Advertising to the file-sharing crowd

Catherine Holahan
05 Mar 2007

For a year, Edward Kozel valiantly tried to keep computer users from illegally downloading music. His antipiracy company, C-Right, infiltrated networks using the peer-to-peer technology that can be used to share files illegally. Once there, C-Right effectively blocked downloads of unlicensed content on behalf of its entertainment clients.

But for every download thwarted by C-Right and others, countless more proceed unhindered. Illegal files still account for an estimated 90% of the music download market (see, 1/22/07, 'Making a Ruckus in the Music Business'). Entertainment executives grew frustrated with battling downloads a few at a time, Kozel says. Representatives of one music label even told him they no longer planned to spend money on blocking downloads.

If You Can't Beat 'Em"&brkbar;

So Kozel adopted a different tack. If he couldn't keep people from using file-sharing technology to chase free music, then he'd find another way to help clients make money from the technique. 'There was this large market for the labels, we just needed to give them a chance to commercialize it,' Kozel says. In August, Kozel relaunched his company with a new name, Skyrider. And this month, backed by $20 million in venture funding, the startup unveiled a product that lets content owners include ads in video files over peer-to-peer networks.

Skyrider is one of a growing number of companies trying to deliver ads over the peer-to-peer services once deemed the agents of piracy. Among them is MediaDefender, an antipiracy company acquired by ARTISTdirect in 2005. Last summer, MediaDefender launched a program that returns licensed videos or songs, often sponsored by advertisers, to peer-to-peer searches for that artists' work. Among its first promotions: a Jay-Z video sponsored by Coca-Cola (KO).

MediaDefender still tries to combat piracy through tactics such as flooding peer-to-peer networks with decoy files that tie up a user's computer. However, the company sees potential in the marketing business. 'Peer-to-peer is a phenomenon that is here to stay,' says Jon Diamond, chief executive of ARTISTdirect.

Kozel concurs. Here's how Skyrider works: A peer-to-peer user searching for, say, a Barenaked Ladies song (the band is a client) would receive multiple results for the corresponding music video, including one that includes a clickable ad at the base of the video for the band's ringtones, a list of the dates when the band is coming to the specific computer user's area, or a marketer's logo, for example. 'It's a way to engage his audience with legal content,' says Kozel. 'And the labels now recognize this is a new channel for them.'

Getting Major Labels on Board

That recognition, at least publicly, has been a long time coming, says Eric Garland, CEO of online media measurement firm BigChampagne. Marketing departments at major record labels have quietly discussed the potential of marketing to peer-to-peer audiences for years, Garland says. After all, at any given moment, big file-sharing networks such as Gnutella, eDonkey, and FastTrack often have a million people on them searching for record label content.

The labels were reluctant, however, to use the services for fear of damaging their legal position. 'The problem was the litigation strategy,' says Garland, adding that the labels did not 'want to do anything that would jeopardize their very clear legal position that there is no legitimate use for this technology.'

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