Kazaa sneakware stirs inside PCs

It sounds like a "B" movie plot: Return of the PC Snatchers.

Millions find their PCs' bandwidth and hard disk space siphoned for mysterious but worthy-sounding scientific projects, just because they downloaded the client for a music- and file-swapping program.

But wait, there's more: The increasingly popular Kazaa file-sharing network will reap fees for allowing a partner to piggyback its dormant software on downloads of Kazaa's client. Within weeks, Kazaa users will see the premiere of ads offering Altnet audio and video content for sale. The selection will appear alongside--but distinguishable from--Kazaa content on the Kazaa Media Desktop, says Kevin Bermeister, chief executive of Brilliant Digital Entertainment Inc., parent company of Altnet.

The new offerings will appear in the company of banner ads from online advertising behemoth DoubleClick, with which Kazaa recently cut a deal. And if your PC shares its downtime processing cycles with Altnet, you could be paying for Kazaa Media Desktop services with a chunk of your PC rather than a lump of cash.

What Kazaa conceals

Consumer complaints erupted after the disclosure in April that Kazaa users are unknowingly downloading a "sleeper" program from Altnet, now a business partner of Sharman Networks, which recently acquired Kazaa software and the Kazaa.com Web site. Since the bundle began in February, the size of the file-sharing network has grown about 70 percent, according to Redshift Research. That accounts for nearly 37 million downloads of Altnet software, according to Matt Bailey, Redshift president.

But when Altnet's seeded software is awakened some time in May--the company won't say exactly when--many users may be caught by surprise.

"Consumers have nothing to fear," says Brilliant Digital's Bermeister. Here's what he says will happen next.

On the chosen day, the slumbering software will be roused the next time the user connects to the Kazaa network. That activates the controversial software, a program called SecureInstall. It comes attached to Brilliant Digital's B3D projector, which is multimedia banner ad technology that is also automatically downloaded with the Kazaa client, says an Altnet spokesperson. Kazaa will prompt the user to upgrade to a new version of the Kazaa Media Desktop. Then, Brilliant Digital's SecureInstall will launch the download of a program to access the Altnet network. During the Kazaa client update, users will be able to opt out of the Altnet service, the spokesperson says. The company did not say this previously.

Altnet is actually both a software program and the access point to a parallel peer-to-peer network that runs concurrently with Kazaa. Only the Altnet network will distribute Altnet content; Kazaa uses the FastTrack network to share its files. Altnet is independent of Kazaa and could function even if Kazaa or the FastTrack network is shuttered, Bermeister says.

At first, Altnet will market video and audio clips. Brilliant is negotiating with music labels and movie studios to market their material as well. The files will be copy-protected in some way, using Microsoft's digital rights management encryption technology. Restrictions could vary with the type of file or its source; a record label may let you copy a file once (onto a portable player, for example), or play it only a certain number of times. By clicking to download Altnet content, you are opting into the Altnet file-sharing portion of the network and its policies, Bermeister says.

Your PC could pay

In the next phase of Altnet's plan, the possibility of paying for content with bandwidth and CPU cycles comes up.

A few weeks after Altnet's launch, Brilliant plans to introduce an Altnet "rewards program," enticing customers to swap PC bandwidth and hard drive space for points that can be redeemed by e-merchant partners, Bermeister says. If you agree to let Altnet's partners download to your hard drive multimedia-rich advertisements for later playback, you can earn points redeemable at e-merchants toward purchases.

The third part of the scheme includes the opportunity to become a participant in the Altnet distributive computing platform. Bermeister says Brilliant Digital will run "distributed computing" applications over the Altnet network, drawing on your PC's processing power when it's idle.

