Forbidden Fruit

It's the world's largest music and movies superstore, and everything in it is free—and illegal. Every month, some five billion illegal downloads are passed around the internet, and the entertainment industry sues several hundred people. CP writer St

John Cole has none of the outward markings of a Public Enemy Number One type. The 55-year-old photographer and website designer lives a quiet and reasonably comfortable life in the same Midwestern city where he grew up. He and his wife, Beth, have owned their house for almost 30 years. The three kids they raised there are grown now, and though none of them went on to college, each is doing all right. Two are computer programmers, including daughter Diane, who recently bought her own home at 24.

Yet Cole* is exactly the kind of character the American entertainment industry has been chasing down and suing for the past three years-plus. The sticking point is his nearly decade-old hobby. Cole likes to spend his leisure time trolling around the internet collecting pirated movies, music, and software applications. The shelves around the family entertainment center are packed with the telltale sign of the chronic downloader: spindle after spindle of home-recorded digital discs bearing handscrawled labels—so many that John felt compelled a couple of years back to construct a database to keep track of his ill-gotten titles.

It started in the late 1990s, around the time he got his first broadband connection. "I'd read about a piece of audio software that sounded like something I could really use," he says, "but it cost close to five grand. As soon as I got connected to one of these sites, I found it immediately, and by the end of the day, I had a copy to take home and try. I was almost giddy." Today, in the Music stacks near his desk, he's just added a Beatles bootleg series called Let It Be: Day by Day, the ultimate cultist's delight: Every moment of those sour sessions is presented on dozens of CDs in chronological order. But Cole's personal passion is "cracked" software applications, illegal copies of copyrighted programs whose activation code has been broken. In the past two years, Cole estimates, he's cyber-hoovered about $25,000 in hot software.

And what he doesn't have, he can get from his three kids, all of whom know their way around the portion of cyberspace that the record and movie industries have branded "the darknet"—those corners of the web where retail entertainment products are made available for free. The Coles stand together as a family in professing no sympathy at all for the movie and record industries, which claimed losses totaling over $7 billion last year, though daughter Diane says she makes a point of buying CDs by indie bands she likes. They also agree that if the labels and studios want to remain viable, they'll have to put their product online and price it more realistically. Ninety-nine cents for an iTunes mp3? Too much, in the view of the Coles. And the online movie downloadsthat Hollywood is reportedly thinking of offering at up to $30 a pop? That actually draws giggles. Still, they give the entertainment business grudging credit for trying. One way or another, says Diane Cole, "Downloading is going to force them into the 21st century. I don't want to go to a store to get a movie or a CD, I want to push a button and get it now. I sit in front of a computer for 15 hours a day—I don't have time to interact with people."

The sheer volume of material available online these days is staggering. Though it's the uploading of new movies and music that makes for headlines and lawsuits, the illicit downloading resources available via the web are a virtual Library of Congress for electronic works of art and entertainment. As to movies, there are newsgroups and BitTorrent sites devoted to horror movies new and old, Hong Kong action films, animation, contemporary art house films, Japanese cinema of the 1950s and '60s, even The Three Stooges. Downloads of current and past TV shows are just as plentiful. Every episode of every Star Trek series ever conceived is out there, in multiple video formats no less, and new episodes of popular HBO series like the Sopranos and Deadwood get posted online within hours of their Sunday night premiere. Music is everywhere. New commercial CDs are often available by the Friday prior to their Tuesday release, because by then the first promo copies are in circulation. Older stuff? Bootlegs? Complete artist catalogs? If you can imagine it, it's probably out there. [See

There was a time when the entertainment industry believed it could stop digital thieves like the Coles with copy-protection software that prevented duplication and dissemination. Commercially released movies have contained copy-encryption software since the fledgling days of VHS. Modern DVDs feature a patented Content-Scrambling System (CSS) that prevents them from being copied using standard burner software. But for all it does to stop piracy, CSS may as well not exist. The web is awash in freeware patches that disable it. Most of the DVD programs used by downloaders, such as DVDShrink, remove copy-protection automatically. Makers of music CDs never even tried employing copy-protection until recently. It proved to be a fiasco. The nadir was Sony Music's "digital rights management protection system," a 2005 innovation on the company's CDs. Anyone unlucky enough to play a disc with DRM on his or her PC got a free Sony software patch installed on that PC. The patch, a "rootkit," contained software that left the machines sporting a security hole that made it easier for outsiders to hack them. When this came to light, Sony dropped DRM and again abandoned copy protection.

