Interview: Phil Morle, CTO Sharman Networks

It's revolutionised downloading and could lead to a landmark court decision in the clash between peer-to-peer networks and copyright owners. The KaZaA Media Desktop is loved by millions of people the world over, but some influential music industry heavies are determined to see the object of that affection broken.

Amid international headlines and lawsuits, the company behind KaZaA operates quietly off a highway in North Sydney among a suite of modest-sized offices. The business that could change the face of digital copyright is marked only by a door displaying the name of parent company LEF Interactive.

Beyond this door, Phil Morle, Sharman Networks' chief technology officer, sat down with PC World reviews editor Danny Allen and online news journalist Steven Deare to share the latest on KaZaA's future development, the lawsuit wrangle, and why he believes you'll eventually pay to download major labels' artists on KaZaA.

Note: For an in-depth Q&A with Altnet, a joint venture between Sharman Networks and Brilliant Digital Entertainment, see our recent interview.

Company background The KaZaA software The lawsuit Working with the music industry

Company background

Give us some background on yourself and your time and involvement with the company.

I've been with the company since day one, since Sharman was formed a couple of years ago. My background is actually not in technology. I was a theatre director for 10 years back in Perth. During my time as a theatre director, I was subsidising my income working in the local business. There was a point about six years ago where I really kind of flipped, and technology became the full-time part of my working life and my artistic endeavours became sort of part time endeavours in my life. I worked for a bunch of companies doing Web development and found myself at Sharman just over two years ago.

You fell into it?

Well, I knew Nikki Hemming prior to it. She asked me to come onboard. Before it I was working with the original owners of KaZaA, making Web sites for them.

What's your daily role?

All technological aspects for Sharman Networks. Which is largely the development of the KaZaA Media Desktop or the KaZaA Web sites, working closely with partners on their software such as the Altnet software and the Bullguard software and so on. And thinking about and developing technology for the future. There's quite a few things we're working on -- some already more than a year into development -- which are long-term things.

Can you tell me a bit about how Sharman works with Brilliant Digital and Altnet? What's the relationship between those companies?

A really close relationship. We have done since we started the company. It's [Altnet] one of the things we knew we were going to do when we formed Sharman and got into this whole business. Altnet have got some very good technology for letting licensed content benefit from peer-to-peer environment and that's what we're here for. Contrary to what is often said about us, we're here to be a part of the solution not a part of the problem and Altnet is something we've perceived to be part of the solution. We work with them extremely closely. You probably know they have a development team in Sydney as well and every day we are speaking to them at a technological level to make sure the technology grows into something that's excellent.

What's the company's vision in terms of the products and services you're eventually trying to create?

I think there's two parts to that. One which is fairly obvious, which is the reason we were formed, which is to be a part of a solution. Something that takes a leap in peer-to-peer which we believe in very strongly and to take those benefits and to deploy them into a consumer arena where everybody can enjoy those benefits by getting some high performance software at a good price. So in the area of media distribution and peer-to-peer, becoming a dominant force in that is something we're consistently innovating on and we'll continue to do so. But even in that regard it's a lot more than music -- it's any kind of multimedia, movies, games, as well as the music.

There is so much more to peer-to-peer technology and what it can accomplish. The antivirus tools inside KaZaA use peer-to-peer functionality -- because of that, it means when major viruses come about the peers effectively distribute the information about the viruses to each other. It means it happens extremely fast, it doesn't fail, the users are protected and they can have that service for free. Normally, as you well know, it's a comparative product. It's centrally served, you've got all the problems of guaranteeing that the definitions are going to be delivered to you and it costs an awful lot of money. That's why people have to pay a regular subscription fee for viruses. We don't have to do that and peer-to-peer just comes into its own in the environment.

Soon we're going to be releasing some software that'll actually let people speak and communicate between each other.

Isn't that Skype?

We're working with Skype. And in the same way that files can be shared between each other and applications doing that can grow to an infinite size, the same thing can happen with this. So the second part of what we're working on is very much multiple applications for peer-to-peer which are much more than music file-sharing, just generally exploring its power in other areas and seeing what we can do.

Is that within KaZaA Media Desktop?

And outside of it as well. We're working on quite a few things experimentally.

The KaZaA software Back to top

What's the state of play with the hacked KaZaA Lite?

[Corrects interviewer] KaZaA Plus. Well, you know KaZaA Plus Plus and KaZaA Lite are nothing to do with us?

Well, my biggest concern in my department is that they all in different ways hack the software, and they do it using different means. But generally speaking they change elements of it in a very kind of clunky way. They actually change the binary of the file or just change registry keys to try and tune it for the KaZaA user. But the problem is it potentially damages it for everybody else, they would effectively break the system. Just the act of doing it is a problem, otherwise we would do it. One of the things they do is these download accelerator type tools they have, we would give that to everybody if everybody could have it without being detrimental to each other. But you can't because it'd be detrimental to each other so we don't do it. So we don't like them doing it for that reason.

