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TechNews: Future of File Sharing

Uncertain Future of File Sharing

Sam Yagan
President of eDonkey
Thursday, May 13, 2004; 12:00 PM

File-sharing networks like eDonkey and Morpheus are undeniably popular, with millions of members using them to exchange music, video and software. But they also are beleaguered by the entertainment industry's claim that they are havens for rampant copyright infringement. Now some U.S. senators say they might be conduits for child pornography.

Sam Yagan, president of eDonkey, discussed file-sharing's uncertain future with washingtonpost.com reporter David McGuire on Thursday, May 13 at Noon ET. A transcript follows.



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David McGuire: Hello Sam, thanks for joining us. I understand that eDonkey is now one of the largest peer-to-peer networks on the Internet. Could you describe your global operations? Also, eDonkey is a U.S. company. How has your growing customer based changed your relationship with regulators and lawmakers? Are you participating in the debates over copyright infringement and the spyware?

Sam Yagan: David: Thanks so much for having me; I am looking forward to chatting with you and your readers. Over the course of the past year, we have indeed become one of the largest (if not the largest) peer-to-peer (p2p) networks in the world. In particular, we believe that eDonkey is the largest in Europe and in Asia. As for our global operations: eDonkey is proud to be an American company, incorporated in the state of New York. We have a small office in downtown Manhattan.

Our relationship with regulators and lawmakers, as well as our participation in the debate over copyright infringement and spyware, is primarily done through the industry trade group P2P United, which we co-founded and on which I am a director. We have a very active presence in Washington and are very interested in working with the various stakeholders to reach agreement on the many controversial issues facing our industry.

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Alexandria, Va.: What vulnerabilities does Overnet address that were inherent in the eDonkey2000 server?

Sam Yagan: Overnet is designed to scale to many millions of simultaneous users. eDonkey servers and most other p2p applications have a limited search radius -- this means that when you search for a file you are not searching the entire network! Instead you are only searching a very limited part of the network. Overnet overcomes this and allows you to search across all the current users of the network in a very efficient manner.

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Arlington, Va.: So what's the breakdown between illegally copied music and movie files shared on eDonkey? Do you think the movie industry faces the same threats from piracy as the music industry and will it respond in the same way?

Sam Yagan: eDonkey users share many types of files on the network. In particular many independent artists use the network as a free distribution mechanism and a great way to build a fan base. We have done extensive promotions for such bands as Bishop Allen, for example.

I hope that the movie industry will learn from the experiences of the music industry and will be much more constructive in their approach to P2P. The recording industry decided to take a highly litigious approach to this new technology, which historically has not been the most effective way to deal with technological breakthroughs. I hope the movie industry will see P2P as a business opportunity and work with us to make a win-win-win for everyone, including consumers.

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Redmond, Wash.: How are you responding to the growing clamor over spyware? Doesn't your company make the lion's share of its money by placing spy- and adware on peoples' computers? How would federal anti-spyware legislation effect your operations?

Sam Yagan: The spyware issue is a critical one facing not only our company or the P2P industry, but software distributors more generally. First and foremost: we do not distribute any spyware with our application. We take great care not to harm our users in any way.

Adware is a different issue, and I hope our users understand that. We allow users to download and use our software completely free of charge (though many of our users do purchase the ad-free version). However, we do incur significant development costs in creating and improving our software. We've got to make the rent payments every month, and ad revenue is one channel that allows us to do so without requiring payment from our users.

We would support narrowly crafted legislation protecting users from spyware that violates their privacy.

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David McGuire: I'm not sure our readers know what "overnet" is. Can you describe it, and how it differs from other popular networks like gnutella (used by Morpheus and Lime Wire) and fast-track (Kazaa, Grokster)?

Sam Yagan: The eDonkey network is a completely distributed way to share and download any type of file. It uses Overnet technology to search all of the peers in the network. It has very a sophisticated transfer mechanism that allows users to reliably download very large files very efficiently and quickly. Downloads are taken from many users simultaneously thus insuring the fastest transfer possible.

