A company to watch: founded by former Napster head Shawn Fanning, Snocap is trying to build a rights clearinghouse for legal P2P file-trading services.

In plain English? The record industry hates file-trading services like Kazaa because they allow customers to download music for free. But despite the record industry’s lawsuits against the companies that make peer-to-peer (P2P) file-trading software and their customers, file-trading networks are very hard to shut down. Cut one head off (the original Napster) and two more (Kazaa and eDonkey) spring up in its place. Their decentralization–millions of individual users with no “company” or “headquarters” distributing anything–and their international reach of the Internet makes it impossible to legislate them out of existence.

What Snocap proposes is that the record companies embrace file-trading and try and find a way to make money from it. So, the record companies list their songs in Snocap’s database, along with specific “rights” for each song, such as how many times it can be shared, what it costs to download it, what it costs to play it, and so on. So far, two of the big four, Universal and Sony BMG, have signed on.

Then somebody–not Snocap, but a startup like Mashboxx or maybe the record companies themselves or Microsoft or Apple or whoever– comes up with a legal P2P system that honors these rights. Importantly, Snocap is agnostic toward DRM technology (that’s digital rights management, technology that actually enforces the rights set by the content owners). This is crucial because Apple, Microsoft, RealNetworks, and many others have their own DRM schemes, none of which are currently compatible with one another. Snocap doesn’t care. All it does is handle the licensing–tracking what’s happening with the songs, collecting money from users or P2P software makers, and redistributing it to record companies.

But there’s a huge flaw here. Where’s the audience for Mashboxx and other legal P2P services? Why would anybody pay for a legal P2P system that restricts their rights when they can use free ones that have no restrictions? Where’s the user benefit?

(Suggestion: the fact that Mashboxx is a one-page Web site with a PDF link to a single press article suggests to me that, as of right now, there is no audience, thus no funding and no company.)

The only way it could work is if Kazaa and all the rest of the current popular “illegal” ones (I put that in quotes because it hasn’t been decided in court yet) agree to go along with Snocap. They could charge users a monthly or annual subscription to use their software. This would improve their revenues so they would not have to bundle annoying adware with their products anymore. Then they could let Snocap track per-song usage, collect an appropriate percentage of money for rights, and redistribute that money. Not sure how they’d stop free ones from undercutting them.

No matter what, the content owners are going to be worse off than they are today–the amount collected through legal P2P services will have to be far smaller than the amount collected for selling music through traditional channels (CDs in retail stores), otherwise nobody will use the legal services. And smaller pie means smaller pieces for big content owners. But that’s better than no pie at all.


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