File Sharing Emerging in 'Walled' Environments

A number of new music file-sharing projects are in the offing here and overseas, enabling pop music fans to swap songs for a fee.

This month, Sony (NYSE: SNE) BMG will begin offering a legal, peer-to-peer music file sharing service with UK-based Internet service provider (ISP) Playlouder. Customers can share files with others who subscribe to the network, using deep packets search technology to make sure that the files are only used within the "walled garden" of Playlouder.

The fee will be close to US$50 per month for the service, the company said, creating a legal venue for the distribution of music by pop artists like Elvis Presley, David Bowie, Outkast, George Michael, and others.

The CEO of Playlouder, Paul Hitchman, said he is "confident" other music labels will sign similar arrangements soon with ISPs in America and Europe. Universal is expected to be one of the labels to announce a deal shortly.

As Important as MP3?

Hitchman called the deal the "most important development in digital distribution since the invention of the MP3 format."

Meanwhile, this fall, three campuses of the University of Missouri will begin offering a digital file-sharing service, similar to Napster, for students. The service is being offered in association with Colorado-based Cdigix, a music file sharing company which purportedly has deals with other university networks too. Songs will only be able to be swapped over the university's computer network, creating another "walled garden" to protect music artists and producers from the theft of their songs.

School officials are hoping the plan will curb copyright piracy on campus, as the students will be able to swap songs and download them and burn them to CDs for just a few dollars a month.

The service is being offered by the school "to give students the opportunity to do the right thing," said Beth Chancellor, director of telecom services for the university, in a statement.

The news of the music file sharing deals comes as Apple Computer (Nasdaq: AAPL) is under pressure from the music business over its pricing policy for the iTunes music downloading service. Apple's deals with the major music labels is expiring early next year. Sony Music has already refused to deal with iTunes in Japan, because executives there believe the Cupertino, Calif.-based company has not been "flexible" with its pricing policy.

'Darknets' Emerging

Analysts say illegal music file sharing over peer-to-peer networks -- especially among youths -- has contributed to a drastic decline in the revenues of the music industry during recent years. File-swapping sites like Kazaa, Grokster, and eDonkey were used by people of all ages to trade pirated digital music tracks over the Internet, exacerbating a 25 percent downturn in the music business since 1999.

The reason that the music labels are moving so quickly with the projects is that undiscoverable "darknets" that are hidden online are emerging, providing another chance to swap music illegally over the Internet. The darknets employ SSL -- secure socket level -- tunnels, which provide anonymity to users.