High-tech market virus

National | Investors fall prey to stock-price hoax; the so-called "digital divide" debunked; DVD pirates slapped

Issue: "AIDS: Africa's affliction," Sept. 9, 2000

The price is falling, the price is falling
Just as hackers and viruses threaten technology itself, so scams threaten tech stocks. A classic stock scam in late August targeted a hot fiber-optics company called Emulex. Some as-yet-unknown criminal issued a phony press release claiming the company's CEO had quit and that it was restating its most recent quarterly earnings from a profit to a loss. He then submitted it to Internet Wire, a service that distributes an endless stream of press releases to journalists. Then the unprecedented happened. Internet Wire, which should have caught the hoax, released it to the world. Several major outlets (including Bloomberg and Dow Jones News Service) carried the "story." Naturally, it spread like wildfire through the stock chat rooms and Emulex stock nose-dived as much as 62 percent. The company quickly refuted the forgery: "Emulex shareholders should be assured that our business is at record levels," CEO Paul Folino announced. Trading halted and restarted later that day, with the stock surging back toward normal levels and the FBI looking for clues. Phony press releases aren't new, but they usually only hit message boards and chat rooms. That this one got past the gatekeepers of the news media is scary. Countless news outlets run stories that are simply rewrites of press releases with little if any reporting. On brief or breaking news, this is common practice. The Emulex affair showed the danger, if not foolishness, of trying to trade stocks based on momentary events. Finding good companies and holding shares long-term is much safer. Emulex stockholders who sold in the panic got smashed, while those who held were largely unaffected. class-warfare.com
Does the "digital divide" really exist? Political liberals, who invented the term to give class warfare its own dot-com flavor, paint visions of the techie elites depriving the underprivileged of their slice of digital prosperity. High-profile figures from Jesse Jackson to Bill Gates have tossed the term around, but new data point to PCs and online access crossing income lines just like TV, radio, and microwave ovens. Fifty percent more low-income households have logged onto the Internet recently than did so a year ago, according to a study by New York-based ratings service Media Metrix. It reports that low-income households are the smallest, yet the fastest-growing population bloc of cyberspace users. The average low-income household spent about 13 hours on the Web in June, nearly three hours longer than those in other demographic groups. "A recent combination of declines in computer prices and increased Web access in academic and business environments has made the Web more readily available to people, regardless of their household income," Media Metrix analyst Anne Rickert explained. Promoters of the "digital divide" hypothesis still point to an FCC survey released in early August that says low-income neighborhoods are less likely to have access to high-speed connections. Yet only a million Americans overall had such services at the end of last year, according to the study. And such hookups that promise to replace dialup modems won't be commonplace for several years. The whole "digital divide" issue isn't really about how well poor people can surf the Net. It's an excuse for bringing the managerial state into high-tech affairs, with all the regulations, taxes, subsidies, and assorted meddling that comes with it. Net pirates walk the plank
Is the Net nothing more than an ocean full of pirates? An outsider might begin to wonder, considering all the high-profile news this year surrounding copyrights and cyberspace. Napster and free music was this summer's story; now it's DeCSS and free movies. Defenders of a widely circulated DVD copying software called DeCSS lost a big round in court. U.S. District Judge Lewis A. Kaplan ruled that the posting of the code that descrambles DVD copyright protection violates federal copyright law. The website of the hacker 'zine 2600 had been hit with a preliminary injunction over this. It fought back with the claim that computer code is a form of expression protected by the First Amendment. The judge tossed that argument aside. "Computer code is not purely expressive any more than the assassination of a political figure is purely a political statement," Judge Kaplan ruled. Even with this decision, the details of how to copy DVDs are still readily available. The reason DVD bootlegging isn't booming is that the process itself is time consuming and gobbles up drive space, so the market for movie trading isn't well developed. But what would happen if free copies of anything were easy to get? Before the courts essentially shut it down, Napster gave thousands the ability to trade music, but its effect on CD sales is unclear. Indeed, music sales in general are up this year: 355 million albums sold in the first six months of 2000, versus 332 million in the same period last year, according to Soundscan. Rolling Stone recently asked 5,000 readers whether they have bought fewer CDs now that music is available for free online, and only 8 percent said yes. Most of the readers, 54 percent, said their buying habits haven't changed, and 36 percent said they are buying more. The tension between the underground and aboveground worlds isn't going to be settled by this, however. Copyright controllers and bootleggers could duke it out indefinitely.

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