Tensions run high as independents push P2P growth.

Standing in the back in one of the hotel's banquet rooms, Altnet, Inc. President Lee Jaffe raised his hand in attempt to ask one of the panelists up front a question.

Addressing Ted Cohen, the senior vice president of digital development and distribution at EMI Recorded Music, he asked "why don't you license your content to us?"

Cohen, hesitating for a second, simply said because Jaffe's 3-year-old company was a "disingenuous business" whose CEO "fled the country" (Company CEO Kevin Bermeister is in Australia).

The comment set Jaffe, a former harmonica player and associate producer for Bob Marley and the Wailers, off. In turn, Cohen raised his tone and the two men exchanged angry words.

This episode, which took place during a panel called "Next Generation P2P Music and Film" at a 3-day conference called Digital Hollywood held at the beachfront Loews Santa Monica Hotel, illustrates the tension that now exists between the entertainment industry--record companies and movie studios--and companies such as Woodland Hills-based Altnet, which are growing in number and specializing in distributing movies and music on the Web via peer-to-peer technology.

P2P, as it is commonly known, enables Web users to freely share copies of movies and music--sometimes illegally due to copyright violations--and has gained notoriety because piracy has been rampant online as users can copy files from each other at no cost at some services.

While it has been the nemesis of major studios making music and film, P2P is a wish-come-true for independent artists and filmmakers who are not able to get distribution through those major labels and studios.

The studios' and labels' offensive against digital piracy so far has been against individual users, because legally that is all they can do; in August, a federal appeals court ruled against major labels and film studios, who claimed that companies behind the P2P technology should be held responsible for piracy.

The powerful industry did not just accept the decision, however. It is lobbying Congress to pass a strict version of legislation called the Induce Act, several draft forms of which were composed by the U.S. Copyright Office and are currently in the House Judiciary Committee. The Act would permit movie and music firms to sue makers of P2P software.

Needless to say, the P2P community has organized to mount a challenge to kill the measure.

"Never in our history have we allowed copyright law to prevent innovation," said Ronald H. Gertz, president and CEO of Music Reports, Inc., a Burbank-based firm that collects royalties for licensed music distributed via P2P services.

Altnet's Jaffe also wants the technology made completely legal-and compares it to another form of media: "I'd like to see P2P (become) a new version of radio," he said.

Spin-off

Altnet was spun out from Brilliant Digital Entertainment, Inc. a publicly traded Internet content developer and distributor headquartered in Woodland Hills. The firm has a roster of more than 100 record labels, film studios and software and video game developers which license their content out to Altnet to sell it online.

The roster, however, is composed of only independent firms. Not so conspicuously absent are the likes of Universal, Sony BMG, EMI and other record companies whose artists dominate the music charts. That's because these companies are gingerly exploring P2P and other technologies and choosing partners extremely carefully, if at all.

Apple, Inc.'s iTunes, for instance, has gained many converts. The software enables Web users--on both PC and Mac platforms--to buy individual songs at 99 cents apiece, iTunes has competition from other services, including the recently re-introduced Napster, but companies such as Altnet and Morpheus, a P2P service also headquartered in Woodland Hills, are fighting for their share of the market.

And, they do not want the federal government to interfere whatsoever.

"It's incumbent for congressmen to find out facts before making policy," said Michael Weiss, CEO of StreamCast Networks, Inc., the parent of Morpheus. "They don't know the ramifications."

As congressmen mull over the Induce Act, however, the Recording Industry Association of America is spending more than $2 million to lobby for the support of the bill, Altnet's Jaffe said.

If Induce passes, Altnet's "livelihood" would be "extremely affected," he said. As it stands, "major labels are not giving content."

"If we had content from the majors, we'd be bigger than iTunes," Jaffe said.

Major recording companies are even steering their subsidiary labels away from companies like Altnet. The company had a deal in place with Vagrant Records, a punk rock label with popular band Dashboard Confessional on its roster, but it fell through after Universal advised it against the deal.

Jaffe, speaking as a former artist, is incensed at unfairness of deals between the majors and iTunes. He said artists "get four cents out of 99 cents" on the sale of a given song.

While the status of the Induce Act remains in limbo, and does not appear to have a chance at passing with the Congress session soon wrapping up, the debate over the legitimacy of different companies within P2P is far from over.

The conventional thinking of the entertainment sector coupled with its concern with copyright protection currently available in P2P are combining to stall the development of the technology--hailed by all as the 'next big thing' that will revolutionize how entertainment is delivered to the public.

"We want to see a year before making any changes," said EMI's Cohen. "Artists are used to selling product and getting paid for it."

Peer-to-peer Legislation Update

A flurry of activity has been happening in the U.S. House of Representatives and the Senate over the last several weeks, as the entertainment industry and companies behind P2P technology and their supporters are pressuring lawmakers to pass legislation favorable to each side:

* Induce Act tabled in U.S. Senate Judiciary Committee last Thursday after "round the clock" conference between representatives of entertainment firms and P2P supporters broke off Wednesday.

* H.R. 4077, a House bill called "The Piracy Act," would criminalize file sharing. The bill was approved in the House, and is now on the Senate floor.

* Another Senate bill would clear the way for the Department of Justice to file civil suits against individual file sharers.

* Provisions from the bill above have been combined into H.R. 2391, called the Intellectual Property Protection Act (IPPA Act), which was approved by the House and was headed back to the Senate as of last Friday. It could be a substitute for the other bills, should they be tabled or voted down.

SOURCE: Distributed Computing Industry Association, Arlington, Va.