Nobody knows for sure how much illicit product is traded on the internet, or what it really costs the affected industries. But the rough consensus is that some 15 million people around the world are online trading illicit files at a given moment on any day, and about 650,000 pirated copies of movies are downloaded each day. In all, five billion or so illegal files are thought to change hands on the internet every month. To put that number in perspective, the greatest commercial downloading success story so far is Apple's iTunes, which celebrated the sale of its one billionth download a few months ago—after more than five years in business.

There have been two phases, so far, in the almost decade-long history of internet piracy: the Napster era and the post-Napster era. The first began in 1998, spurred by the introduction of mp3 players and high-speed internet connections. Music lovers who plugged into Napster—an indexing system for searching out and downloading recordings—found a vast repository containing nearly every record they'd ever dreamed of having, all free for the taking. This period ended in 2001, when the courts inevitably got around to declaring the whole enterprise illegal under U.S. copyright laws.

But downloading continued with barely a missed beat after the Napster decision. As the law and the entertainment industry bore down through a combination of personal lawsuits against users and police-assisted shutdowns of offending sites and servers, the downloading scene retreated in favor of a more small-is-beautiful approach: The number of sites serving illegal downloads or hosting trading clubs mushroomed. Users worked at getting cagier about covering their tracks. And the entertainment industry followed in their wake, trying to close down the highest-volume offenders and scare users into quitting now, before subpoenas arrived at their door. This has been the stalemate of the past five years, with copyright owners winning battle after battle and making dubious progress in the larger war.

How ingrained is the culture of everyday piracy? In 2003, Senator Orrin Hatch of Utah said at a hearing on copyright infringement that he favored a copy-protection system that would "destroy" the computer of anyone illegally downloading software. It later emerged that the JavaScript menu system at Hatch's own website had been designed with unlicensed software.

The first priority for the internet when it was invented—not by Al Gore, but the U.S. military—was to function as a communications infrastructure during catastrophic events such as a nuclear war. But the Pentagon's grand computer experiment had other goals as well, chief among them to develop a system for the transfer of data files between networks of computers. The rudiments of computer file-sharing began in the 1960s with the trading of technical papers, data sets, and computer programs on the file-transfer protocol (FTP) sites operated by many university computer departments. FTP technology led to the 1979 creation of Usenet (the network more commonly known today as newsgroups), which allowed messages to be posted to a main computer and then accessed by users around the world.

In those days, Usenet was mainly the province of scientists and academics. But as the '80s came on, bringing the first wave of personal computers as mass-consumer toys, it changed most of the rules and priorities of the computer-connectivity project that Pentagon insiders had originally dubbed DARPANET. PCs were soon followed by dial-up services, like CompuServe and AOL, that offered customers a smattering of news and some Usenet-style chatboards.

But from the start commercial pressures augured for more kinds of entertainment in glitzier multimedia packages. That meant, for practical purposes, solving problems of connection speed and data-compression that had never mattered much on Usenet. Internet entrepreneurs and service providers spent the first half of the '90s leapfrogging each other in advertised connection speed, until the advent of high-speed cable and satellite connections in the latter years of the decade.

Faster connections may have inspired the sharing of files previously considered too big to upload (photos, mainly, in the beginning), but each new advance in file-sharing was made feasible only by data-compacting software: The amount of raw code in something as simple as a digital snapshot photo is prohibitively large to post or send around otherwise. And while it's relatively easy to shrink digital data as small as you want, quality is another matter. The products of early file-compression technologies were usually wretched-looking or -sounding. Early webcasts in RealAudio sounded like radio show transcription discs from the 1920s. The real breakthrough in the compression of sound files was Microsoft's 1998 rollout of the first commercial mp3 player.

