By K.K. Campbell

BIG BUSINESS WORRIES ABOUT THE INTERNET. AS HISTORY’S MIGHTIEST PHOTOCOPIER, THE MEDIUM CAN BE USED TO swap words,music, pictures and video-and the illegal trade in such goods is brisk.

As far back as the ‘80s, business pundits-particularly gurus from California who wrote for magazines like Wired and Mondo 2000-even warned of the fall of capitalism due to illegal Internet-aided trade.

Yet capitalism is still chugging along, albeit with significant hurdles to surmount. How can info-businesses make money if their goods can be so easily copied and distributed?

Those attempting to stop the practice have used courts to fight back-Napster was shut down by lawyers not by market forces-but that route costs both time and money, and doesn’t always guarantee victory.

So if courts can’t stop the Internet juggernaut, info-product businesses will have to come to terms with it. The music industry-often called the canary in the digital coal mine-has recently learned this lesson. Although it virtually eliminated Napster, music still flows unfettered through the Internet.

Piracy comes to Hollywood
Picture Hollywood as an open shoreline, with pirates landing from their anchored ships.

This image is not lost on the business leaders in LA-LA land, although real economic damage by Internet piracy has not yet been felt. In August, five Hollywood studios-MGM, Paramount, Sony Pictures, Universal and Warner Brothers- announced a joint venture to let users “rent” movies via download from a central Web site. Their ultimate goal: a true videoon- demand service-download any movie, anytime.

Disney and 20th Century Fox have independent plans.

The studios are very worried about their films being Napsterized. Several video-sharing sites, such as Aimster, now exist. But movie folks believe their industry has several advantages over the music industry:

Delayed release: While movie piracy efforts have traditionally focused on new releases, the new studio-sanctioned Web sites will only post movies several months after release, long after most would-be pirates have lost interest.

Big file size: The studio site will only be of use to people with high-speed Internet connections. Digitized film files are about 500 megabytes in size, and even with fast connections, downloads will take 20 to 40 minutes. Most viewers could walk to a video store, rent a movie and return with it in that time.

Better file security: Movie files are slated to come with built-in self-destructive mechanisms; 24 hours after download, the file will erase itself. (Of course, hackers thrive on such challenges to their cracking skills.)

Pinning losses
It’s too early to tell if many industries have taken any serious economic damage from the illegal Internet distribution system. Sure, people might download Benny Goodman’s version of Swing Swing Swing through Aimster because it’s available, but how many of those people would have bought it at the record store if it wasn’t online? Download don’t necessarily equate to vanished retail dollars, so it’s difficult to assess real losses.

But for years the software industry has been estimating the economic damage of piracy, which exists on both consumer and corporate levels, fed by the online availability of cracked software. Thousands of businesses have been found using pirated software to reduce operating costs. And millions of consumers swap files for fun and sometimes functionality.

Business Software Alliance, a software industry trade piracy watchdog, estimates there are 840,000 Internet sites selling illegal software as genuine product. Microsoft claims there are two million Web pages which “offer, link to, or otherwise reference” pirated software.

The sixth annual study on global software piracy, commissioned by the Canadian Alliance Against Software Theft (CAAST) and the Business Software Alliance (BSA), indicates that in 2000, software piracy cost Canada $457 million in lost retail sales of business software applications. Further, CAAST said one in three business applications in use are pirated.

Most Internet piracy numbers are guesses, however.

All media is digital
If it can be digitized, it can be pirated. Witness the following four entities:

Books: Once upon a time the media pundits who predicted the fall of capitalism also claimed the book industry would be decimated by the Internet. Every book would be online, eliminating the need for paper. But they were wrong-the Internet has helped the publishing industry through an increase in sales of computer-related books.

Although many illegal copies of entire books are available on the Internet, for the most part the public is uninterested, preferring the old technology. Few people read entire books sitting at their computer, and fewer like causing their printers to wheeze under the load of printing out entire works-the cost of the paper, ink and printer wear might equal the cost of buying the book.

A lot of noise was made about e-books last year. Handheld devices are now able to display digital book files so the reader can relax in a manner more akin to typical book consumption -say, flopped on the couch.

But the only thing that flopped were e-books themselves, with many titles unable to recoup the cost of digitizing the book. One exception was Stephen King’s novella Riding the Bullet, but King’s publisher aided sales by only making the work available online and offering the first chapters for free. Once payment was required, reader numbers dropped sharply.

Electronic publishing insiders figure a mature market for ebooks is still a decade away. The New York Times reported one epublisher’s limited success: “Nearly all of its few thousand electronic book sales have been for Cliff Notes-usually late onSunday nights as deadlines approach.” In other words, a market limited to panicky procrastinating students.

Which brings us to another underground info market...

Academic papers: Plagiarism has been given a vigorous boost by the Internet.

In May, the University of Virginia opened an investigation on 122 physics students for term paper plagiarism. Donald McCabe, a Rutgers University professor, conducts intermittent surveys on the black market for pirated words. In June, he surveyed 4,500 high school students at 25 institutions and found more than half admitted to ripping something off online-a complete paper or segments of other people’s work. At the post-secondary level, he said the percentage drops to 10 or 20 per cent.

Universities have been online longer than other institutions and there’s a big supply of material out there. The cost of pre-written papers is typically $5 to $20 a page, depending on the sophistication of the work. Some sites are quite open about it-check out termpapers-on-file.com or papercampus.com.

Learning institutions are now signing up for services to aid in the detection of purloined works through sites like HowOriginal.com.

Erotica: Digitized pictures make small files; even the slowest connection can allow for a quick download. Now, erotica merchants are trying to figure out how to protect their wares. Playboy has talked about using tactics like digital watermarks to trace people who visit the paid parts of their Web site, copy all the images and upload them to free public forums.

Identity: We all have digital bits of information about ourselves on the Internet. For example, digitized signatures- high quality signatures of individuals which can be added to cheques and contracts-are available. The most infamous trade in identity is financial information, and in particular credit card numbers. These are collected online-usually through security errors in e-commerce Web sites-and are often sold offline.

Counter-measures
No sooner did Napster flicker out of existence than Morpheus, a similar service, arose. So can info-product trade be stopped? The answer would appear to be No. Info swapping is the reason the Internet exists-it was designed to connect people in different parts of the world. But computers and networks can’t tell which information is copyrighted.

There have been victories. Napster, for example, no longer exists in its original form, but it relied on a central-server model that was easy prey for raids. Because authorities can track centralized services to a specific computer and even to a particular person, a newer system of decentralized, one-to-one trade has become popular. Known as peer-to-peer computing, it allows files to exist on the end users’ computers instead of in a central site.

Since this system is much harder to stop, business has to adapt, has to measure the revenue lost to file swapping, weigh it against the legal costs of fighting, and work out a long-range policy. All of this is unlikely to sound a death knell for intellectual property. Movie studios, for example, once thought VCRs would be the death of cinemas. Instead, a new distribution channel was created and video evolved into a cash cow. And theatres are still out there.

Today’s Internet demon may be tomorrow’s business opportunity. But, of course, at this point no one knows how the story will end.

Web piracy
Business Software Alliance - http://www.bsa.org
CAAST - http://www.caast.ca