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Just a year ago, peer-to-peer file sharing as popularized by the renegade Napster looked like the tool by which the music and video industries would be wrenched from the status quo.
But several lawsuits later, with Napster now a division of media giant Bertelsmann and Scour's assets sold off in bankruptcy court, peer-to-peer file sharing may be entering a new "secure" phase of its life cycle, just in time for broadband.
What's not clear is how integrating digital rights management (DRM) will affect the end-user experience, and whether or not consumers will embrace secure peer-to-peer networks as emphatically they have free ones.
Hillsboro, Ore.-based CenterSpan Communications won the December bidding for the bankrupt Scour's assets in U.S. Bankruptcy Court in Los Angeles, officially ending a chapter for the second largest peer-to-peer media network. The specific terms require $5.5 million in cash and $3.5 million in newly issued CenterSpan common stock, which represents 333,333 shares at a price of $10.50 per share.
There was a flurry of interest in the assets late in the bidding, spurred on by the news of Bertelsman's Napster acquisition. In November, major record label-backed Internet music site Listen.com offered to buy Scour's technology assets, which include computer hardware and intellectual property, for $8 million in cash and stock. CenterSpan joined the bidding a few weeks later, as did online music company Liquid Audio with a $7.5 million bid.
Scour was created in 1997 by five computer students at UCLA. Michael Ovitz, the former Hollywood agent and president of The Walt Disney Company, made a major investment in the company last June. In early 2000, Scour introduced its Scour Exchange program enabling individuals to swap a range of music and video files in the same way that Napster allows the transfer of music files.
Though getting less mainstream attention than Napster, the implications of Scour's multimedia capabilities made it even more of a threat to the entertainment industry. That's how it wound up on the business end of lawsuits from both the RIAA and the MPAA, as well as 27 other content copyright holders, earlier this year. In July, the two organizations claimed Scour allowed the "global piracy of copyrighted motion pictures and sound recordings."
Under this pressure, the company shut down Scour Exchange, and eventually sought Chapter 11 protection due to problems getting financing while under the legal siege.
Now, CenterSpan plans to re-launch the Scour Exchange in the first quarter as part of the company's "secure and legal digital distribution channel," code-named C-Star.
The new service will allow users to publish legitimate shareable content, search the peer-to-peer network for content and capabilities, purchase and transfer multiple types of content, distribute content via peer-to-peer recommendation, compare content and capabilities among multiple users, and communicate with other users regardless of firewalls.
CenterSpan hopes the new Scour Exchange will generate revenue from the distribution and purchase of digital content, applications and physical goods. This will include fees for the sale of licensed digital content,;service fees for enabling individuals to wrap, publish and sell personal content; service fees from major content owners who use Scour Exchange as a turnkey secure digital distribution channel, and fees for the direct licensing of the underlying technology to major portals and ISPs.
"As we stated at the beginning of this process, Scour represents a significant opportunity for us to accelerate public visibility of C-star and create critical mass for the secure and legal distribution of digital content for fee over the Internet," says Frank Hausman, CenterSpan's chairman and CEO.
CenterSpan, originally an Intel Capital portfolio company, evolved from computer joystock and game control maker ThrustMaster Corp. In September 1999, the company sold its hardware business, including the ThrustMaster name, to focus exclusively on peer-to-peer communication software. Last May, CenterSpan launched Socket, a peer-to-peer Internet gaming application, and in August in debuted its "Socket" instant messaging software.
For CenterSpan, buying Scour clearly was about market positioning, not technology. "We wanted their brand name and user base, " Hausmann says. "We want to create a secure and legal Napster."
It's not clear what that looks like, or whether consumers even want a secure and legal Napster. "It's certainly not proven that peer-to-peer is commercially viable," says Ric Dube, analyst for Webnoize research.
"Where will the security take place? After all, in peer-to-peer systems content exists on the user's computers, not a centralized system. And how will that affect the ease of use? It's that ease of use which has brought so many users in the first place," Dube says.
Assuming CenterSpan can accomplish meet those challenges, working out content deals will be another crucial hurdle for the system to work. "Content relationships will be desperately needed," says Dube. "Courting those partners will be a huge chore-that's what shut down Scour in the first place."
With such huge obstacles still remaining, it's no surprise that some are saying CenterSpan overpaid at $9 million for Scour's brand and user base. Still, according to Dube, "If they can leverage their secure technology and Scour's assets to raise more money, they just might have a shot."
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