Music industry’s case against Napster misses the point

The U.S. music industry is already boasting about how the Napster ruling on Monday is a major victory – how the U.S. appeals court upheld an injunction against the file-swapping service (pending certain modifications) and ordered it to stop letting its users trade copyrighted material. But the industry is wrong, as it has been all along: The music business has been the big loser in the Napster case, and will continue to be the big loser regardless of how the whole affair finally ends – if it ever does.

While the 9th U.S. Circuit Court of Appeals decision didn’t pull the plug on Napster right away, it appears to have set a chain of events in motion that will lead to the demise of the popular digital music-sharing service, or could at least force it to remake itself dramatically. It said that a lower-court injunction against Napster would be upheld, provided the court alters the ban to make it less “broad,” and agreed with the lower court’s finding that Napster could be liable for copyright infringement.

Whether Napster is or isn’t guilty of what the court calls “vicarious infringement” of copyright has yet to be proven in a trial. The appeals court ruling is a response to an earlier decision by District Court judge Marilyn Patel in July: After the record industry argued that Napster’s service was causing it undue harm, Judge Patel handed down an injunction against Napster until the case could proceed to trial.

Like the rest of the music industry’s continuing war against on-line music sharing, however, the case against Napster is a classic case of missing the point, and that’s why the music business is still the big loser. In many ways, Napster is a footnote to the real story, which is how record companies and music publishers have missed the boat when it comes to taking advantage of the potential for digital delivery of music.

So far, the big five record companies who control the Recording Industry Association of America – Sony, Universal, BMG, Time Warner and EMI – have shown that they are a lot better at filing lawsuits and deploying battalions of high-priced law firms than they are at serving the needs of their customers. The time that the big music distributors have devoted to filing briefs might have been better spent coming up with compelling ways of convincing music lovers – which is what Napster users are – to buy their products.

At the moment, if you want a copy of that song that you heard on the radio but feel that using Napster is morally wrong, your only choice is to buy the entire CD for about $20, or to get one of your friends to make you a copy of the song from their CD (which is also technically illegal). For the past two years or more, the record companies have been saying that they plan to make downloading music from their artist catalogue as easy as Napster is – and yet music fans continue to wait, as one clunky and expensive subscription site after another tries and fails to get up and running.

Why haven’t the music companies gotten their act together sooner? Partly because they’re afraid of what might happen if they let “their” music to be distributed on the lawless Internet. In some cases, record companies have prevented artists they represent – such as Tom Petty – from releasing even one song from their CD on the Internet, because of concerns about copying. Music companies are also afraid of eating into their existing revenue stream, and it’s easy to see why: a U.S. trade ruling last year found that CD buyers have been overcharged by billions of dollars.

The Napster ruling is a footnote for other reasons as well, one of which is the fact that there are plenty of other ways of downloading digital music files that are far harder to police than Napster. Some, such as Emusic and Mp3.com, have signed deals with music labels that allow users to download some songs for free and others for a small fee. Others such as Gnutella and Hotline simply provide software that lets users connect to each other (in contrast to Napster, which uses its own servers).

It’s true that the music industry can pursue cases against these other services, as they did against Scour.net – which filed for bankruptcy protection last year as a result – but that too will miss the point. Not only will it be a lot harder to stamp out services that are based on true peer-to-peer networks, but putting out dozens of little fires will continue to divert the industry’s attention from what it should be focusing on: how to convince an entire generation not to desert the traditional music business, which has so far done everything it can to push them away.

Buy something on the Internet, burn a lump of coal

In a cruelly ironic twist, the same high-tech industry growth that has fueled the expanding California economy also appears to be partly to blame for the state’s power crisis. Why? Because technology companies – and in fact any company that is a big user of computers – are a major drain on the electrical power grid. Although the exact size of that drain is up for debate, it’s not likely to do anything but grow, as technology becomes a part of virtually every sector of the North American economy.

California’s energy crisis, which has brought the state to the brink of rotating blackouts and driven gigantic power producer Southern California Edison to default on billions of dollars in financial commitments, obviously has a number of causes. Among them are the mishandling of power industry deregulation, which created a critical shortfall in generating capacity, and the effect of sky-high natural gas prices.

