BitTorrent Goes Legit

With entertainment deals, hardware partnerships, and plans to dominate content distribution, BitTorrent plans to stay in your system

by Sarah Lacy

Long before anyone had heard of YouTube, BitTorrent was the bad-boy online video site. If you wanted that vintage Saturday Night Live episode or a missed episode of a beloved sitcom, you went to BitTorrent or one of the pirate sites powered by its technology. Since BitTorrent's beginning in 2001, more than 80 million people have downloaded the technology and 5 million people are using it at any given time—making it one of the top ten downloads on the Web.

But as BitTorrent's popularity grew, so did the risk of legal backlash from studios and other content producers who say the technology violates copyrights. And recent years have seen a boom in rival sites and methods for getting video over the Internet—many of them fast, free, and even legal. To cope, BitTorrent is going legit, as evidenced by a flurry of deals with studios and other companies.

Making Deals

On Oct. 23 BitTorrent announced agreements with Asian hardware makers including ASUS, Planex, and QNAP, makers of routers and servers. Under the deal terms, the companies will include BitTorrent's software in several of their new products—considerably reducing how long it takes to download files using BitTorrent's method. Earlier this year, BitTorrent reached an agreement that lets Warner Bros. (TWX) distribute its shows and movies using BitTorrent's file-sharing technology. And more deals are on the way—some 20 in all, half of them with big players and the rest with smaller, indie studios.

The hard work of translating content arrangements into a sustainable business—and winning over holdouts who remain concerned about protecting copyrights—is just getting under way. Still, BitTorrent has a lot to show for its efforts.

Going Straight

By the time 2004 rolled around, BitTorrent founder Bram Cohen had seen the writing on the proverbial Web wall. It was time to make BitTorrent a full-fledged company, not just a software project. Cohen incorporated BitTorrent and ceased publishing his code online for anyone to use. He hired Ashwin Navin, a former investment banker and business development executive at Yahoo! (YHOO), as chief executive. The following year, BitTorrent raised $8.75 million from venture firm DCM-Doll Capital Management, a deal that DCM partner Tom Blaisdell said other firms "wouldn't touch with a 10-foot pole" (see BusinessWeek.com, 9/27/05, "BitTorrent's Grab at Respectability").

Then came an even taller order: changing minds at the movie studios that had long viewed BitTorrent with disdain, at best. The music industry and Napster, the music downloading site, had already been through a long series of legal battles that left both sides scarred. By failing to honor copyrights, Napster was forced into bankruptcy; the Recording Industry Association of America, by trying to squash Napster, only alienated fans and encouraged the spread of copycats.

Neither BitTorrent nor the studios wanted a repeat performance. So by November, 2005, BitTorrent had struck a deal with the Motion Picture Association of America whereby BitTorrent would filter out illegal content in exchange for a de facto MPAA stamp of approval. That paved the way for negotiations with studios such as Warner Bros. Suddenly the onetime pariah appeared to be well on its way to legitimacy, just in time for the swiftly swelling online video wave (see BusinessWeek.com, 5/9/06, "BitTorrent Goes Hollywood").

Bid for Market Leader

Next up: the big launch in early 2007 of the company's online content site, a project that's been pushed back since the summer. "The services that have launched are not getting any advantage for being early, in fact they're getting blasted for not getting the product right," Navin says. "We want to do better." He compares it to Apple's (AAPL) strategy with iTunes and the iPod. MP3 players had been around for years, but Apple became the market leader because it had a better product, with a legal way to buy digital music at a reasonable price.