICKS. While Snocap isn't a music service, it aims to be at the nexus of song sales. The startup acts as a digital middleman that tracks the audio files as they're sold, shared, or downloaded over the music services that use Snocap's technology. By opening the service to all comers, Snocap is hoping to boost the number of tunes available on new commercial music networks enough so they have a chance at wooing people away from the free peer-to-peer (P2P) systems.

"We took the position that if we're going to deal with the illegal environment, its fine to have the legal sticks, but you have to have the carrots as well in the form of legal alternatives," says Adam Klein, executive vice-president of EMI Music.

Other tech rivals, though, also are working with the music labels to come up with innovative services. On May 10, Yahoo! (YHOO) unveiled its Music Unlimited subscription service, which makes available for rent more than a million songs for a cut-rate introductory price of $60 a year, or a third of the price of existing subscription services. Plus, Microsoft (MSFT) is expected to follow suit. And wireless carriers around the world are rolling out download services and developing other approaches that would allow the sharing of music files.

HOW SNOCAP WORKS. Snocap's execs haven't been sitting on their hands. The company has been working on its music registry, the heart of its service, for two years. So far, about 500,000 tracks have been registered. To be included, copyright holders submit their songs to the database and set ground rules for how the music files can be used. A label or artist, for instance, can decide the songs' digital file format; type of copy-protection technology, if any, the files have to use; fee; and restrictions on which music service can license the files.

Music fans can't buy the tunes directly from Snocap. Instead, the rules are established by the copyright holders to allow music services to sign up to license the files.

What makes Snocap go? The files are tracked on the music services using their audio fingerprints. A file-sharing service that uses Snocap provides a software download that people use to participate in the file-sharing network. When an individual finds a file on another computer within that network, the software will check with Snocap's database to determine if that file is registered. If it's not, it's up to the service to decide whether to send the file.

AWAITING THE SUPREMES. But Snocap can notify the labels about which unauthorized files are being requested, so they can be registered. If the file is registered, it can be shared. Snocap logs the transaction, bills the music service for a transaction fee, and then sends the label the licensing fee it's owed.

Although Snocap is making strides, it still has plenty to prove. So far, only one file-sharing service, a startup called Mashboxx, says it plans to use the technology. For the moment, all eyes in the music and file-sharing community are on the Supreme Court, which is expected to rule soon on the Metro-Goldwyn-Mayer v. Grokster case. In March, the high court heard arguments in the case against Grokster filed by the recording labels and entertainment companies, which charges that the makers of file-sharing technology should be held liable for copyright infringement.

The outcome could have a hand in determining the demand for Snocap's services. Company execs, though, say whichever way the court decides, Snocap will benefit and that commercial offerings based on its service will be available later this year. "No matter what happens, it's good for Snocap," says Ali Aydar, the company's chief operating officer. "If the industry prevails, P2Ps will need a solution, and if the P2Ps prevail, the labels will want to find a way to embrace P2P."

PAY TO PLAY? Snocap still has to prove it can sign up the right kind of music services that can woo people away from free file sharing. The company needs to persuade one of the big P2P networks, such as eDonkey, to come onboard, analysts say.

Just as important will be the breadth of selection, the files' sound quality, pricing, download speeds, and flexibility around copy protection. If all of that falls into place, the claim that some file sharers have made will ultimately be tested -- if there's a real alternative to the free file-sharing networks, they would pay for it. "Finally, there will be a platform that will force them to answer that question," says Mike McGuire, an analyst at researcher Gartner G2.

With Snocap reaching out to indie artists, as well as working with the major music labels, the launch of legal file-sharing services may be one step closer. Greenis BusinessWeek's Internet editor in New York

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