Like email, a technology marking its 25th anniversary this year, the mp3 existed long before anyone thought to package it up for the masses. The MPEG Audio Layer III, invented in the late '80s by an engineer named Karlheinz Brandenburg, stemmed from a German government contract to develop a means of sending music over phone lines. (The song used for testing purposes was "Tom's Diner," making Suzanne Vega the first artist to be pirated into the mp3 format.) But it wasn't until the release of the Windows98 operating system, featuring the still-popular WinAmp player, that swapping mp3s became a prominent national pastime—especially at colleges whose campuses were outfitted with the newer high-speed internet lines.

Which is how the mp3 gave birth to Napster. At one of those wired schools—Boston's Northeastern University—a student named Shawn Fanning took it upon himself to make it easier for his friends to find songs in the new format. He called his music search program Napster, after the nickname friends had given him for his hairstyle. It linked users' computers to a central server that allowed everyone to help themselves to each other's entire music collections.

Because Fanning's design was relatively simple and didn't require advanced knowledge of computers or the internet, anyone could use it, and everyone did. It became such an immediate hit on American campuses that some schools banned it for bogging down their computer networks. At first, the music on Napster reflected the age and taste of Napster's collegiate audience, but as word spread, so did the sonic neighborhood. Soon enough it was filled with every kind of music imaginable, all of it meant to be taken by anyone who wanted it. (Whatever was downloaded by users automatically went into their "Shared" folder, which was then offered to anyone else looking for that same piece.) Napster's popularity exploded. In one year's time, October 1999 to October 2000, the service went from 400,000 registered users to 40 million.

The story of Napster as a business, documented in Joseph Menn's 2003 book All the Rave, is an unfunny comedy of errors featuring a bright kid stuck in the middle of a controlling group of nitwits and get-rich-quick schemers. The last were perhaps best represented by Fanning's own uncle, John, who spun fantasies of turning Napster into a $10 billion enterprise despite the seemingly daunting facts that its lone product was a) free and b) illegal.

From the beginning, nearly everyone involved with Napster was counseled that the company's service broke copyright laws and would be shut down by litigation from the music industry. Yet even the prospect of incurring fines and legal costs on top of the initial investment nut did not dissuade venture money from flowing to the company. Napster's business model, in essence, was to get millions of users together in one place and leave for later the question of how to turn their patronage into money. (Its present-day, legal incarnation charges subscription fees—and has never come close to turning a profit. In the first quarter of 2006, it posted a $17 million loss.)

But even as Napster hit its highwater mark of 40 million users in October 2000, the end was at hand. It was probably not a good sign for Napster that its lawyer, David Boies, was also the man who guided Al Gore's legal team in Florida after the 2000 election. But no attorney alive could have changed the outcome: The record industry, as universally predicted, won its lawsuit against Napster. The last gasp came on July 11, 2001, but the users (now routinely foiled in their music searches by blocking software) had been drifting away for months by then.

If Napster's demise spelled the end of downloading culture's Summer of Love, the last time everyone would gather in one place to share whatever they had in their collections, it also represented the last time the entertainment industries would be able to notch a major victory in the war on web piracy by closing down a single site or service. Post-Napster, as trade associations like the Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) got more aggressive, dragooning cops and courts into their pursuit of copyright violators, downloaders did what any herd of critters being chased by a bigger, better-equipped predator would do: They organized themselves into smaller packs and fanned out through the digital forest. Today a vast number of sites large and small serve illegal downloads by means of not one but several file-sharing technologies. The number of downloading resources is hard even to estimate in view of how rapidly particular sites crop up, disappear, or migrate to new servers, often either one step ahead of or behind the law.

You can pretty much pick your own metaphor for the skirmishes between entertainment industry forces and downloaders in the five years since Napster folded. It's a digital cat-and-mouse game. Cops and robbers. A wide-scale, low-intensity guerrilla war. The industries, in concert with U.S. law enforcement agencies, have taken up a two-pronged attack plan:

• Use the courts to take down a dramatic number of offenders in very public, very punitive ways. Since 2003, the RIAA has filed thousands of lawsuits against individual downloaders and uploaders, typically rolling out several hundred new cases per month. This litigation was designed to put a serious gouge in defendants' bank accounts—the RIAA, to date, has sued over 18,000 "songlifters," reportedly insisting on settlements that have averaged $2,000–$4,000 per case—and to generate scary headlines for the edification of would-be offenders everywhere. The MPAA has proceeded in a more deliberate manner, filing fewer actions but exacting harsher penalties as well: So far, two uploaders of movies have been sentenced to prison terms.