But the central problem has been too much demand for power, and the technology industry is a key part of that problem. As one consultant puts it: “A lump of coal is burned every time a book is ordered on-line.” That may not be literally true, but the computers and other devices associated with the tech industry all draw electrical power, some of them quite a lot. The “server farms” and “telco hotels” that many companies use – warehouses filled with Web-hosting computers and switches – are the biggest culprits.

According to a power analyst with the local public utility in San Francisco, a 100,000-square-foot server warehouse would draw enough power to heat 100,000 homes, largely because such farms require sophisticated cooling and ventilation systems. The type of chip-fabrication facility – or “fab” – that has sprung up all over Silicon Valley is an even bigger power hog: some estimates are that even a small facility, of which there are more than 300 in California alone, sucks as much power as a small steel mill.

In the U.S. midwest, server farms are being built that require 250 watts per square foot of power, or about 25 times the demand from a regular office building. One Toronto technology company, renovating an older office building to serve as its headquarters, told the property manager that it would need 600 amps worth of power for the floor holding the servers that would run its data and phone network. The company said there was less than 600 amps worth of service for the entire 10-storey structure.

Technology consultant Mark Mills, who with partner Peter Huber publishes a newsletter about the digital power business that is affiliated with technology guru George Gilder, has been warning for some time that the computer industry is pushing up demand for power. “It takes electrons to move bits,” the two wrote in a recent commentary. The Silicon Valley “campuses” of tech leaders Oracle and Sun Microsystems – which has six sub-campuses – each consume as much power as a small steel mill, they say.

Mr. Mills and Mr. Huber have come under fire for some of their assumptions. They have said that power consumption from technology such as computers, scanners, printers and so on accounts for as much as 13 per cent of the entire demand for power in the United States. After that statistic that was used by the George W. Bush campaign, however, the U.S. Department of Energy’s Lawrence Berkeley National Laboratory said that according to its research the real figure is actually closer to 1 per cent.

Whatever the exact number is, the demand for power is only likely to increase, industry watchers say. According to the California-based Electric Power Research Institute, demand for electricity in Silicon Valley rose by more than 12 per cent in the 12 months ended in August of last year – or four times the rate of growth for the country as a whole.

On top of the actual demand itself is the fact that tech companies, particularly those with “mission-critical” uses such as microchip fabrication or Web hosting want uninterruptible power. Power companies have gotten used to supplying power to traditional manufacturers, who can stop or idle their plants if the power is not available, and so rely on “interruptible service” contracts as a way of balancing the rising demand.

“The current electrical system was not ever designed for the Internet economy,” Karl Stahlkopf, a vice president at the Electric Power Research Institute, told the New York Times. “Anything chip related is a tremendous Achilles’ heel.” Is it any surprise that one of the companies Bill Gates has invested in – Capstone Turbine – makes micro-turbines for on-site power generation? Silicon Valley companies could become big customers if California’s current electricity problems continue.

Beleaguered Apple Computer may not be rotten, just temporarily bruised

For Apple Computer Inc. CEO Steve Jobs–not to mention plenty of the pioneering personal computer maker’s long-suffering fans–Sept. 29 must have seemed like déjà vu all over again. Apple’s stock plunged to $25 (all currency in U.S. dollars) from $53 the day before, chopping $10 billion off the company’s market value. The Cupertino, Ca.-based company’s hip marketing campaigns and ultracool products weren’t enough to keep Apple from getting tarred and feathered by investors and analysts for failing to execute its business plan properly–just as it was in 1997 and several times in the early 1990s.

But the skeptics who rushed to dump their Apple stock should remember one thing: The September carnage seemed like déjà vu because the company has been down there before. Stumbling is a part of Apple’s culture–in fact, it seems to be hard-wired into Apple’s DNA. Getting back up again–not to mention breaking into an all-out sprint–also seems to come fairly easily, particularly to CEO Steve Jobs, who is now a legendary (or notorious) figure in Silicon Valley.

If anyone can bring Apple back from the brink, his supporters say, Steve Jobs can. It’s almost old hat for him. To take just one example, when Jobs took over from former CEO Gil Amelio in 1997, Apple was almost a complete write-off. It had dozens of product lines, some old and some new, and none of them were doing particularly well–especially the ill-fated Newton hand-held device. Apple was up to its eyeballs in debt, and regularly missed its revenue and profit targets, if it managed to make a profit at all.

