P2P is for piracy... and we're going to use it

Rick Cotton, NBC Universal's top lawyer, is sitting across the table from me at a Midtown restaurant only blocks from Cotton's base at Rockefeller Center. Apparently, media moguls do not breakfast on a diet of puppies and children, as some consumers seem to think; bagels, toast, and oatmeal are the order of the day. George Kliavkoff, NBC's first "Chief Digital Officer," has also joined us to talk policy.

"I'm curious if you necessarily equate peer-to-peer protocols like BitTorrent with piracy?" I ask after the orange juice arrives.

Cotton's opinion on that question matters. As general counsel for NBC Universal, he has been one of the strongest US backers of the idea that ISPs have some duty to start filtering the undeniably massive volume of illicit P2P traffic that passes through their networks. AT&T has already publicly committed to take up the challenge, and Cotton hopes to see more action from other ISPs.

"Well, I think the answer today is yes," he says. "It's obvious that peer-to-peer is capable, and in fact may in the future be a significant mode of efficient transport of legitimate content. But today, in terms of that consumption of bandwidth, it's overwhelmingly pirated content. There's probably a percentage of pornography mixed in, but one is not talking about legitimate content."

Cotton and Kliavkoff are affable, intelligent, and interesting to chat with—but they also inhabit a conflicted world, and it shows as we talk. Take our discussion of peer-to-peer, for instance, with its lack of "legitimate content."



Rick Cotton,

NBC Universal's

General Counsel

I ask about the current FCC hearing on Comcast's BitTorrent "delaying," where a company called Vuze is in fact offering just such legitimate content using BitTorrent (to say nothing of BitTorrent, the company, which is doing the same thing).

"You have to start with the first proposition," Cotton says, "which is: should we collectively be concerned about the fact that 50 to 75 percent of the total bandwidth of broadband ISPs is today taken up by P2P traffic which is in fact overwhelmingly pirated? I have to tell you, I think the answer to that is yes."



George Kliavkoff,

NBC Universal's

Chief Digital Officer

He goes further; P2P protocols themselves disrupt the Internet by passing bandwidth costs from content owners onto ISPs. Cotton told the FCC in a recent filing, "P2P applications shift the costs of centralized storage and distribution to end users and their broadband network providers."

In addition, installing P2P apps "can slow down the processing speed of [consumers'] computers, open up the contents of their hard drives to third parties and expose them to potential copyright liability," the NBC filing noted. Worse, P2P protocols "exacerbate the congestion" that Comcast's RST packet solution attempts to solve.

Fair enough: P2P is a hotbed of piracy, it's bad for ISPs, it disrupts the Internet, it can bog down computers, and it harms corn farmers in Iowa. It seems safe to say that NBC won't be using BitTorrent any time soon.

So it comes as a complete surprise when, at the end of our wide-ranging conversation, Kliavkoff drops a casual bombshell.

"We're coming up on an announcement of using some peer-to-peer technology for distribution of some of our own content," he says. "We generally think that peer-to-peer technologies are very useful for distributing large files, they can significantly reduce bandwidth costs, and generally they are technologies today without a business model. We think the distribution of legitimate content using that technology saves us a lot of costs and we're happy to share some of that savings."

I beg your pardon?

NBC: Old media no longer

It's not that NBC is hypocritical, stupid, or worse; it's that the transition currently engulfing media businesses is both terrifying and the source of bold new opportunities. NBC hopes to transform itself from old media giant into a new media pioneer that makes its content available through MySpace, AOL, and Comcast, allows embedding and clipping, and fully supports the emerging world of widgets and web apps. With NBC's Hulu officially launching today, Kliavkoff estimates that its video content will reach more than 95 percent of the US Internet audience through its major portal partners.

It's a "groundbreaking thing for big, old, traditional media to do," he says, and he's right. Instead of ceding Internet video to distributors like YouTube, NBC and News Corp. have partnered on a bold plan to do the digital distribution themselves.

The site wasn't coded up over the weekend by a team of hackers slaving away in the basement, either; Hulu cost "tens of millions of dollars." Both Cotton and Kliavkoff face "a lot of concern reaching up to the board level that the material that's on Hulu is not available next door on a pirated basis," and it's easy to see why with that kind of money at stake.

This is the concern that drives Cotton's crusade against illicit file-swapping. He's convinced that the pirate problem is costing NBC Universal real revenue and that the scale of the problem is so vast as to discourage investment in the "carrots," positive solutions like Hulu.

"With all that pirated material available, it creates tremendous disincentives to content owners who need to invest in new content," Cotton says, "and that just hurts consumers over time." After all, if two video stores sit next to each other at the local mall and one charges for DVDs while the other hands free, illegal copies out without penalty, what incentive does the legitimate video owner have to invest any money in buying new DVDs?

It's a fair question, so I ask Cotton why NBC has, in fact, just invested millions in a service like Hulu. File-swapping, though rampant, is obviously not enough of a problem to stop this kind of investment yet, but Cotton suggests that if large projects like Hulu fail to show returns, there may not be many more attempts in the future. He fully recognizes the need to use both carrots and sticks, to "compete with free" while trying to shut down the illegal distribution channel, and he sees both efforts as complementary; "hand in glove," he calls them.

Which brings us to the stick: ISP filtering.