August 1, 2005, 12:00 AM

A victory for digital content marketers

Even with Supreme Court’s ruling against freebie Grokster, piracy of digital entertainment products like copyrighted music and movies will undoubtedly continue, especially by overseas-based file-sharing networks. But it’s time for legitimate media companies to call the battle against illegal file-sharing a victory and move on to more aggressive retail sales of digital products, experts say.

With the Supreme Court’s ruling against freebie Grokster, now’s the time to push the digital product market, experts say.

Piracy of digital entertainment products such as copyrighted music and movies will undoubtedly continue, especially by overseas-based file-sharing networks, experts say, despite the U.S. Supreme Court’s June ruling against free-file-sharing network Grokster. But it’s time for legitimate media companies to call the battle against illegal file-sharing a victory and move on to more aggressive retail sales of digital products, says Ted Schadler, an analyst with Forrester Research. “Don’t hold back, exploit the time you have here to make money on the Internet,” he says.

The high court’s unanimous ruling in MGM v. Grokster overturned an appeals court ruling that held that providers of technology are immune from liability related to piracy acts by its users. The Supreme Court ruled Grokster was liable because its business model encourages users to make and share unauthorized copies of digital media products.

The ruling indirectly supports the rise in recent years of legitimate digital media companies, such as Napster, the one-time leader of unauthorized digital music file sharing.

“Entertainment companies should move beyond a quixotic quest to end piracy and concentrate on new ways to make money with digital media-music download services, ringtones, video-on-demand and Internet delivery of movies and video,” Schadler and analyst Josh Bernoff said in a Forrester report on the ruling’s impact.

Others warn that the court ruling conflicts with other market forces. A report by Solutions Research Group notes that more than half of U.S. consumers under age 30 believe free person-to-person file-sharing services should be allowed. And the Consumer Electronics Association, a trade group for consumer electronics manufacturers, says the court ruling could serve to stifle innovation in digital media technology.

Doris Long, a copyright expert and professor at the John Marshall Law School, says that the recording industry itself opened the door to consumer expectations of free file sharing when it failed to sue the first networks that appeared three years ago. “They let the problem go, and now they’re filing lawsuits against people who believed, mistakenly, that everything on the Internet was free,” she says.

Long adds that she expects the debate over Internet services will continue. “Ultimately, we’re going to see a lot more public discussion of the intersection between privacy and Internet service provider liability,” she says.

In the meantime, media companies should get busy and build market share, Schadler says.

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