What's Behind Washington's About Face On Internet Piracy

In a Washington backroom, the strategic battle lines being planned on the Stop Online Piracy Act (SOPA) front rapidly shifted gears last week. Publishers of the Internet's most popular websites took a stand in opposition to the proposed legislation aimed at eradicating Internet piracy. That legislation would further empower government to become the Internet copyright enforcer. Indeed, several politicians retracted their support for SOPA in response to the thunderous reaction against the proposed legislation, which became deafening as some of the Internet's most popular websites went dark in protest.

Yet, with near clockwork precision, just as the website publishers claimed victory, the authorities apprehended Kim Dotcom, the kingpin in charge of the alleged $175 million worldwide Internet piracy operation, Megaupload. This marks a case in point for supporters of SOPA, and keeps the battle lines between those who would and would not police the Internet as drawn and active as ever.

Despite the front stage drama that is currently unfolding, behind the SOPA legislative scene a very different and highly competitive industrial scale battle is being fought by three distinct parties: publishers of the web's content, Internet Service Providers (the final distributors of content), and copyright owners including major Hollywood movie studios.

In 2012, the rapidly shifting technology at the forefront of the piracy battle now has the capacity to offer an automated global file registry filter -- which would reduce piracy to a very small problem using equipment that already exists from vendors like Cisco, Juniper, Hauwei and others -- and which enables ISPs to divert customers who are seeking to view or download illegal or pirated content to a legal source without breaching their privacy. However, the advent of this ISP-based technology exposes an apparent risk to the business models of major websites and portals who once joined ISP's demanding the introduction of the 1998 Digital Millennium Copyright Act to provide immunity from copyright liability.

Notwithstanding the cost of filtering, undoubtedly, some of the world's biggest websites, including most search engines, are confronted with the looming threat that a global file registry presents to their business model, especially if the users of these websites are convinced by their ISPs to endorse such filters. With the advent of video, demand for bandwidth has soared, particularly in the mobile sector. Video streams and downloads are available everywhere, and Hollywood piracy simply increases the clamor for increased bandwidth. Every player in this Internet equation wants something: users want more and faster bandwidth, ISPs want lower costs, and Hollywood wants to be paid. ISPs who have previously sought to throttle their users may just be realizing that they are sitting on a good enough reason (not to mention a sturdy legal basis) to induce their customers to accept improved goods and services, in exchange for a filter that would enable the ISP to better manage and monetize its traffic -- including the prospect of more competitive pricing to those users.

With a customer-sanctioned, ISP-based copyright filter that can also be used to stop child pornography, viruses and other criminal communications that warrant filtering, ISPs are fast approaching the ability to gain control over the Internet's traffic -- a real and valuable proposition. With a viable business model, associated with user sanctioned filtered transactions, ISPs could introduce new product features that would improve customer relationships and average revenue per user. Revenues from automated re-indexing that promotes legal content, conveniently billed through the ISP or associated with advertising, illustrates a different theatre in which the SOPA drama will unfold, and which would redirect current website revenues to their ISP distribution partners from whom these sites could then obtain a revenue share.

The prospect that the Internet may be shifting from a narrowcast model to a broadcast model is shocking to some, particularly those who rely on the status quo. However, the open Internet was never much for loyalty, and ISPs, together with the world's largest copyright owners and media partners, may just have sufficient reason to be excited by the new world order in which the wild west days of the Internet's early beginnings are nearing their end. The threat that an ISP may form relationships with major advertising media buyers is a potentially disruptive and alarming factor to the website owners and publishers who presently control the web's advertising, which is delivered to their users through the ISP's so called 'dumb pipe'. Upgrading the 'dumb pipe' to something more intelligent is already well under way, and motivated ISPs are moving their technology investments to capitalize on this fact.

As the score of the SOPA opera builds to a crescendo, copyright owner members of the major entertainment industry associations, such as the Recording Industry Association of America and Motion Picture Association of America, may be discovering that they have a lot more in common with their fellow distributor members at ISP trade associations such as USISPA, FISPA, WISPA than they did when first debating the 1998 DMCA legislation. The common thread offered by user-sanctioned filtering and replacement with legitimate content may offer sufficient incentive to these potential partners as they explore this new business model, one which is reminiscent of the industry structures to which copyright owners are already accustomed.

Kevin Bermeister is a founding investor of Skype and CEO of Brilliant Digital Entertainment and Altnet, a provider of major label, licensed music subscription services including Kazaa.