Less than two years later, the company was back near the top of its game. Jobs cut down the number of product lines, and in 1998 and 1999 he introduced some of the coolest computers since the original Macintosh: the candy-coloured iMacs and iBooks. Like the updated Volkswagen Beetle, the iMacs instantly became part of popular culture, and analysts fell over themselves to praise Jobs. Apple’s stock climbed. As recently as January, 2000, an analyst at Morgan Stanley Dean Witter put a “buy” recommendation on Apple’s shares with a target price of $60 (adjusted for a 2-for-1 split in June, 2000).

So what happened? The iMacs got a little long in the tooth, for one thing. So, earlier this year Jobs introduced one of the first new Apple products in a year: the Power Mac G4 Cube, a funky-looking machine aimed at power users. After raving about the G4 for months, however, company watchers noticed that not that many people were buying them. Why? They were expensive–$1,800 for a 450-megahertz version without a monitor. The computer also seemed underpowered compared with PCs powered by 500 MHz Intel chips. Apple adherents protested that the G4 was faster than the Intel-powered machines, and they appeared to be right–but it didn’t help.

At the same time, there was increasing fallout from an operational change that Apple later admitted was handled badly: The company stopped contracting out its educational sales–a traditionally strong market–to third-party contractors, and switched to using its internal sales staff. Even critical analysts agree that this was the right thing to do–too much profit was flowing to the contractors. Unfortunately, Apple made the change in the summer, when most schools are making their big buying decisions for the coming year.

Apple’s sales started to soften, so the computer maker warned analysts on Sept. 29 it would likely miss analysts’ sales and profit forecasts for the fourth quarter ended Sept. 30. The stock fell as low as $25, giving Apple a market value of less than $10 billion, down from $25 billion in the spring. But the bloodbath wasn’t over yet: When the company reported its results on Oct. 19, it didn’t even hit the reduced targets, and the stock sank even lower.

By then, many firms had already cut their ratings on Apple to “hold” or “neutral,” and several said the news raised questions about the company’s business model. “We do not see this as a one-quarter phenomenon for Apple, but rather as the beginning of many tough quarters ahead,” said Steve Fortuna of Merrill Lynch & Co. Apple had always had a big chunk of the school market, giving it an edge when schools wanted to upgrade. Apple’s market share in the consumer, education and artistic markets climbed to 6% in 1999 from just 3.8% in 1997. If this category had peaked, some analysts wondered what was left? Apple had never had much of a presence in the corporate world, except for company graphics departments.

In the end, however, none of the problems Apple faces now are company-killers. The move to using an internal sales force was handled badly, but it can be overcome. Similarly, boosting the power of the Power Mac G4 Cube and cutting the price should win some more market share. Other companies have overcome far worse mistakes: Dell Computer Corp., for example, had serious problems with its notebooks in the early 1990s, and not only recovered, but went on to dominate the market. Compaq Computer Corp. also had numerous problems in the mid-1990s, and yet it became the No. 1 PC seller.

Apple is nowhere near as badly off as it was in 1997, when there were rumours it might file for bankruptcy protection after recording a $1-billion loss, and its revenues had fallen to less than $7.1 billion from about $11 billion in 1995. For the fiscal year ended Sept. 30, 2000, the company turned a $786-million profit on revenues of just under $8 billion, meaning that at $20 in October, the stock was trading for less than one times sales.

Apple has consistently demonstrated that there is a strong desire within a significant proportion of the market for an alternative to the traditional grey PC. Going from a 6% share in its core U.S. markets now to 10% over the next few years wouldn’t be that much of a leap, but it would push Apple’s revenues well past $10 billion. Even if its profit-making ability has been reduced, it should still be able to produce a healthy stream of earnings from that.

As Apple devotee Steven Kowaski, a former contributor to the defunct magazine MacWeek, put it in a comment to Wired News: “The gods must love Apple. Either that, or Steve [Jobs]is sacrificing goats to a dark being. This company has had more near-death experiences than a bimbo in a cheesy horror flick. But unlike the bimbo, Apple manages to survive. Every damn time the company gets kicked to the curb, they reinvent themselves and return stronger than before.”

Is it possible not to love Research In Motion?

Is it possible not to love Research In Motion? Not lately, it seems. The handheld device maker’s shares have been on a rocket ride to the moon since May, when they bottomed out at about the $35 level. The stock is now trading in the $190 range, having risen by almost 450 per cent in less than five months. The shares are still short of their record high of $260 set in March, but they’re getting closer every day (chart).

