P2P Watch: The Digital Hollywood Roundtable

Will P2P ever see the light of day as a legitimate, mainstream avenue for record industry profit?

Some poo-poo the idea, noting that file-swapping is not necessarily a better alternative to offering legal song downloads from a secure server. Others see a thriving digital music marketplace succeeding, with consumers most interested in the viral and community aspects presented by P2P networks.

At a recent panel on “Next Generation P2P” at Digital Hollywood in Santa Monica, the innards of a new, legitimate P2P system were examined.

While paid services like iTunes have amassed over 125 million downloads, that pales in comparison to everyday trading volume on P2P networks. According to Mark Ishikawa of network tracking and security firm BayTSP, between three and five million copyright infringements happen daily on P2P networks. While that makes it “hard to compete with free,” Ishikawa stressed the importance of “addressing the mindset of consumers”. According to Ishikawa, recapturing the P2P platform may require a solid DRM system that is tied into the OS.

While some debate future distribution models, others view P2P as an inevitable step for the industry. According to Jim Flynn of Artio Systems, new P2P-based businesses threaten established models. For Flynn, the question for content executives is “How long do you fight it before you decide to go along with it?”

So how does one label insider view the P2P revolution? EMI honcho Ted Cohen indicated that he is not adverse to the concept of P2P, noting that “people are coming in daily to pitch prospective P2P solutions, but it`s EMI`s job to protect artists from trading one bad situation for another.” According to Cohen, about 80% of current traffic on P2P is pop-music hits.

But other non-P2P models exist. Cohen touted EMI`s recent licensing of PassAlong, which provides a quasi-P2P offering called “1Pass,” encouraging “friends to turn friends on to music”. Still, P2P developments are moving rapidly, with Cohen predicting a major P2P breakthrough in the current fiscal year.

While major labels decry P2P, new and obscure artists may have the greatest to gain from P2P exposure. Les Ottolenghi of digital media distribution company Intent MediaWorks has focused on “helping emerging artists distribute their content through P2P,” producing “multiple revenue streams, with the greatest success at this time coming from ad support.” Ottolenghi cited the example of a new artist who recently generated 20 million impressions with a single track.

But that prompted Ted Cohen to question what that exposure translates into for the artist. Les answered, “An MTV contract,” going on to say that protection of new content is no longer an issue. For Ottolenghi, the real digital challenge lies in building awareness and establishing a brand for artists.

For some, the P2P revolution plays well for the savvy marketer. Chip Venters of Digital Containers described the P2P marketplace as a “super-distribution system for digital goods,” noting that, “while some entities may not know how to respond to this technology, there will be plenty of marketers who will find ways to monetize the traffic.” For Venters, major cost advantages and efficiencies offered by decentralization are hard to ignore.

The music business may also have something to learn from early moves in gaming. Gabe Zichermann of Trymedia Systems focuses on the protection, sale, and distribution of games digitally, pointing to more than 200 million downloads of games to date. By 2007, Zichermann estimates that 50% of all games will be sold on the Internet. And gamers seem willing to embrace the model, with eighty percent of consumers indicating that they would pay for downloadable games. For Zichermann, P2P provides a unique environment for both search and discovery for music, games, and movies.

So what is the next big change coming to P2P? For Gabe Zichermann, the answer is “nasty legislation.” That thought that was echoed by Mark Ishikawa, who predicted “unenforceable knee-jerk legislation.” Ted Cohen looked forward to “embracing P2P monetization with legitimate companies.” But Jim Flynn of Artio Systems predicted a major change in the way mainstream companies view P2P, looking forward to the day when “public company executives are able to look at a spreadsheet and justify P2P on the bottom line.”

Special thanks to the Distributed Computing Industry Association (DCIA) for help covering this panel. More information about the DCIA is available at dcia.info