Track and shut down as many high-traffic downloader sites as possible. Once the Napster decision was handed down, it became a simple matter to enlist the help of U.S. law enforcement agencies in shutting down illicit servers, so most of the action naturally moved offshore years ago. But in the past couple of years, the U.S. has been markedly more successful at getting foreign police agencies to do its bidding in copyright cases. One of the more prominent victims was SuprNova, a mega-volume provider in Slovenia that was raided by state police in December 2004, shortly after that country joined the European Union.

The tech wars touched off by the Napster decision—an ever-shifting tussle between forces of detection and forces of evasion—were immediately evident in the rise of Gnutella, the most popular system to appear in Napster's immediate wake. And what was Gnutella's distinguishing characteristic? It was a true peer-to-peer network, which meant that users connected directly with each other to share files, thereby making their often-illegal activities much more difficult to trace. Metallica's lawyers had learned the identities of 350,000 downloading fans from Napster's database. Gnutella afforded no such easy pickings. The system design, featuring no centralized host servers, likewise allowed Gnutella to dodge the copyright infringement morass that helped sink Napster. No centralized hosting of files meant no liability of the sort Shawn Fanning and company had incurred by playing host to all those illegal downloads.

But the lengthening arm of the law was not the only major development in file-sharing. File-compression technologies were being tweaked and refined, culminating in the development of moving-picture files of manageable size. At that point, the web pirates were no longer just the record industry's concern. For the first time, copies of first-run films started showing up online. At first the market was relatively limited: The "movies" were about the size of postage stamps, looked like shit, and played only on computers. As the quality of image-compression improved, and user interfaces got friendlier, the volume swelled. It was around this time that spoof files and files infected with viruses began to appear regularly on popular downloading sites. (The most notorious spoof files are still the ones created by Madonna to harass would-be downloaders of her 2003 CD American Life—when users played the faux-mp3s, they got no music, just an earful of Madge cursing at them for ripping her off.)

Madonna aside, though, the hassle and clutter of pop-ups and spyware at popular services were not all Big Brother's doing. Some of the problems were caused by the file-sharing programs themselves, which often included spyware in their installation bundles. But the spoof files were certainly the work of the RIAA and MPAA, which employed outside companies with names like Overpeer and MediaDefender to flood the P2P sites with phony files in the hope that frustrated users would stop bothering to download anything with those titles. More ominously, many users believed the spoof files contained tracer hooks that would land them in offender databases.

In the short term, the plan to provoke frustration and fear in users worked. Networks like Kazaa soon became so polluted with spoofs and unwanted pop-up ads that many visitors did abandon them. (In March 2006, Google named Kazaa the worst site online for "badware," hidden software that installs ads and spyware that can threaten a computer's security. A few months later, the company was closed down by courts in its native Australia, and just this past July it settled with the MPAA for $100 million.) But any sense of triumph on the industry's part was short-lived, because a great deal of the downloading traffic simply moved to the next levels of file-sharing technology, particularly ED2K (eDonkey) and BitTorrent.

In 2003, the record industry took its act to court with regularly timed flurries of lawsuits against individual users: 261 in the first volley, some 18,000-plus to the present day. (In January 2006 alone, for example, 750 were filed.) The downloaders most often singled out for litigation have been those with over 1,000 songs in their "shared" folder, mostly by popular artists. Many, though not all, of the people sued initially were users of FastTrack clients like Kazaa, because while FastTrack employed a true peer-to-peer network, it happened to prove more easily traceable than some other systems.

Some of the suits have misfired as PR gambits—like the one targeting a dead grandmother accused of sharing over 700 songs under the name "smittenedkitten." Then there was the case against a 12-year-old honors student named Brianna Lahara, whose mother had paid a $29.99 subscription fee to Kazaa and believed it to be a legal service. After the RIAA offered to settle for only $2,000 and a public apology, it was reported that the girl and her family lived in a poverty-stricken New York City housing project.

