If you can't beat 'em, get 'em to the negotiating table. That's the sentiment behind the latest deal between movie studio Warner Brothers and BitTorrent, one of the most widely used file-sharing clients. With the number of people sharing files illegally over the Internet still growing, movie studios and record labels are looking to convert scofflaws into paying customers. File-sharing companies, meanwhile, have no choice but to cooperate, given a Supreme Court decision last year that left them open to crippling lawsuits if they fail to change their ways.
Under the deal, announced May 9, Warner Brothers will distribute and sell over 200 Warner Brothers movies and TV programs through the file-sharing program BitTorrent. Titles range from new movie releases Harry Potter and the Goblet of Fire to hoary TV chestnuts like Dukes of Hazzard and Babylon 5. While final pricing and timing is yet to be decided, the programs are expected to go on sale this summer, and TV shows could cost as little as $1 per dowload. BitTorrent "has such a huge audience that we frankly need to convert over to legitimate buyers of our products. We felt we have to do things like this...so that consumers [have] the ability to buy and use our products the way they want to," says Kevin Tsujihara, president of Warner Bros. Home Entertainment Group.
NEW BUSINESS MODELS. The agreement comes nearly a year after the landmark Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd. decision in the U.S. Supreme Court, in which the justices ruled unanimously that peer-to-peer network Grokster's intent to facilitate illegal activity was "unmistakable." Since that ruling and several later cease-and-desist letters, creators of the major file-sharing networks have been scrambling to find new business models and work out agreements with the major studios and record labels (see BW Online, 10/24/05, "A Hard Ride for eDonkey").
It's the latest step in a steady transition for BitTorrent, which first pioneered "distributed" file-sharing, a technology that harnesses the power of many users at once to download files at high speeds for low cost. In September, BitTorrent announced its new plan to seek partnerships with content owners like Warner Brothers and won $8.75 million in fresh venture capital funding to help develop technology to support it (see BW Online, 9/27/05 "BitTorrent's Grab at Respectability"). Two months later, it announced a sort of cease-fire with the studios, in which it said it would actively work to take down links to copyrighted files found on its BitTorrent.com Web site.
This summer, users of any BitTorrent client will be able to download the Warner content and pay to unlock access to it. "BitTorrent has gone from being a technology company to becoming a media company," says Ashwin Navin, BitTorrent's chief executive. "There is a large user base using BitTorrent to get media. We're trying to offer a good trade-off to users getting stuff for free...to offer a much better experience compared to the piracy experience."
Users of BitTorrent software will still be able to download files illegally if they choose. Because there's no central server that handles files, any current BitTorrent users can simply share and distribute files from each other's computers by finding the files outside of BitTorrent's Web site. File-sharing, much of which is illegal, is still on the rise worldwide. The average number of simultaneous users online using BitTorrent was just under 10 million in March, up 35% from the same month last year, According to BigChampagne, a Los Angeles research firm that tracks file-sharing.
SETTING AN EXAMPLE. Despite that fact, the Motion Picture Association of America says it's important that the BitTorrent company is working with one of its member studios, rather than profiting from illegal file-sharing. "They're helping set an example of doing legitimate business and protecting copyrights online for other companies," says Kori Bernards, spokesperson for the MPAA.
The digital episodes of shows and movies from Warner Brothers will be loaded with special digital rights management software, keeping the files from being distributed illegally. That means that while BitTorrent will take advantage of users' bandwidth to redistribute the bits and pieces of the movie files to other paying customers, it will be impossible for users to share files with their friends, unless those friends pay up.
In addition to marking a truce between a studio and its one-time nemesis, the BitTorrent-Warner Brothers deal is the most recent example of parent Time Warner (TWX)'s interest in the distributed delivery of digital video. In April, Time Warner, CEO Michael Eisner and venture capital firm Spark Capital invested $12.5 million in Veoh Networks, a video Web site that can deliver television-quality downloads to users' computers using distributed delivery. In January, Time Warner launched In2movies.com, an online movie store that used distributed peer-to-peer file-sharing to sell movies in Germany, Austria, and Switzerland.
EASY DELIVERY. Distributed delivery is attractive because the technology downloads files by collecting bits and pieces of it from many sources, rather than putting the burden on just one source. That means it costs next to nothing for content owners to distribute movies or music -- a huge advantage over the current approach, in which files are streamed over individual servers and the massive amount of bandwidth required for video can run up huge bills.
One example is MovieLink.com, an online movie store that uses direct-server distribution and is owned by Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros. Studios. The movie store cost the studios as much as $150 million over the last four years, despite selling only about 70,000 downloads a month, according to one source with knowledge of Movielink's financing.