In terms of how it differs from our competitors -- our competitive advantage is on the quality of our technology. We offer more robust searching and faster downloads -- the two most important aspects of a good P2P product.

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Los Angeles: You said you hope the movie industry will see P2P as a business opportunity and work with you to make a win-win-win for everyone, including consumers. Let me get this straight - your users would win by getting content they didn't pay for, you win from adware and advertising, how do the people in the movie industry win?

Sam Yagan: Great question. First, I look back throughout the last half century and I look at the various technological breakthroughs that were supposed to bring financial ruin to copyright holders. In particular, I am thinking of photocopiers and vcrs -- though there are many others.

The movie and television industries decried VCRs and predicted that no one would go to movie theaters and that revenues would fall precipitously. In fact, what happened? More people became movie fans. The average number of movies watched per person increased. And on many releases, the copyright holders make more money in the rental/purchase market than on the theatrical release.

P2P offers many of the same opportunities. There is no reason why people won't watch more movies or listen to more songs as a result of having an incremental, convenient distribution channel.

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Fairfax Station, Va: How can the government regulate e-sharing networks on the basis of porn any more than they can regulate newsstands? They are both basically the same thing -- places for people to exchange information, albeit a certain percentage of it being completely vile smut. And I should say, the same types of folks decrying these sharing networks are probably the ones downloading all the crap. Cynical? Perhaps.

Sam Yagan: You raise an interesting analogy. Two points that I think are often overlooked, however:

1. Pornography represents a small portion of the content shared on P2P networks, just like it represents a small portion of the magazines sold in newsstands.

2. P2P represents only a tiny fraction of all pornography distributed on the Internet.

For the smut that is completely vile (and illegal) we, through P2P United, are working with government to figure out how we can be helpful in preventing distribution of illicit material.

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Fairfax, Va.: The Internet these days is swarming with worms and viruses. What steps do you take to minimize infections of your users?

Sam Yagan: The best thing we can do is to help educate our users on protection and prevention. The three best things you can do to prevent worms and viruses are

1. Having a good personal firewall

2. Having a good virus scanner

3. Keeping your operating system up to date

Running our software does not increase the risk of viruses or worms as long as you always scan any file that you download with eDonkey.

As a good tie-in to the earlier question about adware, on several occassions in the past we have entered into distribution partnerships with anti-virus software providers such as Bullguard. Several million copies of Bullguard software were distributed to our users with the eDonkey software.

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Mountain Lake Park, Maryland: With Apple Itunes and others raising the price of albums it will only be a matter of time till consumers rebel at the cost. These prices will be the same as what you pay for a cd. The answer is clear. The music industry is not learning from their past mistakes. I predict that the music industry will end up in another slump and the reason is because they still do not get it. Your thoughts?

Sam Yagan: I hope the music industry will recognize the many advantages of online distribution. In particular, users seem to value the ability to purchase on a per-song basis rather than by album. More over, the music industry saves a lot of money in distribution costs when it distributes electronically. As a result, there's no reason to think that prices will get anywhere near the current CD prices. It is clear that the recording industry has to find a stable equilibrium where they are making money without charging so much that users won't purchase the product -- but this not unique to that industry. Any business has to face the challenge of setting prices optimally.

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Glitter Gulch, S.D.: Hello Mr. Yagan. I am curious as to the origin of what sounds like patently insipid names for these file-sharing services. E-Donkey? Why did the person who started this firm name it that? What on earth is a "Blubster?" What is the general thought process here in coming up with these names? Are they based on Nitrous Oxide or am I getting too old to understand the p2p demographic? Many thanks and good luck.

Sam Yagan: Well, I think you've got a couple forces at play here. First, many of these P2P names are simply following the lead of other Internet companies with crazy "memorable" names. We definitely think eDonkey is pretty memorable.