Following a series of PR snafus like these, the RIAA eventually changed law firms but kept to the plan of filing fresh reams of litigation each month. Yet as the clockwork filing of RIAA lawsuits became old news, the PR bang-per-buck of the litigation waned. This summer, in response, the RIAA modified its approach. Instead of suing hundreds of individuals scattered around the country in one filing per month, the record industry now plans to stagger its filings through the month and to concentrate each one on a particular region. Translation: If downloading busts aren't big news to ABC or the New York Times anymore, maybe they will be big news to the Omaha World-Herald.

The MPAA has never taken up the sort of continuing litigation blitzkrieg against consumers that the RIAA is pursuing. In all, the MPAA appears to have sued fewer than 100 private individuals. Tactically, the movie business is devoting relatively more of its firepower to shutting down sites and servers trafficking in illegal downloads. Earlier this year, in a specially timed pre-Academy Award maneuver, the MPAA targeted the uploading of all Oscar-nominated films. They singled out, among others, the popular sites TorrentSpy and Isohunt. This marks an interesting legal fishing expedition on the industry's part, because both sites were only search engines—not the sorts of content providers that had been prosecuted in the past.

When it comes to shutting down offending sites, the past year has been busy for both the MPAA and RIAA. The record industry won decisions in Australian courts that shut down the giant music-trading services Kazaa and Grokster. The movie industry notched its greatest victory to date by getting local authorities to shut down Razorback, the massive, Belgium-based indexing server that was crucial to the operation of eDonkey 2000, a multimedia file-sharing technology/community whose users numbered in the millions.

While the RIAA may be several thousand personal lawsuits up on the MPAA—the movie business was late getting in the cyber-piracy game, largely because it has much more physical piracy to deal with, especially in Asia—the MPAA boasts a 2-0 lead in putting file-sharers in prison. And if the uploader who shared the advance screener of I Walk the Line is convicted, he'll be the third. Hard time for such offenses is a new wrinkle in the law, courtesy of the Family Entertainment and Copyright Act of 2005. FECA singles out the uploading of not-yet-released movies for special fines and even prison time.

None of the foregoing means that the copyright police are having an entirely easy time of it, however. While U.S. officials, the MPAA, and the RIAA have won legal cooperation from a growing number of countries, they continue to face resistance in many more. Some, like Russia or many of the Asian nations, have thriving black markets for virtually all things Western that spill onto websites hosted in those countries. Other governments are exploring legal means of giving U.S. copyright laws the finger. France, for one, has debated making file-sharing for personal use completely legal, in exchange for a monthly internet- use fee to compensate all artists. The war on international piracy in the age of the internet can win only partial victories anyway. As long as there are blocs of nations that possess electricity but lack reciprocal trade and copyright agreements with the U.S., there will be safe havens for web-based piracy.

Lately the entertainment industries have heard troubling noises from the U.S. court system, too. Until recently, the litigation filed against consumers by the RIAA has had the practical force of an administrative fine. Hardly anyone fought the lawsuits in court, that is; they just got told what it was going to cost them to settle. But in one 2006 case, the RIAA abruptly withdrew its suit against an Oklahoma woman named Debbie Foster after her attorney moved to have the case thrown out for lack of evidence. The judge subsequently ordered the RIAA to pay Foster's legal costs. More recently, news media and blogs have highlighted the case of Shawn Hogan, a software developer sued by the MPAA for allegedly downloading an illegal copy of Meet the Fockers. Hogan has denied it, claiming he actually owns a legit copy of the DVD, but more than that he seems to be itching for a fight with the MPAA in open court. Reputedly a millionaire, Hogan, the CEO of Digital Point Solutions, Inc. has said that he expects to amass six-figure legal bills, but no matter. Hogan told one interviewer his plan was to "try and force [the MPAA] to go to a full trial. Basically, my lawyers aren't even going to file a motion to dismiss.... If they drop [the suit], I will find something to counter with to keep it in court.