Then there's the way that they do it. If you actually look at the binary, it's not like looking at source code where you can just see the relationships between things and what they're changing. They're kind of blindly changing a number and saying 'ah it seems to work' and that causes all kinds of problems to us. Then we get thousands of bug reports saying 'KaZaA's not working' and we're saying 'does yours say KaZaA Lite on the top' … and it's not our problem.

What additions and improvements can we expect from KaZaA short term?

We're going to be looking at Skype integration. We're fleshing that out now and looking at all the possibilities but obviously that's going to bring a whole new dimension into KaZaA. The users can kind of interact with each other directly, and phone each other and so on.

One area that we're very keen on is exploding KaZaA out of the KaZaA application into other Internet environments. We're doing a lot of work with a technology called Magnet links, which effectively lets you click a link on a Web site and download that file using peer-to-peer software. Magnet links are an open standard and we've come in behind that standard because it's not a place for a proprietary [technology].

You can't filter KaZaA, is that right?

To our knowledge at this time, you can't. And our knowledge is quite immense on it. We're looking at it in a lot of detail, in particular with the activities we're doing with the DCIA [Distributed Computing Industry Association] and the things that we're thinking of, and just things we're thinking of for the product. We're obviously thinking about filtering in terms of the family filter we have in KaZaA, which does a certain job.

But in terms of what I think you're asking about, which is often called copyright-filtering and that kind of thing, that is a tremendously complex problem and we haven't resolved that problem, in the same way there's no cure for diabetes yet. It's like a big problem and you have to look at it in all its different facets. Even just purely on a technological level we haven't found a way of doing it yet but that doesn't mean we haven't stopped looking at it.

The lawsuit Back to top

With all the unlicensed content that circulates around the world via KaZaA every day, why, in your view, is Sharman Networks not liable?

Why are we not liable? Well I think as the lawyers would say of course for a legal conclusion it's not something...(trails off). All I can say is it's not something we do. In the same way that I can also send infringing files using my Outlook client, I can also send them through an instant messaging client, which commonly happens as you probably know. Users use our stuff for multiple things.

But in facilitating that, either directly or indirectly, is the company acting as a good corporate citizen?

That's a very provocative question and I would begin by saying that I don't believe we are facilitating it either directly or indirectly. I mean we've taken a core technology which is a way of sharing files amongst peers and the kind of areas where we're developing the technology and promoting the technology is absolutely all about values. I think if you did a fair comparison between KaZaA Media Desktop and another bit of software like eDonkey or one of the others, we do not promote infringing activity. We're here from day one to move users towards paying. By the same token, we're the biggest distributor on the planet of rights-managed content and users aren't ignoring all those files and doing whatever else they're doing.

Recently, the record industries in Australia and the US have started targeting their lawsuits towards the users that are swapping copyrighted songs. Do you see those lawsuits as more appropriate rather than targeting companies like yours?

I don't think any of it's appropriate. We are a part of an organisation called the DCIA and in those meetings some extremely positive discussions are had, both between us as technology companies, other technology companies, content owners, record labels, other technology companies that have ways of protecting content. You'll see if you go to the DCIA Web site there are multiple models being suggested and they're all being discussed across industries. These are all things which we are seriously looking at and investigating and researching and piloting and trying and talking to people about. I don't think it's a solution at all to sue us, because it costs them a lot of money, it costs us a lot of money and it's going to go on forever. Suing users is clearly problematic, and there's a lot of users out there that they may need to sue.

I heard someone say the other day, we're really at a fork in the road and that is to criminalise or commercialise, and we've just got to hope it's the commercial route that's taken because that's where everybody wins and I think the criminal route everybody loses.

Working with the music industry Back to top

As a company that obviously has a commitment to making and sharing music and all sorts of multimedia as widely available as possible, what sort of commitment does Sharman Networks have to the music industry here or abroad?

Enormous. These guys here [in the Sharman offices], work every day with local artists. Honey Palace: through us, there's a small Australian band that became number one in some American state. Well, how were they going to do that without something like KaZaA? We're constantly working with local artists and always looking for opportunities to work with local artists. We're working with Altnet to make it as easy as possible to literally become your own label, or for small labels to automatically use the peer-to-peer technologies to distribute their wares and for a good price. From day one we've been working with emerging artists. You probably know about our relationship with Cornerband in the US which is probably coming on 18 months old now and we've moved an enormous amount of local artists work through that relationship.

So what can you offer an aspiring local artist? Outline your whole package of what Sharman Networks can offer an artist through KaZaA.

Well they would probably go through Altnet. We actually do work here finding local acts and working with them but ultimately refer them on to Altnet. You don't have to sign your life away. It costs you $99 to become listed.

Then they can distribute their music or movie or whatever through the KaZaA Media Desktop and other applications that Altnet is inside. So Altnet is in Grokster, will also be in eDonkey, is also available through Web sites. So you then appear in a number of different ways. In front of three and a half million users at a time through what we call the showcase which is the kind of Web looking pages in the middle of KaZaA. Or you appear in TopSearch which is a preferential search results system which is like buying a Google keyword. You can buy a TopSearch entry and through that your results appear as gold icons and users download them.