RIM now has a market value of about $14.5-billion – more than Canadian Pacific, more than Petro-Canada, more than twice as much as TransCanada PipeLines and just slightly less than Imperial Oil and the Canadian Imperial Bank of Commerce. At $9.5-billion (U.S.), it is larger than Kellogg Co., forestry firm Weyerhauser, Starbucks and Occidental Petroleum, and is worth about $2-billion more than investment bank Lehman Brothers.

The company’s stock-market success has made at least one of its founders a billionaire: CEO Mike Lazaridis said Monday that he will donate $100-million (Canadian) to set up a Waterloo, Ont.-based research centre to study theoretical physics. RIM has taken advantage of its climb by issuing six million shares, which could raise more than $1-billion, although the company didn’t say what it planned to do with the money.

RIM will need a good portion of that cash to fight for market share with the other two major handheld players – Palm Inc. and Palm-clone maker Handspring, which recently went public. Both companies are larger than RIM: Palm, the company that arguably invented the current handheld market, has a market value of $34-billion (U.S.). Handspring, which was formed by the two developers of the original Palm and sells a Palm-compatible device called the Visor, has a market value of about $11.5-billion.

Fans of RIM’s products, which include a small pager-like device and a larger Palm-sized one, say they are better than either the Palm or the Visor because they are “always on” – that is, they are connected at all times to a pager-style network that allows a user to send and receive e-mail wirelessly at any time. The Visor, however, can be used in a similar way, thanks to plug-in modules that attach Game Boy-style.

Analysts say RIM is in a good position to form alliances with mobile phone giants, particularly in Europe, where next-generation wireless networks are more advanced – there have even been rumours that a cell phone maker such as Nokia might buy RIM. Others, however, say cell-phone companies are more likely to want to licence products rather than buy companies, and Palm is already working with several companies. Handspring, meanwhile, recently introduced a plug-in that makes the Visor a cell phone.

It’s true that RIM has a devoted following, particularly among Wall Street stockbrokers and traders, and there are some who maintain that it can not only compete with Palm and Handspring but perhaps even eclipse them in the handheld market, and make its software and/or hardware a new standard for handheld wireless data. But at its current level, it’s worth asking how much of that optimism is already priced into the stock.

First Call/Thomson Financial has analysts looking for $180-million (U.S.) in revenue for RIM next year, which makes the current price of $125 a multiple of about 54 times sales per share. Handspring is selling for 29 times its projected sales per share for 2001, while market leader Palm is trading at about 17 times its sales – which are expected to hit $2-billion next year. RIM and Handspring are both expected to lose money in the current fiscal year, while Palm is expected to make a profit of 13 cents a share.

By way of comparison, Nortel Networks – which some analysts have criticized for being overvalued – is trading for about five times its projected sales per share for 2001. Cisco Systems, one of the leading makers of computer networking equipment and another stock that is regularly criticized for being overvalued, is trading for about 20 times its sales per share, and software giant Microsoft sells for 15 times its revenues.

If Nortel is trading so high that it is “priced for perfection,” as some analysts have put it, what does that say about RIM? As one stock watcher at the Motley Fool investment Web site put it, the company had “better not make a single mistake, or it’s toast.”

Is Napster like your VCR?

What if an 18-year-old college student had invented the VCR as a way of trading movies with his frat-house pals? The court case launched against him might look a lot like the lawsuit against Napster founder Shawn Fanning, a battle winding its way through the courts. At stake in the case is the future of digital delivery of music, movies and any other copyright-protected work that can be stored as ones and zeroes.

In fact, the VCR comparison is more than just a metaphor: A 1984 ruling by the U.S. Supreme Court involving the then-new technology of videotape recording forms a key part of Napster’s defence against the lawsuit by the Recording Industry Association of America. The suit was launched by the movie industry against Sony Corp., inventor of the Betamax VCR standard, when that technology was just becoming part of popular culture.

To movie studios and TV networks, videotape was a nightmare come true. A device that would allow people to make copies of TV shows and movies at will, and then share these copies with their friends – what could be worse? With its lawsuit, the industry did its best to extinguish this new technology before it could spread, just as the record industry is currently trying to get the U.S. courts to put Napster out of business.