"It will set a precedent for everyone else, that's the whole point. Between the RIAA and the MPAA, it's almost 20,000 people that have settled. All John Doe lawsuits, not a single one has gone to a final judgment. All these people settling for basically what adds up to extortion, I want to put a stop to it. At this point, I don't care what it costs."

The American entertainment industry's legal barrage on file-sharing has busted up huge trading rings, shut down servers containing countless gigabytes of illicit downloads, and likely dissuaded a few souls from ever learning how to do the rotten deed. But the offensive has had plenty of unintended consequences, too. For one, each turn of the legal screw has tended to hasten the decentralization of the file-sharing scene. There are now thousands and thousands of downloading "communities," and many are actively adapting to the new legal pressures by experimenting with various means, tactical and technological, for staying off the radar of law enforcement. Beneath the RIAA and MPAA's workaday successes, in other words, the legal heat directed at file-sharing has touched off a classic market-style competition among downloaders to build a better stealth cloak.

You can see the change-or-get-caught evolutionary pressures most clearly in the proliferation of file-sharing systems. Once everybody used Napster, but within just the past couple of years, systems widely in use for downloading have included Direct Connect, a mostly private trading community; eDonkey, a finicky but nearly unlimited resource for all kinds of media files, which are downloaded in small pieces from multiple users; Internet Relay Chat (IRC), a giant forum-and-chatroom network that is also fertile ground for movie and CD trading; the venerable old Usenet-style newsgroups, which saw a surge in downloading volume after someone invented a search tool called newzbin that could scour their contents on demand; and BitTorrent, the most popular of the post-Napster file-sharing systems and, for now, the closest thing to a downloader's lingua franca. (In geekier terms, BitTorrent's appeal stems from combining the deep search function of a centralized system like Napster with the kind of faster downloads and user anonymity associated with peer-to-peer networks, in which users connect to each other without leaving system-wide traces.)

Architecturally, the BitTorrent movie and music sites offer the same kind of interactive features (forums, instant-messaging, user stats) that garnered Napster so many devoted cultists. Particular sites specialize according to affinity group (slasher pics, pre-Hays Code Hollywood talkies, Japanese horror movies) and, sometimes, security strategy. Most notably, there are a hell of a lot of gated communities: private trading sites that cap their membership rolls at a few hundred or a few thousand. Some are invitation-only, in an effort to keep out investigators; others seem as exclusive as Park Avenue co-ops, even requiring detailed applications from would-be members. Whatever a trading group's specific rules, the general assumption is that there's safety in limiting your numbers. A small, private, hard-to-join club is less likely to be noticed and infiltrated than a popular, high-volume site.

There's a contrarian camp of downloaders, though, which argues that the greatest safety lies in large numbers. Sure, the industry catches its fish at the big ponds, this line of reasoning goes—but what are the odds you'll be one of the few thousand caught, out of millions of users? (This side does point out, correctly, the all-or-nothing nature of the private club gambit: These groups routinely maintain member-browsable archives of all the uploading and downloading activity at the site, and in the event such a club is ever busted, that archive becomes Plaintiff's Exhibit A.)

All but the most casual downloaders, regardless of their larger strategic views on getting away with it, have taken to strapping up with various kinds of privacy software when they venture out to snatch or share files. These range from the obvious sorts of cookie-blocking software to custom programs designed specifically to keep web pirates out of harm's way. One such program, Peer Guardian, runs in the background to scan for and block intruding IPs that are known to be affiliated with the entertainment industry. (At last check, it claimed to have 709,202,383 dubious IP addresses in its database.) Many users also watch where they go, making a habit of using newsgroups to download any new movies or HBO series they want, since no record is made of downloads from newsgroups. The heat around HBO product in particular stems from an enforcement campaign the network has launched against downloaders. HBO now monitors BitTorrent downloads of current-season episodes from all its shows, and reports culprits to their ISPs.

Between the mid-1990s and the present day, the American entertainment business—speaking here mainly of the movie and music industries—has seen its combined annual revenues tumble precipitously. In 2005 alone, the MPAA claimed direct losses from piracy of $6.1 billion, the RIAA $1 billion. (They both look like lightweights compared to the software applications industry, which claims annual losses to piracy of $12 billion, and further estimates that 25 percent of all the software running in American workplaces is illegal.)