Bermeister says he hopes to strike deals with companies like United Devices, Entropia, and Parabon, which recruit PC downtime to process data for various projects, some of them charitable and many of them scientific. For example, United Devices participates in the Anthrax Research Project, which is seeking a vaccine for anthrax poisoning. In that project, you download a screensaver and donate your PC's spare resources to participate in a virtual supercomputer that can analyze billions of molecules in a fraction of the time it takes even a standard supercomputer. Whenever your screen saver goes on, your PC goes to work on an anthrax vaccine.

Calming customers

Australia-based Sharman Networks says it was caught by surprise as much as consumers were by the revelation that Altnet software lurked inside its Kazaa client. Brilliant Digital and Sharman say the deal was originally cut with the Dutch firm Kazaa BV, which sold Sharman its software in January.

But Sharman and Brilliant Digital have their own deal now. They will share ad revenues from the Altnet venture, according to Nikki Hemming, chief executive of Sharman Networks.

Also, Kazaa has answered consumer concerns by changing its policies so no personally identifiable information is collected by any of its partners. Hemming also says Altnet must tell Kazaa users what is happening to their PCs and when.

"Consumers are the lifeblood of our company," she adds. "We will not do anything to hurt our relationship with them." Privacy and full disclosure of third-party applications bundled with Kazaa software is a top priority, she insists.

However, bundling software with the Kazaa Media Desktop is not new, and it has only increased with Sharman's ownership. In the most recent download of the Kazaa Media Desktop software, Sharman Networks bundles a number of third-party programs that you cannot decline. Among them are Cydoor, which displays pop-up ads whenever you're using Kazaa.

You can, however, opt out of installing some other applications, including ad-related utilities SaveNow, New.net, a Direct TV icon, and MediaLoads.

Meanwhile, privacy activists are awaiting Altnet's emergence from hibernation with interest.

"We are all waiting very anxiously to see what is going to happen," says Fred von Lohmann, senior staff attorney for the Electronic Frontier Foundation, an online civil liberties organization. Bundling software designed to support functions to be implemented later is common, he adds. The test will come with how Brilliant Digital handles privacy and proper notification of what its software does.

"As long as it is explained to end users what's going on and how to opt out, then Altnet could simply be very benign," von Lohmann says. "The devil will be in the details."

Path to legitimacy

Sharman Networks certainly has motivation to keep its Kazaa customers happy and its business legit. The company acquired the software in a fire sale by the Dutch company Kazaa BV, which was battling lawsuits alleging copyright infringement.

Now, Sharman Networks is taking Kazaa in new directions, such as its banner ad deal with DoubleClick. Redshift Research's Bailey estimates that Kazaa already serves 6 billion online ad impressions monthly. A premium version of the Kazaa Media Desktop is scheduled for release this year.

And on the copying and fair use front, Hemming is lobbying Congress for an Intellectual Property Use Fee to settle the quandary of responsibility for distributing copyrighted material. The proposal calls for charging ISPs a fee to compensate copyright holders.

The IPUF would be a "universal levy that would be applied to everyone in the value chain that benefited from the content available" on the Kazaa network, Hemming says.

In an open letter to Congress, Sharman Networks writes:

"We suggest that it is time for Congress to step in and halt the 'whack-a-mole' litigation excesses of the music and movie industries through new legislative initiatives that compel content availability, while establishing a compensation scheme that requires a contribution from all the many industry sectors beyond P2P [peer-to-peer] software that benefit from content availability."

So far, the Recording Industry Association of America--which shut down Napster over this issue--is not impressed with Sharman Networks' proposal.

"There is virtually no question, based on the Napster ruling, that running a P-to-P system that provides the same service as Napster is illegal and improper," says Matt Oppenheim, RIAA senior vice president of business and legal affairs. However, Sharman Networks is not yet facing any legal action over its business.

"If I rob a bank, the fact that I haven't been arrested yet doesn't mean I haven't done something wrong," Oppenheim says. "Sharman Networks should take no comfort in the fact they haven't been sued yet." The RIAA declines comment on whether it will pursue legal action against Sharman Networks.

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