Jon, a computer programmer, is exactly the kind of music lover the Recording Industry Association of America has in mind as it tries to shut down music file-swapping services such as KaZaA. He has downloaded about 5,000 songs off the Internet in the past two years. The vast majority, Jon concedes, were pirated copies, including the latest album from rapper Eminem.
"I only do it because it's free," he says matter-of-factly. "I don't do it to sample new music before I buy, like Napster always used to say."
Jon may be heading back to his local Virgin Megastore soon. Not because of the music-industry's lawyers, but because he won't be able to elude the Cable Guy. A host of cable companies, including AT&T Broadband (T), Charter Communications (CHTR), and Cox Communications (COX), are moving away from the old flat-fee pricing scheme that allowed users to download and transmit endless amounts of data (especially music, movies, and software) over high-speed connections. Instead, they're rolling out new pricing schemes that could put limits on bandwidth usage per month and charge users additional fees if they go above the limit.
"LESS SHARING"? Another option: tiered pricing based on bandwidth speed, rather than the amount of bandwidth used. Charter has had tiered pricing based on speed of service (the faster the download, the more you pay) for almost two years. It reports that 60% of its users choose a lower-speed plan.
These new pricing models could be serious trouble for the still-growing peer-to-peer (P2P) file-sharing movement, which is inextricably linked to cheap bandwidth. Indeed, the cable companies just might accomplish what the entertainment industries -- with their high-pressure legal tactics, copy-protected CDs and DVDs, and aggressive lobbying campaigns in Washington -- have failed to do.
"This is one of the greatest threats to peer-to-peer file-sharing," says Kelly Truelove, an independent P2P expert. "If a critical mass of broadband providers institute pricing structures that make people sensitive to the amount of data they transmit, there will be less sharing."
RUNNING FOR COVER. The cable companies' adoption of new pricing strategies has less to do with stopping piracy than with economics and business models. At an average monthly cost of $45, broadband is still perceived as too expensive by many consumers, and in recent months, prices have been rising, rather than dropping. That's slowing subscriber growth. According to market-research firm ARS, the rate of new signups for broadband in the first quarter of 2002 slid to 12%, the worst quarter on record.
Disappointing demand has left cable operators scrambling to cover the $60 billion they spent building and upgrading their networks over the past decade. At the same time, they've tired of seeing a small group of heavy users tax their networks while paying the same flat rate as everybody else.
AT&T Broadband says on its system, 1% percent of users account for 16% of bandwidth consumption.
Cable companies have another reason for acting now: Because they can. AT&T, Comcast, and Cox have been freed from their agreements with @Home, the now-bankrupt high-speed Internet service provider. Under the old system, @Home controlled prices and speeds as well as customer relationships. Those deals expired at the end of 2001, and @Home ceased operations in February, 2002. "One-size-fits-all doesn't make sense anymore. As more people sign up for broadband, it makes even less sense," says Mark Kersey, a broadband analyst with ARS. "Now [the cable companies] are in complete operational control, and they can do what they want."
TWO-WAY TRAFFIC. Good news for cable companies, bad news for file-sharing services. Networks such as KaZaA, LimeWire, and Morpheus depend on cheap bandwidth. But hard-core file-swappers such as Jon might have second thoughts if they get hit with steep cable-bill hikes for downloading hundreds of music files that, even in compressed MP3 form, comprise several megabytes of bandwidth.
File-sharing programs work well only when users make the songs or movies on their hard drives available to other users, creating a better selection that draws more users, which then creates better selection ad infinitum. Since many broadband users leave their connections on 24 hours a day, every tune or film they've ever downloaded is available to the million-strong file-sharing community at all times.
Remember, file-sharing involves both uploading and downloading. What happens when big bills start arriving in the mailboxes of the "supersharers" who supply a disproportionate amount of the inventory to P2P networks? Would they be willing to pay stiff broadband fees for transmitting files to others on the network?
LOST APPEAL? If the supersharers don't want to fork over for merely being suppliers, they might be inclined to be less generous. If the services have less to offer, they could ultimately be less appealing. And broadband users who opt for slower-speed service would be less likely to use P2P networks since downloading and uploading would tie up their connections and slow down their Web surfing.
(In contrast, current versions of the label-backed services, pressplay and MusicNet, wouldn't be affected. Their users only download music or stream it. And the services' restrictive plans would keep users well within bandwidth limitations.)
The prospects of the cable companies' moves has the entertainment industry cheering. "Everything else in life has restraints -- except digital music and movies," says Ted Cohen, vice-president for new media at EMI. Cohen is optimistic that tiered pricing for broadband could introduce a "financial consequence" for piracy and cut down on sharing of pirated content. "Tiered pricing won't help artists or labels get paid, but it's a step in the right direction," he says.
BANDWIDTH BANDITS. It may be premature to count out the innovative file-swappers, however. P2P expert Clay Shirky points out that more efficient file compression and trading patterns could still make the cable companies' bandwidth charges irrelevant. Some cable hackers have already come up with ways to turn off bandwidth counters and grab as much download and upload capacity as they want. Even music execs concede that the new pricing won't completely eliminate piracy.
The cable companies are plowing ahead. Cox is pilot-testing a tiered pricing plan in Las Vegas. AT&T Broadband, which has yet to settle on a new pricing system, plans to have a new policy in place by summer's end. Spokeswoman Sarah Eder says it's considering allotting a set amount of bandwidth for a fee and charging customers for usage above that level, similar to how cell-phone customers are charged for air-time usage.
That could leave swappers such as Jon with the choice of either getting his music the old-fashioned way -- or paying the cable companies a substantial sum for grabbing it off the Internet. By Jane Black in New York