Now the other important part of Altnet is they actually protect the files, if that's what the artists want, before they distribute them using Microsoft Digital Rights Management technology

For bands that have had their copyright material infringed, downloaded, what's your stance on whether Sharman Networks should compensate them in some way?

We're here to be a part of the solution, not a part of a problem. I can't simply answer yes or no to your question because it's much more complicated than that. I think there's massive potential there for artists, and for users. I think we will move on from where we are today to find a solution which is something that everyone's happy with. I think we have to.

What offers have you made to record companies in how Sharman might work with them?

We've been offering them the Altnet product for a long time now. Increasingly we get a lot of interest in that and the great thing is that model is proving itself as people are using it. That's clearly one offering to content owners of all kinds and we still think it's an excellent model.

Other ones are much more complicated and are all being discussed through the DCIA because they're really involved. The great thing about the TopSearch one is that it’s something we can offer today. It makes things enormously better than they are today, if not completely resolves the problem, and it's completely within our power to deliver. So we've delivered it, it's there, and we want people to take it.

The other things are more complicated and you'll see a lot of proposals for compulsory licensing schemes. For example, where people will build at the ISP level to pay a kind of levy for music which they get through file-sharing or music that they rip in other means. There's other models where users effectively sell music to each other in a kind of eBay fashion. There are other models where users pay for use effectively, where ISPs kind of toll what people actually do file-share and they're billed for them on the ISP level. And there's many many others.

In saying that I don't understand how Sharman and the record companies could get to that point. What would be the incentive for the record companies to license their work to Sharman when it's already available for free?

Easy, because users will start buying their material instead of trying to find it for free. See the assumption you make there is that you can just find it there, top of the list, know it's a high-quality file, know it's what you wanted. If a user shares out something they shouldn't share out, there's no guarantee of what the quality is, there's no guarantee it's going to show up in your search results at all. If it does show up in your search results, there's no guarantee it's going to show up in the first ten pages of your results. You don't have any guarantees of service, you don't know that it's a high-quality file, you don't know that it hasn't been spoofed, you don't know that it isn't a virus.

People have been going for the Gold Files (Top Search). It's easier. I don't know if you guys agree but on a Google search I rarely go past the first page. I know the top ones are the most relevant, and then in KaZaA there's even more to my decision making, knowing the relationship between files, whether it's high quality. So our position is if Warner Bros is worried about Madonna files being shared out by users, our position is if they licensed the gold versions of those, then that's what users were overwhelmingly presented with, then we believe that users would download those gold ones and they would pay for them. That's our position, but today they don't have that choice.

Spoofing and viruses aside, when you do do a search on say, Madonna, if Madonna comes up as a gold search, you can download that, or you can download a number of the free files and one of those will work. And that's what most users do-

[interrupts] I would challenge you to prove that you know that because I don't think you do know that. I certainly don't know that.

Well every time I've seen it in use, with technical people and non-technical people they've gone ‘I'll download two [free files] and if they don't work I'll delete them’. If you allow in the KaZaA program to sort by kilobyte, in that sense, that also helps filter out some of your argument that you say about the quality [assurance of paid downloads]

[interrupts] I'm not suggesting for one minute that one hundred percent of people are going to go and do the right thing. Let's look at it even more simply and if the price was right, and I knew that what I was downloading was unambiguous and legal to download, I would take it. And I think that's what we think people will do.

As you said before this court battle could go for ages, what sort of finances does the company have to mount that sort of defence?

Well, enough, is the simple answer. Of course that's very frustrating for the people who are suing us because clearly the strategy was that we weren't supposed to last this long, and we have. It's a case which we're confident of winning. We've got enough money and enough user support, and we're in for the long haul.

Sharman's an unusual company in that there hasn't been a day where we weren't being sued [laughs] as far as I can remember at least. So that's how we operate.

So who's financing the company?

The users are financing the company.

So what's the main revenue stream?

Multiple revenue streams. But certainly advertising and content now is an enormous one. It's getting very colourful now because of the content we're putting through, which is the Altnet system.

To finish, obviously there's a clash of cultures between your company and the whole record industry around the world, where in five years do you hope an agreement will lead to in the distribution of music?

We're certainly not colliding with the whole record industry, we're colliding with some of the record industry right now. Some of them are working with us in increasing numbers. I think file-sharing will endure because it must, and because it's better. The more I work with it the more I think that it's silly people relying on centralised services which cost everyone so much money and they fail all the time. I think file-sharing will endure. Whether that's Sharman or not, I don't know. I'm highly confident and I think we're doing tremendously on the case and we're making great software at the same time. And it's my intention to do everything I can to make it a success.

But Sharman aside, Sharman out of the picture, peer-to-peer is so enduring it will be here and in five years time the labels will be distributing their stuff using it.

Note: This transcript has been edited for brevity and clarity.

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