The Times July 28, 2006
Music pirate pays $100m to go legal
By Adam Sherwin, Media Correspondent
THE music industry hailed a victory in the battle against illegal downloading yesterday after forcing one of the world’s most prominent file-sharing sites to pay $100 million in damages and become a legal business.
Kazaa, a longstanding source of illicit music and film downloads, enjoyed 4.2 million simultaneous users worldwide. The “peer-to-peer” network acted as a free jukebox, making files accessible to any computer user. In 2003 Kazaa became the most downloaded software with 239 million.
Sharman Networks, which is based in Australia and is the owner of Kazaa, agreed yesterday to pay the world’s four leading music companies — Universal, SonyBMG, EMI and Warner Music — more than $100 million (£54 million) in compensation for lost sales.
Kazaa had been under mounting pressure after a series of landmark court rulings, instigated by the music and film industries. Australia’s Federal Court found Sharman Networks guilty of encouraging its users to swap songs illegally, breaching copyright law. In June last year the US Supreme Court ruled that file-sharing companies could be held accountable for promoting copyright theft by users of their services.
Mark Mulligan, an analyst with Jupiter Research, said that the amount of damages demonstrates the size of Kazaa’s service. “$100 million is half of the legitimate music downloads market in Europe.”
Despite the settlement, and the popularity of legal alternatives such as the iTunes store, figures show that illegal music downloading is still on the increase. An estimated 20 billion songs were swapped illegally or downloaded last year, according to the annual piracy report of the International Federation of the Phonographic Industry (IFPI).
This is in addition to the £2.4billion lost last year in pirated CD sales.
Although the industry has now shut two of the biggest file-sharing networks in Kazaa and Grokster, millions still use similar free services, such as eDonkey, LimeWire and BitTorrent, which can download feature films at high speed.
The next target in the industry’s sights is the Russia-based allofmp3.com, the second most popular download site in Britain, which sells chart albums for less than £1.
Along with Russia and South Korea, the IFPI named Canada as one of the worst offenders. “Outdated copyright laws have helped digital piracy flourish,” the report said.
John Kennedy, chairman of the IFPI, said: “The Kazaa ruling is a major step forward because the industry can now put their powerful distribution software to a legitimate use. But the increasing take-up of broadband means more opportunity for illegal downloading. We are surprised that a sophisticated nation like Canada takes so little care over its intellectual property.”
The IFPI said that legal action against individuals who were found to be prolific file sharers would continue. About 20,000 cases have been brought, with offenders in Britain paying up to £6,500.
“We are the nicest litigators in the world,” Mr Kennedy said. “We send warnings and we don’t want to sue. But we will target the worst offenders.”
Nikki Hemming, chief executive of Sharman Networks, welcomed the Kazaa settlement. She said: “It has been our longstanding goal for Kazaa to play a significant role in the growing market for licensed online distribution and authorised exchange of copyrighted content using peer-to-peer technology.”
THE FIGHT AGAINST ILLEGAL DOWNLOADS
Mid-1990s Home computer users begin to exchange MP3 music files using “peer-to- peer” file-sharing networks
1999 Shawn Fanning, a Boston student, creates Napster, the first widely used music-sharing service; 26 million fans exchange 2.8 billion illicit MP3 files
2000 Gnutella and Grokster services allow people to exchange any files, not just MP3s, threatening the film industry. CD sales slump, US record industry sues
2001 Napster agrees a $26 million settlement, relaunches as legitimate subscription service; Apple launches iPod
April 2003 iTunes Music Store sells cheap single tracks for transfer to iPod. One million tracks are sold in the first five days
2004 Global annual record sales slump from $40 billion to $33 billion over five years; 900 million music files are traded illegally in the year
2005 US Supreme Court establishes that operators of file-sharing networks are responsible for copyright infringement; Grokster settles; the industry sues 14,000 file sharers