However, like many other companies we tried to be a little clever in our name. The "eDonkey" concept is one of an electronic "beast of burden" -- the perfect way transport lots and lots of data.

I can't speak for the others, of course, so I can't rule out Nitrous Oxide in those situations.

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Los Angeles, CA: Will e-donkey begin promoting authorized content to its users that artists and copyright owners can derive revenue from in a similar way to Kazaa?

Sam Yagan: We have begun to do this in a variety of ways. First, as I mentioned earlier, we've worked with quite a few independent bands to distribute their copyrighted works to our users. We're also beginning to partner with some film schools to allow students a venue to share their work with others.

We have also distributed computer games and other software that users can download and use for free during a trial period, at the end of which they can purchase the product.

In the long run, copyright owners will be using P2P much more widely to distribute their content. It's virtually a no-brainer: it has cost advantages, offers instant gratification, and can reach millions of users instantly.

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Christmas Bend, Montana: Hello. What is eDonkey's revenue model? Do you make money off of advertising? On a larger front, is it possible to make a lot of money in this area?

Sam Yagan: We've been so focused on revolutionizing the technology that we have not broken much new ground on the revenue side. We have three primary forms of revenue:

1. Users who purchase our ad-free Professional version

2. Banner ads placed in the client

3. Software that we bundle with our download

In the long-run, we hope to add a fourth: distribution of copyrighted material. As I said earlier, we've only scratched the surface here, and it is not yet a major component. In the future, though, we hope that this will become our largest revenue stream.

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Los Angeles, CA: What do you think about other P2P applications like Morpheus, that allow users to search multiple networks?

Sam Yagan: We think this will become more and more common. We have just implemented a plugin system that allows anyone to make a plugin for eDonkey that downloads from any network. So our next version will also include the ability to download from other network:, bittorrent, gnutella and others.

It would be nice if Morpheus wasn't using our logo, though!

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Snakefoot, Wyo.: I get the impression that your cohorts in the file-sharing trade are probably desperately trying to strike a deal to get taken seriously by the music industry (as a legitimate business source, NOT a piracy haven) before their successful online outposts like iTunes blow you guys out of the water. What's the status of those negotiations?

Sam Yagan: Sadly, there are no really negotiations currently ongoing, though I would not describe us as desperate. Obviously (as you point out), the music industry is in the driver's seat and they have to be willing to come to the table before we can have those negotiations.

They have tried an aggressive litigation strategy and the courts pretty consistently rule in favor of the P2P companies. Of course, they have then taken the strategy of suing their own customers.

I think it is up to the recording industry to decide when it is more effective to engage the industry and its customers rather. In terms of "desperation" -- I think the recording industry has a lot more to gain from coming to the table than any other party.

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Burke, Va.: What's your argument for being a good corporate citizen? I saw an interview with the chief technology officer of Sharman Networks, who said Kazaa, when compared to edonkey, does not promote infringing activity. He added that kazaa from day one has been designed to move users towards paying.

Sam Yagan: It seems to me that Kazaa is much more geared toward infringing activity. eDonkey is simply a tool to share and download files, it almost exactly the same way that an FTP client is a tool to download files. Everything in our system is kept very generic. In no way do we encourage you to share files you don't have the right to.

Look, we're geared toward having our users pay too. I'd love to get all three million downloads we get per month to be of the paid variety. That's something that has to come from the customers, though.

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Anonymous: What is the current threshold for drawing attention to oneself, in terms of numbers of files being shared, and the likelihood of getting sued by RIAA or some other entertainment industry entity?

Sam Yagan: This is of course 100% up to the RIAA or the entity suing its customers. As far as I know (and you could do a quick web search to confirm or disconfirm) the recent law suits have targeted people sharing around 1,000 or more files.

This is in no way a strict rule, simply what I recall reading in the press accounts of the lawsuits.

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David McGuire: Unfortunately, we're out of time. I'd like to thank Sam Yagan for taking the time to join us today and our audience for asking so many thoughtful questions.

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