Jack Valenti, president of the Motion Picture Association of America, told the U.S. House of Representatives in 1982 that “The growing and dangerous intrusion of this new [VCR]technology,” threatened an entire industry’s “economic vitality and future security.” The development of the videocassette recorder, he said, “is to the American film producer and the American public as the Boston Strangler is to the woman alone.”

Legal experts have also pointed to another landmark case that addressed some of the same issues as the Betamax judgment, but revolved around a much earlier breakthrough in technology: the player piano. The forces of the sheet music industry went after the creators of the player piano roll, alleging that this new technology infringed on the copyrighted musical works that were their bread and butter. The Supreme Court ruled in 1908 that player piano rolls did not amount to a copy of existing works.

In the Betamax ruling, the court rejected the movie industry’s case, and within a decade the returns from video rentals had almost eclipsed the profits from the movie industry. The crux of the ruling was that the industry’s case – which hinged, as Napster’s does, on a legal concept known as “contributory infringement” – could not succeed if it could be shown that the technology could also be used for legal purposes.

Napster’s legal team is arguing that its software falls into the same category as the VCR: a new technology that can be used to reproduce copyrighted works, but can also be used in other ways that aren’t illegal. The judge in Napster’s original case said the Betamax decision doesn’t apply to Napster – if the U.S. Court of Appeal agrees, it could uphold the injunction against the company, which would effectively shut it down.

Napster’s critics, including several legal experts who have filed briefs in support of the injunction, say the Betamax case was a completely different animal. In that case, they argue, the court ruled in favour of Sony because to accept the movie industry’s argument would have meant outlawing an entire new technology – that is, the VCR. That would be going too far, the U.S. Supreme Court ruled in its 5-4 decision.

In Napster’s case, however, the record industry isn’t trying to do away with the Internet, or even digital file swapping (known as “peer-to-peer file sharing”) – it’s merely trying to shut down a software company that it says facilitates the piracy of copyrighted material. While Napster users can theoretically use it to share music they have paid for, the prosecution says the majority of files are illegal copies.

A group of legal experts who have filed briefs supporting Napster, however, are convinced the VCR case does apply. They said the trial judge’s interpretation of the Sony Betamax decision “provides the opportunity for Hollywood to essentially declare war against the technology industry,” Pamela Samuelson, a law professor at the University of California, told the San Francisco Chronicle after the ruling.

Prof. Samuelson and several other experts say the Sony decision means that “intellectual-property owners are not entitled to prohibit or exercise monopoly control over new technologies that… threaten their established business.” They said the law was not meant to protect industries from new technology, and that “having to change business plans in response to evolving technologies is what competition is all about.”

As many analysts have pointed out, even if the appeals court upholds the lower court’s injunction against Napster, file-swapping will inevitably continue through services such as Gnutella and Freenet, or through older-style means such as Usenet newsgroups or Internet relay chat. But the court’s decision will say a lot about whether peer-to-peer file sharing takes place as part of the underground Internet, or out in the open as part of the inevitable digital evolution of the entertainment industry.

Apple the latest victim of market’s wrath

Riding the Nasdaq rollercoaster continues to require nerves of steel. After days of sliding southward, investors got a glimmer of hope on Thursday, when the tech-heavy index rose 122 points or more than 3 per cent. Then came Apple. The computer maker said Thursday that its earnings would fall short of estimates, and investors bailed out on Friday, erasing half of Apple’s market value and pulling the entire Nasdaq down.

From the $60 (U.S.) level just a week or two ago, Apple plummeted as low as $25.50 on Friday, losing more than 57 per cent of its value – or about $11-billion in market capitalization. By mid-day Friday, Apple had lost all the value that it had built up in the past year or so of climbing the stock charts. At about $26, the shares were back where they were last July, and some analysts warned they could go even lower in the coming weeks.

But should Apple’s underperformance be seen as another question mark involving earnings growth in the tech sector as a whole, or is it something specific to Apple? For the most part, industry watchers seem to feel that the company’s poor results have more to say about Apple itself than about the general health of the technology or personal computer sector – partly because Apple is a proprietary platform and therefore isn’t directly comparable to PC makers such as Dell Computer, Compaq or Hewlett-Packard.

Last year, Apple’s return from the land of the living dead was one of the biggest business stories going: visionary co-founder Steve Jobs had returned to the ailing computer maker and managed to turn things around with the popular iMac and PowerBook products, bringing some of the life back to a company that was always seen as the colourful and plucky young counterpart to the boring hegemony of Microsoft and Intel Corp.

