Analysis: 'Grokster' a legal music win

By LISA PICKOFF-WHITE  |  June 29, 2005 at 11:54 AM
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WASHINGTON, June 29 (UPI) -- The real winners of Monday's U.S. Supreme Court ruling in the MGM vs. Grokster case could be legal content distributors such as Apple and RealNetworks, analysts told United Press International.

The court ruled companies that induce copyright infringement can be held liable, and the justices sent the case back to a lower court.

"A lot of consumers are going to be checking out legal options now that illegal networks can be and will be sued," said RealNetworks spokesman Matt Graves.

The stock price of RealNetworks, the owner of Rhapsody, its digital music store, rose 1 percent Monday after the ruling, and stock in Napster, the only purely online music distributor, rose 6.92 percent. Apple, which claims 70 percent of online music sales via its iTunes, lost nearly 2 percent of its stock to other concerns.

Since iTunes opened it has sold more than 350 million songs worldwide.

"This lawsuit is a great chance for the legal (music) services to attract new users and convince them to use their services," said Russ Crupnick, an analyst at NPD Group in Port Washington, N.Y. "You don't want to litigate your customers (because) clearly (the entertainment industry is) invested in making a legitimate alternative, whether through the industry itself or outsiders such iTunes or Rhapsody."

Crupnick said he does not think consumers are going to take this as a mandate to stop file-sharing.

"This lawsuit was about companies, not consumers," he said.

Companies such as Ruckus Network, in Herndon, Va., that focus on college subscriptions likewise are going to benefit from administrators fearing litigation, Crupnick said.

Josh Weiner, Ruckus's director of communications, said what really will drive consumers away from illegal file-sharing is a better business model.

"We spent over a year looking at how a music service can reach college students and be flexible enough to serve them. That's what separates us from the other distributors," Weiner said. "Our challenge is not to be a legal service, but to be better than peer-to-peer."

Weiner said he does not necessarily expect an increase in student use of Ruckus's subscription service, because more than 20 universities already use Ruckus, and 40 percent to 70 percent of students at these universities utilize the service.

"Students aren't concerned with the debate," he said. "They want to use a service to download music and movies and share it with their friends. We do expect an increase in interest from administrators though."

Michael Petricone, vice president of technology policy at the Consumer Electronics Association in Arlington, Va., said he thinks the decision is not going to drive sales for legal online music distributors. Only better marketing and business models will do that.

"(Monday's) decision is going to have little impact on the thousands of computers that have peer-to-peer installed on them, many of which are overseas and cannot be touched by this lawsuit," Petricone said.

The decision only increased the legal uncertainty of what constitutes inducement, he said. It is going to stifle innovation in new business models, because investors are going to fear litigation for new products.

Industry expert Siva Vaidhyanathan, who filed an amicus brief in the Grokster case on behalf of Streamcast Networks, said the main thing the lawsuit will change is how online content distributors market.

"Content distributors are going to scrub away any hint of inducement from their Web sites," said Vaidhyanathan, who also is director of communications studies at New York University. "The real chilling effect will be down the line, when the court system is forced to face defining inducement."

The decision was based on facts that only apply to Grokster, he said. Smarter companies in the future will have marketing campaigns that are not entirely based on illegal file-sharing.

"When that company is sued, and it goes to the Supreme Court, they'll have to make a real decision about Sony," Vaidhyanathan said, referring to the landmark 1984 decision involving private use of copyrighted material. "Of the justices, four out of nine completely avoided any mention of Sony. The other five chose to deal with it, but had such diverse opinions that they were not the majority."

As technology improves, people want more content, which has been shown by the increase of content aggregation across the board, he said.

"Peer-to-peer usage has been going up, the usage of legal devices is going up and, shockingly, CD sales have gone up in the last month," Vaidhyanathan said. "People just want content. This is not a zero-sum game, where a download doesn't mean a sale."


Lisa Pickoff-White covers technology for UPI Science News. E-mail:

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