Hollywood's real threat

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This week's decision by file-sharing service Grokster to temporarily shutter until it reincorporates as a legal entity no doubt had glasses clinking in Hollywood and in the music industry. But it may come to be seen as rear-guard action in the battle against Internet piracy.

The biggest threat to entertainment profits — software called BitTorrent — makes Grokster, and similar peer-to-peer services such as Kazaa, look like wheezing cigarette smokers on a jog in August.

"In addition to stopping distribution of its software, Grokster agreed to pay $50 million, a token gesture because the company reported few assets other than its name," reported the Los Angeles Times on Tuesday. "Grokster's audience has dwindled in recent years as users shift to more powerful tools such as" ... you guessed it, BitTorrent.

BitTorrent, developed by dot-com casualty Bram Cohen and available for free online, enables downloaders to slurp up files that, in the days when Napster was still in diapers, seemed inconveniently bulky. System crashes were typical. No longer. Movies that might take days to download on, say, EDonkey, take an hour on BitTorrent. The transfer of music files, video games, television shows and popular office software are commensurably speedy.

The music industry doesn't sneeze at BitTorrent, but the service doesn't offer much of an advantage in the realm of small files. With large files, it's a different story. BitTorrent, thus, has movie executives worried — especially as the rate of high-bandwidth Internet subscribers is set to increase to 60 percent of all Web surfers by 2008.

"BitTorrent is a tool that a lot of people abuse to swap movies illegally on the Web," says Motion Picture Association of America spokesperson Kori Bernard.

The program works like a virtual Fordian assembly line. Whereas on traditional peer-to-peer services you link up with a single, possibly overburdened, user, on BitTorrent files are downloaded in little chunks at a time from among dozens of computers, and then reconstructed at breakneck speed. No mooching is allowed: You can download files only as fast as you upload them. In practice, this means BitTorrent will become ever faster as new users discover it and networks become larger.

Introduced roughly two years ago, BitTorrent has quickly become the prevailing method of Internet file-sharing; it accounts for more than 50 percent of all online swapping. At any given time, up to 20 percent of all Internet activity is driven by BitTorrent, according to a profile of Mr. Cohen by Fortune magazine's Daniel Roth.

Here's the tricky part for the industry: Unlike the Kazaas and EDonkeys of the Net, BitTorrent is open-sourced. The fly-by-night, San Francisco-based BitTorrent Inc. — which runs on venture capital and advertising dollars and asks users to donate to the company through PayPal — is wholly unaffiliated with the forums that host the 45 million people who have downloaded its software. Rather, files appear as hyperlinks on countless Internet sites and search engines such as TorrentSpy.com, IsoHunt.com and DimeaDozen.org.

So-called "torrent trackers" — which are frequently updated indexes of links to music or video files — are embedded in fan-run sites for rock bands. Within days of seeing Bruce Springsteen or Green Day in concert, chances are you'll find an audio or DVD bootleg of the show available as a torrent file. I found a link to the movie "Jarhead" — one of 1.7 million copies of Hollywood movies available as torrent files, according to Fortune — in seconds.

BitTorrent also is widely used for legal distribution of video games and computer operating systems.

The latter is one of the reasons the industry has laid off BitTorrent, even as it has gone after sites that host torrent files. The MPAA filed several lawsuits against such Web sites in December 2004. And movie and music industry officials are suspiciously eyeing the use of BitTorrent in Britain, according to the Times of London. The same report said a court in Hong Kong convicted a man last month of trying to illegally distribute films with BitTorrent.

More important, though, it appears Mr. Cohen wants to play ball.

"BitTorrent has reached out to a lot of major motion picture studios one on one, and we've had conversations of our own," says the MPAA's Ms. Bernard. "I do think that they have high hopes of making a deal to stop the abuse of its product."

Hollywood would be smart to co-opt BitTorrent: It's about to become to the Web what Twizzlers are to licorice.

As venture capitalist David Chao of DCM-Doll Capital Management, which last month invested $8.8 million in BitTorrent, told Fortune, "I'm a big believer that when the majority of Internet traffic is governed by BitTorrent and they have 45 million users, you're going to be able to monetize that."