Download or freeload?

National | Record labels try to protect against piracy, casinos push for online gambling, and a bankruptcy halts Internet service for hundreds of thousands

Issue: "Finding the Best in the Worst," Dec. 15, 2001

Despite the court-ordered suspension of the music-swapping website Napster, executives of major record labels say they're losing money because copyright thieves have discovered other ways of passing around commercial music on the Internet. They're searching for new ways to copy-protect their music. The labels are now experimenting with new technologies to limit their customers' ability to make digital copies of their own albums. A handful of copy-protected CDs has hit stores in Europe and they debut this month in America. Customers already are complaining that some of these new discs won't play at all, particularly on computer CD-ROM drives-where the bulk of the music theft occurs. The ACLU-like Electronic Freedom Foundation is one of the loudest organized critics of copy protection. The recording industry seems "hellbent on alienating [its] best customers," complains senior staff attorney Fred von Lohmann. But the new copy-protected CDs will be specially marked and customers allowed to return discs if they are not satisfied, according to the Universal Music Group. Meanwhile, the labels are also trying to compete directly with the numerous MP3-swapping outlets that help move music around the Net. This month comes the rollout of the industry-backed MusicNet and pressplay, joint ventures that charge monthly subscription fees for the right to download songs, but the files are in special formats that won't play on many MP3 players. ROLLING THE DICE
Online gambling is illegal in the United States, but growing demand and its worldwide scope make it difficult for government to enforce the ban. While lawmakers on Capitol Hill mull new restrictions against online gambling, Nevada and New Jersey are considering ways to legalize it. Operators of online casinos get around federal law by keeping their operations offshore. Their success has the attention of operators in Las Vegas and Atlantic City, who want a piece of the action. Christiansen Capital Advisors, which studies the gambling industry, estimates that gamblers worldwide wagered $2.2 billion online in 2000. Company projections suggest that figure will exceed $6 billion in 2003. By comparison, Nevada casinos collected $9.6 billion from gamblers in 2000. With tourism declining due to recession and terrorism threats, online gambling is becoming a big issue. Nevada is currently drafting regulations for such casinos. Another proposal would allow "virtual" betting on play at Atlantic City table games. Meanwhile, MGM Mirage plans to spend between $10 million and $30 million on an online casino on a small island in the Irish Sea. For the gambling industry, websites look like a gold vein. They can reach people who would never travel to a casino, and they can do business without the employees, real estate, or money-losing restaurants and entertainment. Lawmakers have fought an uphill battle to stamp out online gambling since 1996. The latest idea: a bill proposed by Rep. Bob Goodlatte (R-Va.) that would grant law enforcement broad authority to seek injunctions against any intermediaries, including banks, that enable gambling over the Internet. THE EXIT OF EXCITE
The death of Excite At Home Network's broadband Internet service was not the collapse of just another dimwitted dot-com; it had been America's leading provider of high-speed Net access. Excite At Home is slated to cease operations on Feb. 28, 2002-when new short-term agreements reached last week with cable providers Comcast and Cox worth about $300 million come to an end. What brought down the Internet giant were a series of questionable management decisions and overpriced acquisitions. The company bought a greeting card site for $780 million and sold it for $35 million. It absorbed the Excite portal for $6.7 billion and it unloaded for only $10 million. "They were really growing for growth's sake, grow at all costs, without much regard for expenses," John Corcoran, an analyst at CIBC World Markets, said. "This is a textbook example-everything that could go wrong did go wrong at the company." At Home Network abruptly terminated Internet service this month to some 850,000 people, after a bankruptcy judge granted permission to cancel ongoing service contracts the company claimed were costing $6 million per week to fulfill. Last week, AT&T backed out of a $307 million offer to acquire Excite At Home's assets. Executives said last week they expected to liquidate what's left of the company after the Comcast and Cox agreements expire.

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