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File-Sharing Goes Legit With Studio Deals

Almost immediately after Harry Potter and the Prisoner of Azkaban hit movie theaters in November 2003, Web surfers worldwide began downloading illegal — and free — copies of the Warner Bros. film through BitTorrent and other Internet file-sharing services.

Just two years later, Warner Bros. is teaming up with BitTorrent to sell Harry Potter and the Goblet of Fire, the latest movie in the series, and other movies this fall. Pricing hasn’t been set yet.

It’s the same software. And it’s being used by Web surfers everywhere for the same thing: Downloads. But instead of Warner Bros. losing money on illegal downloads with BitTorrent technology — which employs users’ computers to distribute content — it will get paid for each copy of Goblet of Fire. In the process, the file-sharing company will get paid a fee for helping enable the delivery.

“They [BitTorrent] went straight, if you will, and are trying to build a business model based on legitimate content,” said Jim Wuthrich, senior vice president at Warner Bros. Home Entertainment. He was referring to a 2005 Supreme Court decision that helped put P2P firm Grokster out of business, and influenced other firms to crack down on enabling the sharing of copyrighted content.

“We at Warner Bros. saw that as an opportunity to provide a carrot rather than a justice stick to help these guys come along and go legit. That was one of the main reasons we ended up doing a deal with them, by giving them another business model to pursue rather than the illegitimate option,” Wuthrich added.

Media executives say they’re not working with BitTorrent (, Peer Impact ( and other file-sharing companies just to dissuade them from enabling less-than-honest Web surfers to pirate their copyrighted works.

They say these peer-to-peer services — which rely on the hard drives of PC owners to deliver the content — allow them to distribute content more efficiently than by only providing downloads via their own Web sites.


“For me, peer-to-peer is really just a distribution technology. It allows you to do it for a cheaper [price],” said Jean-Briac Perrette, NBC Universal Cable chief financial officer and senior vice president of new media.

NBC Universal was the first media company to strike an agreement with a so-called legitimate file-sharing company, Peer Impact, in 2005. NBC is supplying computer users with movies such as Ray and Cinderella Man, along with pay-per-view specials such as Jerry Springer: Uncensored, through that service, from Wurld Media Inc., a Saratoga Springs, N.Y., creator of technologies for distributing digital content.

And Harry Potter is not by himself. Peer Impact also has agreements with 20th Century-Fox and Warner Bros., in addition to deals to distribute music videos and video game downloads.

“The big thing is they’re [media companies] recognizing business models that have new channels to the consumer,” said Wurld CEO Gregory Kerber. “They’re not going to go out and build these [systems] themselves … They’re very specialized.”

Anyone can join Peer Impact and download its software for free. Members then have the option to purchase audio or video content, similar to iTunes or Napster.

Unlike other P2P firms, Peer Impact gives incentives to Web surfers to download and share content with other users, offering them “peer cash” that can be used to download free music and video content.

If one viewer with Peer Impact suggests that another user buy the same TV show or movie, the user who offered the recommendation earns 5% of the content purchase price. Another way to earn Peer Cash is to share files directly. If one viewer selects another viewer’s catalog of content as a transfer source, then the viewer who distributes the file receives up to 5% in Peer Cash.


“You want to share the benefit of the network with the people that are participating. It provides the right incentive for people to participate,” Warner Bros.’ Wuthrich said.

Warner uses a similar incentive model with In2Movies, a file-sharing service it launched in January in Germany, Austria and Switzerland in January through a joint venture with Avarto Mobile GmbH.

Wuthrich said one early challenge with In2Movies was distributing enough “seed” copies of Warner movies and TV shows. Once a few Web surfers download the seed copies of the movies to their own PCs and begin sharing the content with other PC owners, it takes Internet users less time to download the content since their computers are able to simultaneously pull the bits that make up the final product from multiple computers tied to the network.

NBC Universal’s Perrette said P2P networks are one of several platforms his company is using to deliver video to Web surfers. NBC Universal also distributes The Apprentice, Monk and other broadcast and cable primetime series through Apple Computer Corp.’s iTunes store, in addition to providing video content on

“The market is way too nascent to choose any one particular platform, and run with it. It’s a very early stage, and everybody, including ourselves, is trying it [P2P networks] out and testing to see what works, what’s more cost-effective,” Perrette said.