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In defense of file-sharing.

The entertainment business is still in a twist about file-sharing over he Internet. Does it hurt over-the-counter sales of music and movies or does it gives industry the opportunity to tap into a vibrant and profitable online market? Most people in industry believe it is the former. But that case has recently been doubly undermined.

First, a paper by academics Feliz Oberholzer-Gee and Koleman Strumpf concludes that "file-sharing has no statistically significant effect on purchases of the average album" and that sharing actually increased sales of popular CDs. In the second case, SiliconValley.com reported that while the Recording Industry Association of America, the main trade body, consistently claimed a decrease in sales of CDs between 2003 and 2004, those sales actually increased by 10%. In other words, the RIAA had been fibbing, or at best, obfuscating.

Fibs or not, the industry had successfully scare mongered politicians on both sides of Atlantic into some hasty and tough legislation. The 1998 Digital Millennium Copyright Act (DMCA) and its European cousin, the 2003 EU Intellectual Property Enforcement directive, outlawed a number of previously legal activities (including attempts to circumvent anti-copying measures).

But now some of the legislators are repenting of their hasty actions, which have led to lawsuits against research scientists, software firms and even manufacturer of automatic garage doors. A bill now at committee stage in congress looks to soften the effects of the DMCA: "We went way overboard," said John Doolittle, a key congressional sponsor.

The problem is that industry interest groups excel at making the case that file-sharing, and not poor management or corporate excess, is the cause of all the entertainment business's imagined ills.

Take the British Video Association. A few weeks after noting that the British video and DVD market had grown 30% to record annual purchases of £2.87bn, the BVA complained that 1.7m Brits illegally downloaded movies over the Internet, costing the industry £45m in lost sales. (That means that nearly half of all Brits with broadband were downloading movies, a scarcely credible estimate.)

The BVA even co-opted trade minister David Sainsbury, who tool a stern tone:" I am acutely aware that this successful and healthy industry could be very severely damaged if we do not work hard to keep the lid on intellectual property crime."

Of course intellectual property law needs to strike a fine balance between protecting creators and harming society. but economists of all hues, from right and left, broadly agree that today's copyright protections are so excessive that they harm innovation.

And even the BBC is getting in on the file-sharing act. In May it launched a trail of its Interactive Media Player (iMP), a piece of software that allows web surfers to download, watch and share up to a week of television shows. The BBC has kept rights owners happy by installing a copy protection system on the iMP to prevent copying. Some BBC insiders suspect that it will e only a matter of weeks before the copying code on the iMP is hacked and eager fans of Eastenders will finally be able to enjoy it even if they live abroad.

Can Microsoft change its spot?

After receiving a cursory spanking in March from the European commission for anti-competitive behavior, Micro-soft has been falling over itself to make friends with old enemies.

In the last few weeks it has settled several lawsuits and paid more than US$2.5bn in damages to bitter rivals like Sun and InterTrust. And as if that wasn't enough, Microsoft has made up with Electronic Arts, the largest video games publisher. The agreement means that EA which owns titles like Fifa Soccer and Battlefield, will develop games for online service for Microsoft's Xbox console.

EA had previously refused to play ball because Microsoft wouldn't share online games revenues fairly. Needing some good titles to get consumers buying the Xbox, Microsoft appears to have sweetened its offer to EA.

Great games are, after all, what made the Sony PlayStation a success. Is this a new Microsoft? Can the leopard really change its operating systems and software, Microsoft is no longer growing. So it needs to learn to live with other firms. But towards its new rivals - Sony in gaming, and Google in searching - We can expect the usual bodyline tactics. Watch out, chaps.

E-commerce threat to John Lewis:

Online shopping is part of everyday life for a growing number of people. but as the Economists points out in a survey, it still accounts for only 1.6% of retail sales in US, where it is hampered by concerns about security.

Meanwhile, one famous British store is holding out against it. Shopping for a washing machine, your correspondent was able to survey the market and enjoy the benefits of transparency thanks to a website that provides price comparisons. I found the cheapest price for the model I wanted. Needless to say I was skeptical of legitimacy of a business that could undercut the high street by £200. So why not take advantage of John Lewis's famous price promise? Printout in hand I went to the Oxford street store safe in the knowledge that the shop would match the best e-price.

But I discovered, the tentacles of the Web have twisted the heart of that retail paragon. Perhaps it is time to change its motto to "Never knowingly undersold expect on the Net."



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