KaZaA settles for a legitimate future

By Matt Whipp

Posted on 27 Jul 2006 at 16:13

The company behind the file-sharing network KaZaA has settled its legal dispute with the entertainment industry for $100m (£53m) and agreed to rid its network of pirate material and go legit.

In a landmark settlement, Sharman Networks will begin distributing licensed content and pay the out of court settlement to 'the major entertainment content providers and trade groups' - including the likes of MGM and Universal.

The sum is equal to 'more than half of [what] the legitimate European digital music was worth in 2005,' according to Jupiter Research's Mark Mulligan.

Sharman Networks will introduce filters to weed out unlicensed material from its networks and prevent further distribution of such material across them.

The deal follows a ruling in the Federal Court of Australia last year that found the company guilty of facilitating widespread copyright infringement.

Grokster and Streamcast also settled with the entertainment industry in November last year after the US Supreme Court ruled that companies enabling and promoting copyright theft by their users can be held responsible.

John Kennedy, chairman and CEO of IFPI (International Federation of Phonographic Industry) said: 'Kazaa was an international engine of copyright theft which damaged the whole music sector and hampered our industry's efforts to grow a legitimate digital business. It has paid a heavy price for its past activities. At the same time Kazaa will now be making a transition to a legal model and converting a powerful distribution technology to legitimate use.'

The IFPI claims the system has enjoyed some '4.2 million simultaneous users worldwide' at its peak.

However, in the current climate, KaZaA is small fry, and it's difficult to see this as a significant victory for the content industry over piracy.

According to Nielsen//NetRatings latest figures, KaZaA doesn't even feature in the top 30 music services. The numbers for June put eMule as the first placed 'illegal' service, with 18m people worldwide having used the site at least once that month. But this only stands it at number 9 with regard to all online music services. Others in the top 30 include LimeWire at number 10 - the most popular in the UK - BearShare at number 23 and Gnutella at number 28, with 2.2m. KaZaA is simply nowhere.

Mulligan agrees and points the finger of blame at Sharman Networks itself as well as its legal tussles. 'This is about two years too late,' he said. 'KaZaA isn't what it used to be. While all the behind the scenes legal wrangling has been going on Kazaa's reputation among the file sharing community has plummeted to potentially irreversible depths. Sharman Network's strategy of Spyware bundling with the KazaA app resulted in massive consumer backlash ... So it is questionable just how useful and large this new audience will be and also there are concerns about what such an association will do to the reputation of the music industry.'

However, Mulligan does credit the announcement with setting one significant precedent. Apparently, the recording industry is to take a stake in the new legitimate KaZaA, pioneering a new method for gaining favouritism in the cut-throat market of online music services. Is the best way of ensuring success in that market to create an illegal file-sharing network, and then use that as bargaining power to turn it into a legal and revenue-generating service supported by the music and film industry?