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Music-Swapping Service Gains Stature in New Deal

By MATT RICHTEL

The operator of the KaZaA music-swapping service plans to announce a partnership today with one of Europe's major Internet access providers in a deal that underscores their mutual benefit from a method of exchanging songs that has raised the ire of record companies worldwide.

Under the deal, KaZaA's owner, Sharman Networks Ltd., will advertise high-speed Internet access provided by Tiscali, an Italian Internet provider, to its tens of millions of European users. In return Tiscali, which serves around seven million customers in 15 countries, will pay Sharman a "bounty" for each KaZaA user who signs up for its high-speed access service.

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The deal, the first of its kind, appears to give KaZaA a new ally in the fierce legal and policy debate that has pitted the record companies against KaZaA and similar services, including their renowned — but now dead — predecessor, Napster. The record companies have accused the services of abetting the illegal free exchange of billions of music files, and, in turn, of causing a decline in record sales.

"Prior to this, you could characterize KaZaA as a beleaguered company on the outskirts," said Mark F. Radcliffe, an intellectual property laywer in Palo Alto, Calif. "This gives legitimacy to KaZaA."

The deal also underscores the potential common interests of high-speed Internet access providers and organizations that deliver complex digital media. Internet providers, including Tiscali, have said that one way to convince consumers to pay for more expensive high-speed access is to offer them content, like movies and music, that takes more time — an often excruciating amount of time — to download using slower dial-up connections.

Mario Mariani, senior vice president for access and media business of Tiscali, a public company based in Cagliari, Sardinia, that is listed on the Nuovo Mercato in Milan, said he hopes for "great success" in adding to Tiscali's modest base of 100,000 high-speed users. The rest of the company's customers access the Internet through dial-up phone lines.

Mr. Mariani said he did not believe, as the record companies assert, that KaZaA promotes music piracy, and stated, "We are really against piracy." He added that he believes that KaZaA and other music swapping services will put pressure on major record companies to develop new forms of distribution, and that the deal with Tiscali will help prompt such development.

"This is an important step in creating a legal market," Mr. Mariani said. "Music and the Internet is the biggest market where there is a big demand, but not yet an offer to meet the demand."

In fact, though, there is a nascent legal market, and Tiscali profits from it as well. On the company's Web sites in the various countries where it operates — among them Britain, France, and Germany — Tiscali offers music from major record companies in the United States and Europe through a service called OD2.

Record companies in the United States and Europe, facing wide criticism that they have fallen behind in technology, have said they cannot afford to emulate KaZaA and services like it, which allow users to exchange songs for free over the Internet through their home computers. The companies say they are trying to find a balance between meeting consumer demands and making a level of profit they deem acceptable.

Sharman Networks, which is based in Australia, boasts that 120 million people have downloaded its KaZaA software; the announcement of the deal with Tiscali is part of the latest release of KaZaA's software, called the KaZaA Media Desktop.

Whether a new legitimacy will result from the deal with Tiscali and whether it will be blessed with legality remain to be seen. The Recording Industry Association of America, which represents the major record companies, has sued KaZaA in federal court in Los Angeles, alleging copyright infringement. The association is hoping for an outcome similar to that in its case against Napster, which was forced to shut down after a judge found it guilty of assisting copyright infringement.

For its part, Sharman Networks contends that KaZaA is different from Napster in at least one fundamental way: its service is a pure form of "peer-to-peer" exchange, in which the company's own computers play a more limited role in enabling the exchange of music than did the computers of Napster.

Users of KaZaA and similar services, like Morpheus, store music on their own computers, but they also use their own computers to help others search for the music they want. Specifically, the software looks around the network of users for those with the most powerful computers, turning those computers temporarily into hubs that other users can tap into to search the rest of the network.

As Napster did before it, Sharman Networks argues it cannot control how the KaZaA service is used and cannot be held responsible for users who exchange copyrighted files without the permission of the copyright holder. Earlier this year, a Dutch appellate court agreed, saying the responsibility lies with the users, not the music service.

But a number of American legal experts have said KaZaA and other such peer-to-peer services are less likely to prevail in United States courts. They point out that while KaZaA's servers are not implicated in each music search, those computers do serve up advertising to KaZaA users; as a result, KaZaA profits directly from the free exchange of copyright music files.

Jonathan Zittrain, an associate professor at Harvard Law School, said the significance of the deal between Sharman Networks and Tiscali is likely to be more a cultural one than a legal one, noting that "all hands to this conflict recognize we're at a cultural point of inflection."

This deal, he said, implicitly lifts peer-to-peer networks out of the online demimonde of casino sites and tasteless pop-up windows to the better tended world of Internet access providers.

"It's like they've gone from Baltic Avenue to St. James Place," he said.



BACKSLASH; In Free-Music Software, Technology Is Double-Edged  (May 12, 2002)  $

TECHNOLOGY; In Free Music Software, a Hidden Fee-Based Service  (April 3, 2002)  $

TECHNOLOGY; Security Hole Found in KaZaA File-Sharing Service  (June 7, 2002)  $

Music Services Aren't Napster, But the Industry Still Cries Foul  (April 17, 2002)  $



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