Pirates Firmly In Control Of Digital Web Waters - Forrester

Digital music pirates resemble nothing so much as
cockroaches in nuclear winter - they simply will not die.

That, at least, is the message of a new Forrester Research report by entertainment analyst Eric Scheirer, who
maintains that neither digital rights management watermarking
technology, nor the threat of lawsuits will be enough to dissuade
digital content hijackers from pushing the industry to the brink
of collapse.

It's a situation affecting not only the music business, but also
book publishers, the report indicates, though movie studios and
game manufacturers have less to fear and more time to build bulwarks
against the e-piracy onslaught.

The pain felt by music labels and book publishers will be
enormous, however; labels will lose $3.1 billion by 2005 and
publishers $1.4 billion, as consumers embrace piracy and artists
go independent, the report states.

"Consumers will continue to embrace peer-to-peer file sharing in
lieu of legitimate, useful services," Scheirer writes in his report,
"Content Out of Control." Adding to the industries' pain, he writes,
"Bands and authors will break away from big companies to produce
and distribute their content independently. This combination will
be devastating."

All this will happen at the same time music artists and authors -
and the service companies that help them get to market online -
begin reaping the rewards of Internet sales. Scheirer indicates
that musicians and authors collectively will gain more than
$2 billion in income, while content-service providers become a
$3.3 billion industry in a new, streamlined marketplace that
offers subscriptions, paid and pay-per-listen downloads, advertising
and merchandising opportunities - all without the participation of
long-established companies.

"(It) isn't just about Napster and piracy," Scheirer said in a
brief interview with Newsbytes late this morning. "(It's) also
about the prospect of artists feeling unserved ... and going
independent to pursue their own interests online."

Scheirer's report is based in part on interviews with 50 executives
from companies producing music, movies, books, videogames and pay
cable offerings. The talks were intended to determine how companies
plan to use digital rights management (DRM) in their
online initiatives.

From those, Scheirer writes, he learned that almost
three-quarters of the companies interviewed are pursuing digital
delivery aggressively. They project digital sales growth to 20
percent of their overall revenues by 2003, and believe that moving
onto the Internet will prepare them for new consumer demands for
flexible delivery of content.

But even as the companies embrace the Internet, they are frightened
by it, namely because of services like Napster - the notorious
peer-to-peer file-sharing service that allows users to upload,
share and download relatively high-quality MP3 files of just
about any music a consumer might want - without paying for it.
Such worries are affecting business' better judgment, the
report suggests.

"Napster's file-sharing service terrifies content owners,"
Scheirer writes. "The specter of mass copyright infringement
clouds their plans for a careful, deliberate rollout of digital
services. Content companies in all sectors worry about
'Napsterization' - if not now, then soon."

Hoping to protect their long-held turf, music and book-publishing
companies are pinning their hopes on two strategic fronts, the
report says.

First, they are awaiting the emergence of dependable watermarking
technology. But no watermarking standard has yet emerged.
"The record labels and book publishers especially view the digital
rights management as central to their success going forward, and
they're predicating a lot of their business models around that,"
Scheirer said. "That strategy is not going to work."

Failing that, the industries' second hope is to rely on lawsuits
and congressional action. However, lawsuits against 16-year-old
music downloaders are likely to result in venomous public backlash,
and will not be worth the cost, Scheirer suggests. And some
politicians like Utah's Republican Sen. Orrin Hatch, perhaps
sensing their constituents are themselves Napster users
with votes to withdraw, have signaled that copyright remedies
the music industry seeks from lawmakers may not be forthcoming.

Movie- and game-makers need not worry as much, because their
sectors in the entertainment business are not yet subject to the
do-it-yourself ethic that the music and the publishing industry
is exposed to. It is still technologically harder, Scheirer writes, for
anyone to be a moviemaker or video game producer than it is to be
an independent musician or author. Also, their products tend to be
bigger, more time-consuming downloads for consumers. And in
any case, their products are used differently than are the products
produced by, for instance, music labels.

"The consumers want to use Napster to make flexible use of
content; to build their collections, make mix tapes and things,"
Scheirer told Newsbytes. "And there's not a similar kind of
demand for movies (or games)." The same thing will be true for
publishers when digital book piracy services - Scheirer labels them
"Bookster" - come down the pike.

The answer for beseiged music and book publishers is to change
the entire focus of their businesses, Scheirer said. They need
to stop thinking of themselves as manufacturers whose prime chore
is to shift physical products, and to begin thinking of themselves as
service providers.

"They need to be offering services to artists as partners in the
Internet distribution, rather than thinking that they can only help
with artists that they control," the analyst said.

The issue of control is pivotal to the report's theme. In
short, for music publishers, control is a dead issue, the analyst said,
while for book publishers it will be, and soon.

"Control is collapsing," Scheirer said. "That's already happened
for music and it will be happening for books. ... What they need to
realize is that they are fundamentally in the service business and
not in the manufacturing business and start to run themselves as
though they're service companies."

He concluded, "That's not to say it's going to be an easy
transition to make, but it's a transition that's going to be
necessary if they're going to survive with the same importance
in the world of music and the world of publishing as they
have now."

Forrester Research is on the Web at http://www.forrester.com.

Reported by Newsbytes.com, http://www.newsbytes.com