My weekly Law Bytes column (Toronto Star version, homepage version , BBC version ) examines the parallels between YouTube and Napster, asking whether the YouTube – Google deal might foreshadow licensed peer-to-peer systems. While some media companies, including Time Warner, speculated publicly late last week about possible lawsuits, it is worth examining why YouTube appears to be succeeding where Napster failed.  At least three possibilities come to mind.

First, the differences in legal status of Napster and YouTube may have contributed to the different approach.  Napster's peer-to-peer model raised the spectre of contributory copyright infringement (a legal concept absent from Canadian copyright law), whereas YouTube's Web-based distribution of user-generated content – much of which does not infringe copyright – likely qualifies for legal protection under U.S. copyright law. Legal status is unlikely to provide the complete explanation, however.  Though the legal risk associated with the two services may differ, viewed from the perspective of a content owner whose work is being infringed, there are clear parallels given that both services represent new distribution models not easily subject to copyright owner control.

Second, some may argue that YouTube complements existing copyright owner business models since it provides a torrent of free publicity without cannibalizing other revenue streams. In contrast, the recording industry maintains that P2P file sharing is directly competitive with its own online offerings. This argument also falters under closer examination.  There are a growing number of online services that sell episodes or clips of television programs, placing YouTube in a competitive position for at least some of the content found on the site.  Moreover, there is reason to doubt that P2P is a significant competitive threat – in addition to the lengthy list of alternative explanations for the downturn of some record labels (retail price pressures, declining catalogue sales due to lack of availability, competition from DVD sales), a Canadian Heritage profile of the Canadian music industry released this summer found that Canadian artists have seen their sales grow steadily since 2001 with their share of the Canadian market increasing from 16 percent in 2001 to 25 percent in 2004.

The best explanation may well be that seven years after Napster's debut, the world views the value of Internet-based distribution through a much different lens.  In 1999, Internet distribution focused on the use of law and technology to control content and dictate terms of use.  That control has proven notoriously elusive with consumer backlash against technological and legal controls and emergence of highly efficient user-based distribution models. Furthermore, it is Internet advertising revenues – not Internet controls – that today hold the promise of billions of dollars in revenue.  Indeed, the Internet economics of 2006 have shifted so dramatically that later this fall the recording industry is planning to launch SpiralFrog, an ad-supported music download service that offers free music downloads (albeit with restrictive technological limitations).

Given these changes, what is the likelihood that a new licensed P2P model will come to the fore in the near future?  Better than you might think.  During the height of Napster, experts estimated that even a five-dollar monthly fee would have generated billions in additional revenue for the content industries, yet those companies chose instead to sue the P2P services along with thousands of their users.  The YouTube deal may foreshadow a reversal, with the industry at long last ready to embrace the remarkable commercial potential of the Internet.