Apple had bottomed out under former CEO Gil Amelio – by 1998 its sales had fallen to less than $6-billion from a peak of more than $11-billion in 1995, and its workforce had also been cut in half to 9,000 from more than 18,000. The stock had plummeted to the $12 level, giving the company a market value of just $2-billion. Then Steve Jobs returned when the company bought his new venture, NeXT Computer, and quickly took control.

Cutting its product line and focusing on hip new products such as the PowerBook and iMac, plus a savvy marketing campaign that recalled the old days, Apple got the kind of rejuvenation it needed. The stock began to climb: from the $20 level at the beginning of 1999, the shares soared to a peak of $75 and analysts throughout the technology industry applauded the Lazarus-like return of the reborn Apple Computer.

Everyone wanted to buy into Apple, including Saudi Arabian billionaire Prince Waleed bin-Talal, who bought shares in 1997 and watched his investment triple in value. The company once again became the cool computer for hip artistic types, and even spurred other computer makers such as Hewlett-Packard to come out with multi-coloured cases for their PCs. After racking up more than $2-billion in losses by the time Mr. Amelio left in 1998, Apple became profitable and its revenues began to expand.

So what has happened to change all that? Simply put, Apple’s past few quarters have raised concerns that the better part of all that growth may be over. Apart from some new colours of iMac, the only major thing the company has come out with in the past little while is a new processor called the G4 Cube, which is suitably funky-looking with its toaster-like shape, but is more expensive than and slower than the newest Pentiums.

Worst of all, the latest figures seem to show that not very many people are interested in buying one – or at least not as many as Apple was hoping would. And while the company is still well in the black, with profits of about 30 cents expected on sales of $1.85-billion or so, that profit is some 30 per cent lower than analysts were expecting it to make, and 40 per cent below what Apple made in the same quarter last year.

In other words, like so many other tech companies, Apple has learned that there’s absolutely no leeway for underperformance in today’s market. Being one of the seminal companies behind the birth of the entire personal computer industry won’t buy you a cup of coffee on Wall Street – and having funky-looking computers with popsicle colours doesn’t turn investors on anymore either. Apple is going to have to come up with something better than that, or its stock will remain under pressure.

Research In Motion is great, but how great?

Wireless industry analysts agree that Waterloo, Ont.-based Research In Motion is one of the leading players in the emerging market for wireless handheld devices, a market that includes handheld veteran Palm Inc., the newly public Handspring Inc., and a range of different Microsoft-compatible handheld devices from companies such as Compaq. But how much should RIM’s presence in this hot new market be worth to investors?

One thing is clear: It’s worth a couple of billion dollars more than it was just a few days ago. Investors have been pushing RIM’s share price upward at a phenomenal rate, leading up to the company’s quarterly report on Thursday. Several analysts have said that they expect RIM to meet earnings and revenue projections, and a couple of brokerage firms have reiterated their “buy” and “strong buy” ratings on the stock.

On Monday, RIM rose by as much as $10 (U.S.) or about 20 per cent at one point, after USB Piper Jaffray analyst Samuel May said in a morning research note that the company should report strong quarterly results, and revised his target price upwards to $90 from $75. On Tuesday, RIM climbed a further $11 or so at one point during the day, to $97 – meaning, of course, that it plowed through USB’s 12-month price target (chart).

At this point, the stock has almost doubled since early August (although it is still far from its all-time high of about $175). This kind of rampaging growth might seem a little odd considering that RIM announced a few months ago that it would likely report a loss for the current year, instead of the profit that it was expecting to report. In other words, investors have decided that they are now willing to pay almost twice as much for a stock that is losing even more money than it was just a few months ago.

Why would they do such a thing? Primarily because of the perception that RIM is one of the leaders in the wireless handheld race. But is it? It’s true that the new RIM Blackberry 957 device, which is similar in size and shape to the Palm, has been getting a lot of positive press, and the company has signed deals with major companies such as Compaq and Dell to market and distribute a co-branded version of the device. Tech leaders such as Dell founder Michael Dell are said to be Blackberry devotees.

But RIM still has to go up against Palm, which is still seen as the 800-pound gorilla of the handheld market, as a result of its dominant position and the fact it is backed by computer equipment giant 3Com Corp. Palm also has a market value of about $31-billion. And then there’s Handspring, which recently went public and has a value of $8.4-billion. It was founded by the couple that developed the Palm before it was bought by 3Com, and its device – the Visor – is seen by some as superior to the Palm.