It's hard to imagine any reliable accounting of what downloaders cost the corporations that own entertainment copyrights. An honest calculus would have to look past the retail value of total product downloaded, and compensate for factors such as the tire-kickers who download pirated product they never would buy—and often never use—just because it's there and they're curious; the people who download a movie or CD and later buy the official release as well; the people who go to fewer movies and buy fewer CDs because of shrinking incomes; and the people who consume less retail entertainment product because they just don't find much to like in it. When it comes to the matter of Hollywood's badly slumping box office receipts, for instance, who can say exactly how much of the attrition is due to illegal downloads and how much is due to mounting public indifference to the crummy, formulaic, blockbuster-first mentality that has run the town since the 1980s?

At some point in the ceaseless back-and-forth of the downloading wars, the industry will be forced to weigh costs and benefits. At what point in spending money to chase cheaters do you reach a point of diminishing returns? And what degree of loss has to be tolerated as practical fact? Downloaders did not invent shoplifting. Every retail industry expects some degree of "shrinkage" as part of the cost of doing business. The digital age has made those costs steeper, and the counter-measures more complicated, but the essential dynamic is an old one.

In the end, most people who download files illegally do so sporadically, and keep spending money on legal product as well. What gives entertainment companies the willies are two particular substrata of the file-sharing populace. The one that scares the bejabbers out of them is young people. Downloader demos skew very young, and there's every reason to think they will stay that way. That's in part because although some file-sharing systems like the popular BitTorrent are simple to use, numerous others (think Internet Relay Chat, or eDonkey) have proven navigable only by users with some serious computer skills—meaning, disproportionately, those people who happen to be learning their way around computers amid the current wave of PC technology. Kids. The entertainment industry fears today's kids for cultural reasons as well as technical reasons. Put it this way: A 13-year-old boy accustomed to snatching every CD, game, and movie he desires as a matter of course—even competing with his school friends to see who can find the hottest stuff—is not abashed when someone tries to impress on him that there are laws against that kind of thing. He's half-incredulous that so many people observe those laws.

The industry's other, lesser worry is the portion of the adult population that goes off the consumer grid entirely when it gets a whiff of downloading, and stops buying things like CDs and movie tickets altogether. By its nature this element is bound to make up a small segment of the general public; it requires a certain level of mania. That's the stuff John Cole and his family are made of. Having passed 50 a few years back, he belongs to an age cohort that represents only 4 percent of regular file-sharers.

But Cole is still out there scouring the boards and search engines for tasty stuff. He admits now that he's worrying for the first time about a letter from the MPAA or RIAA. Or worse: He's seen the news reports from Germany about the first-ever police raids on the homes of file-sharers. About 130 users of the eDonkey network had their places tossed by police and their computers seized. Another 3,500 were arrested and set to face both civil prosecution and up to five years in prison. What upsets Cole and others in the P2P scene is that Germany has traditionally been one of the European countries considered friendly to file-sharing. If they're now kicking down doors in a country like that, he wonders, what might they start to do here?

Yet in nearly the same breath, he'll admit that he never looks at a lot of the programs and files he takes risks to snatch. Of the hundreds of software applications he's illegally downloaded through the years, for example, Cole says he uses only about half a dozen. The rest? "It's the old excuse," he says with a laugh. "I was drunk, they were available...."

He thinks sometimes that he ought to quit, but in the meantime he's enjoying his new DVD player, the first one he's had that's equipped to play Divx files. Divx is the video format of choice for online file-swapping these days, and it will soon be the video version of the mp3, if it isn't already. Divx is a state-of-the-art compression system that shrinks DVDs to files a fraction of their original size while still managing to look pretty good. Just as impressive, the files can be transferred in about 30 minutes, or roughly a quarter of the two hours it used to take to download DVDs with a fast connection. You can download one in the time it takes to eat your dinner. On the week of the Academy Awards, while the MPAA was out trying to catch swappers of this year's contenders, John and the Mrs. watched a Best Picture nominee a night.

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