Legal Pressure Shutters Grokster

By Jonathan Krim and Frank Ahrens
Washington Post Staff Writers
Tuesday, November 8, 2005

Grokster Ltd., whose popular software let consumers trade music online for free, all but shut down yesterday under legal pressure from the entertainment industry, which viewed the song-sharing as theft.

In a settlement with the Recording Industry Association of America and the National Music Publishers' Association, Grokster agreed to stop offering downloads of its software and to no longer support the system.

"There are legal services for downloading music and movies," according to a statement on the firm's main Web page. "This service is not one of them." The page also directed users to industry-backed Web sites warning that file-sharing of copyrighted songs or videos of without paying for them is stealing.

Entertainment industry executives called the settlement a milestone in their ongoing legal battles to contain file-sharing, which is used by hundreds of millions of people around the world. The executives hope other services, such as Kazaa, Morpheus and LimeWire, will follow Grokster's lead.

But whether that will happen is unclear. An attorney for StreamCast Networks Inc., which operates Morpheus, vowed yesterday to continue its legal fight with the entertainment industry. Some services, such as Kazaa, are based overseas and less susceptible to legal pressure in the United States.

And even though Grokster essentially is ending operations, that will not prevent its customers from using the software if they have already downloaded it.

Legal services such as Apple Computer Inc.'s iTunes have become popular recently, charging users a fee to download music or videos, but far more people trade files for free. Music legally purchased over the Internet makes up less than 10 percent of all songs obtained online, said Eric Garland, chief executive of BigChampagne LLC, a Los Angeles Web monitoring system.

The paid numbers look impressive at first glance. Last month, RealNetworks, with its online music store and Rhapsody player, claimed 1.3 million music subscribers. Last week, Napster chimed in with 448,000 paid subscribers.

Apple has sold more than 600 million songs at 99 cents each since iTunes launched in 2003, an average of more than 20 million songs per month.

By comparison, conservative estimates place the number of illegally obtained songs at more than 1 billion per month, Garland said. The RIAA puts the number at 3 billion. At any given moment in September, according to BigChampagne, 9.3 million users worldwide were logged on to such sites, which are known as "peer-to-peer," or P2P, because they enable individuals to trade files instead of getting them from a centralized site. That is more than double the September 2003 average of 4.3 million. About 70 percent of P2P activity is song-swapping, Web monitors say.

While P2P activity continues to climb, U.S. digital music sales have flattened out in recent months, worrying record company executives who have hailed online music sales as the salvation for their flagging industry, which has lost more than 30 percent of its business over the past three years.

Nielsen SoundScan recorded an average of 6.6 million song purchases per week through May of this year. By late October, that number had ticked up to 6.7 million downloads per week.

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