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Entertainment Industry Targets Another Piracy Site
By Dan Ackman
www.forbes.com

Remember when Hollywood was hip? That idea may have gone out with the word hip. Now movie studios and their brethren in the music business have been reduced to filing lawsuits against pesky Web sites founded by college students who threaten their livelihood.

The action brought by the movie studios and record companies against Scour.com is round 3 in the bout between the big entertainment companies and the gnats of the Net. In round 1, the music industry faced Napster, a new music file-sharing Web site that became a household name after the record companies and the music publishers filed suit. In round 2, the movie studios sued the publisher of a hacker magazine for disseminating software that could be used to decrypt encrypted DVD files.

Scour, founded by UCLA students and based in Los Angeles, is a still fledgling Web site that allows users to exchange both video and music files over the Internet, and which is owned in part by one of Hollywood's own, Michael Ovitz, chief executive of Artists Management Group.

The entertainment companies contend that Scour is built around the large-scale theft of copyrighted materials and the trafficking in stolen goods. The question is whether this battle will be like Rocky--where the champ was bloodied but ultimately victorious--or more like Rocky II through Rocky V, progressively worse movies where commercial imperatives dictated that the scrappy challenger prevail.

Scour is still a small site. Lawyers for more than 30 movie studios, record companies and music publishers, including divisions of Sony, Fox Entertainment Group, Time Warner, and Bertelsmann, say that Scour has roughly 25,000 users on it at a time. Some of those users may be using Scour's search engine, which helps them find multimedia files--audio and video--on the Internet. Others are using Scour Exchange, a file-sharing service that allows users to find and download files stored on the hard drives of other users. Some of these files are copyrighted works, including first-run movies such as Mission Impossible 2, which, the plaintiffs say, are being transferred without the permission of the owners. Scour has denied that it is doing anything illegal.

The action against Scour is legally quite similar to the claim against Napster. When the Napster case was filed in March 2000, Napster was already becoming popular. The company grew like a virus during the next three months, before the music industry lawyers got around to seeking a preliminary injunction from the Federal Court in San Francisco, where that case was filed. Attorneys familiar with the case hint that they will not take as long to move in the Scour case, and that they hope to shut Scour down before it has a chance to grow the way Napster did.

There are at least 20 other sites that do essentially what Napster and Scour do. Lawyers for the record and film companies say they are suing Scour first--though other suits may follow--because it is the most commercial. A big part of the reason it is the most commercial is that it has the backing of people like Ovitz, who owns 25.5% of the company, a Scour spokesman says. He also controls two of the six board seats.

Ovitz was for years one of Hollywood's most highly paid agents. Taking 10% from movie stars and film directors, he supped lavishly at the Hollywood trough before sinking his teeth into the one of the studios themselves, Walt Disney Co. His tenure there was proved both an embarrassment and an embarrassment of riches when Disney paid him $110 million to please leave its employ. Since then, he has returned to become a manager (similar to an agent, but without certain legal restrictions), a TV producer and an Internet entrepreneur.

Ovitz's involvement is the most significant aspect of the Scour case, says Yochai Benkler, a law professor at New York University who specializes in copyright and the Internet. "Here is someone deep inside Hollywood who has bought himself a stake in the next business model," he says.

Lawyers for the record and movie companies say this case is not about Ovitz, but Benkler says his involvement is a harbinger of things to come. Sites like Scour and Napster threaten entertainment companies' business models, which depend on controlling the pipeline between producer and end consumer, Benkler say. If there is a leak at any point, the entire model may fail. The Scour business model, such as it is, depends on stealing the product of the Hollywood business model, the studios and recording industry say.

It is inevitable that the methods by which entertainment is distributed will change, Benkler says. Music, which artists can afford to produce themselves, will be the first beneficiary of new, Internet-based distribution streams, but movies may follow. Hollywood movies cost millions to produce, so filmmakers will still need the studios to finance production, if not distribution.

For now, downloading movies remains difficult. Even with a fast connection, a full-length film can take hours to download. With a 56-kilobit-per-second modem, it's all but impossible, say lawyers familiar with Scour. If either the downloading computer or the computer on which the file is store loses its connection, the entire process has to be started over. Worse, a user has no way to know what he is downloading until the end. The Motion Picture Association of America says it has found Gladiator and The Perfect Storm listed on Scour Exchange, which could have gotten there only via copyright infringement. But those are the names put on files by individuals. There is no guarantee that once downloaded, the file might contain the perfect porn.

While they have generally denied wrongdoing, Scour has yet to answer the complaint. When they do, the question is whether Apollo Creed will put Rocky away for good, or whether many rounds and sequels will follow.

Go to www.forbes.com to see all of our latest stories.




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