Sat, Jul 04, 2009 page9

• New boss hopes to turn Pirate Bay into a cash cow

  • By Eric Pfanner / NY TIMES NEWS SERVICE
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  Free music and movies, mostly pirated, abound on the Internet, but Hans Pandeya thinks he has an even better offer than free. He wants to pay Web users to share songs or films — with the full approval of copyright owners.

  Pandeya, chief executive of a small Swedish software provider called Global Gaming Factory, said on Tuesday that the company had agreed to acquire the Pirate Bay, a file-sharing service whose founders were recently sentenced to prison for assisting in illegal copying.

  Global Gaming Factory, a publicly traded company based in Stockholm, said it would pay 60 million Swedish kronor (US$7.75 million) for the site and hoped to turn it into a legal source of free music, movies and other content, using a novel, untested business model.

  “Content owners hate file-­sharers, but this is going to change,” Pandeya said.

  It would be a radical change.

  The Pirate Bay, its Jolly Roger logo serving as the talisman to an estimated 20 million copyright cheats, has been the music and movie industries’ highest-profile target in the battle against illegal file-sharing. A Swedish political group called the Pirate Party, playing on a crescendo of sympathy stemming from the court decision against the founders, won a seat in the European Parliament in elections last month.

  To keep content free, but appease content owners, Global Gaming Factory wants to generate revenue from a new, ultra-fast file-sharing system employing peer-to-peer technology, which uses networks of computers to help move large digital files.

  Pandeya said the network could be used to ease the strain on Internet service providers, some of which have complained that file-sharing traffic is clogging up their networks. He envisions charging Internet service providers. The Pirate Bay could also generate revenue from advertising, he said.

  Some of the proceeds would be returned to copyright owners, he said, while participants in the network, who agreed to allow their computers to be used to help share files, would also be paid.

  “There’s tremendous value being created on the Internet, but what do the file-sharers get? Nothing,” Pandeya said. “What do the content owners get? Nothing.”

  Global Gaming Factory also said on Tuesday that it had agreed to acquire a company called Peerialism, which has developed software for the new network.

  Analysts were skeptical about Global Gaming Factory’s chances of succeeding. Previous efforts to bring unauthorized file-sharing services in from the cold have met with relatively little success. Napster, an early target of the music industry’s legal battles against file-sharing, was later reborn as a legitimate, commercial service, but has struggled to attract paying customers.

  “There’s a huge number of unanswered questions,” said Mark Mulligan, an analyst at Forrester Research. “It will be hard to persuade the record labels to create a legal file-sharing site.”

  As paid-for digital music services like Apple’s iTunes fall short of the industry’s hopes, recording companies have grown more flexible about the kinds of businesses they are willing to license. The Universal Music Group, for instance, recently announced an agreement with a British Internet service provider, Virgin Media, to make available unlimited downloads of music for a monthly fee, with no protection against copying.

  However, could music companies really embrace a site whose name celebrates an activity that they blame for billions of dollars in lost sales?

  John Kennedy, chief executive of the International Federation of the Phonographic Industry, which represents major record labels, said he had no objections, assuming one condition was met.

  “We’re always interested in the bad guys becoming the good guys,” Kennedy said. “I’m capable of having a sense of humor about the name, as long as they are paying for the rights.”

  Pandeya said he had spoken with “people with experience in the music industry,” but acknowledged that actually securing licenses with record labels, as well as agreements with Internet providers, could take many months.

  “There are a lot of ifs,” he said. “It is possible that they won’t want to get paid.”

  However, he said the company had no intention of violating copyrights.

  “It has to be legal from day one,” he said. “We are on the stock market; we can’t start playing games.”

  Global Gaming Factory said the purchase, which remains subject to approval by shareholders, would be paid for with 30 million kronor in cash, with the rest coming from new shares.

  In connection with the guilty verdict in April, the four founders of the Pirate Bay were ordered to pay a total of 30 million kronor in damages and compensation to rights holders. They have appealed the decision, though their request for a retrial was rejected last week. The site continues to operate.

  In an announcement of the planned sale, the Pirate Bay said the money raised from the deal would go into a “foundation that is going to help with projects about freedom of speech, freedom of information and the openness of the Net.”

  The Pirate Bay tried to reassure its estimated 20 million users about Global Gaming Factory’s intentions.

  “If the new owners will screw around with the site, nobody will keep using it,” the notice said. “That’s the biggest insurance one can have that the site will be run in the way that we all want to.”

  However, comments posted on the site in response to the announcement suggested that Pirate Bay fans were wary.

  “This is a sad day for Internet, pirates and freedom,” one contributor said. “Commercial control can’t lead to anything good.”
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