RIM and its supporters maintain that the Blackberry beats both these devices because it is “always on” – in other words, it can receive e-mail at any time, much like a pager. However, the Visor can do this as well: U.S. users can insert a wireless modem from Novatel or Glenayre Electronics into the expansion slot on the device and retrieve their e-mail at any time using services such as OmniSky or the Reflex pager network.

In addition, while Palm recently announced that it is working with Motorola on a cellular phone that incorporates the Palm operating system – a device not expected to be available until 2002 – and RIM said it is also working on a cellular phone add-on for its Blackberry 957. Handspring has said that by November it will be shipping a module that turns its Visor into a cellular phone. The phone would use the GSM standard that is popular in Europe and is also used by Canadian cellular provider Microcell.

According to a Merrill Lynch research report on the sector released earlier this year – before RIM made its most recent meteoric move upwards – Research In Motion was trading at about 19 times the brokerage firm’s revenue estimates for next year, while Handspring was trading at 11 times, and Palm was trading at about eight times. As of the end of August, Merrill’s 12-month price target for RIM was $70 – it closed Tuesday at $93.50.

The fact that Research In Motion is one of the leading players in the emerging wireless handheld market isn’t really an issue – it clearly is, and it has developed some attractive features and partnerships. How much should you pay for all that? Good question.

Can’t turn back Napster tide

If Judge Marilyn Patel – the U.S. District Court judge who handed down an injunction yesterday against the music-swapping service Napster – knows her ancient history, she might remember the story of King Canute, who tried to stop the tide from coming in during his reign a thousand years ago. He failed, of course, and so will the Recording Industry Association of America, which is doing its best to turn back the digital tide.

Judge Patel said Wednesday that Napster infringes on music copyright by allowing people to download digitally encoded songs in the MP3 format from other individuals over the Internet, and the judge accepted the music industry’s argument that billions of dollars in royalties and other fees are at stake if Napster isn’t shut down immediately. Even though there hasn’t been a trial, the company is effectively prevented from operating.

Lawyers for the music industry said that while other products such as the VCR and the cassette tape recorder (not to mention the recordable CD) allow consumers to reproduce and share music and other copyrighted materials, Napster is different because it is not a device but a for-profit service. A similar argument was used recently to shut down RecordTV.com, which allowed users to “record” TV shows over the Internet.

The judge also accepted the argument that Napster is more dangerous than devices such as a VCR because it is so all-encompassing – that is, it can distribute copies of songs to thousands of users around the globe in minutes. In a way, Napster’s own success (it claims to have over 20 million registered users) has been part of its downfall.

The judge’s ruling may have all kinds of legal merit, just as King Canute’s attempt to stop the tide probably did, but that doesn’t mean it has a hope of changing the behaviour it describes – because in order to do so, Judge Patel would have to uninvent the Internet. File-sharing and data swapping of various kinds, legal or illegal, is what the Internet is about, and that is a tide that all the courts in the world can’t change.

When the VCR first appeared on the scene in the 1970s, the movie industry was terrified of this new technology. After all, it allowed TV watchers to record movies and watch them whenever they wanted to, and even make copies for their friends. The movie business went after the first VCR company – Sony, the inventor of Betamax – in a legal case that Napster’s lawyers have tried to use as part of their defence (with little effect).

Did the VCR kill movies? Not at all. In fact, there are hundreds of terrible movies released every year that would never even approach profitability if it weren’t for the VCR, because the industry found a way of making videotapes attractive enough and easy enough – and cheap enough – so that people would rent them. Do people still copy movies illegally? Yes, but the industry makes enough money on the rest to compensate for it.

Likewise, the music business would be a lot better off if it stopped listening to multimillionaire corporate rockers like Metallica and found a way of working with this technology instead of trying to stop the tide. Has the industry got this message? No. Look at what music giant EMI did recently: It announced that it will offer songs for download from its Web site, but buying a CD worth of songs will cost almost exactly the same as if you went to a store and bought one the regular way.

Does this make any kind of sense? Only if you are paranoid about protecting your existing profit margins, which on CD sales are up in the stratosphere somewhere. In fact, federal trade regulators in the United States recently ruled that the music industry has overcharged CD buyers by half a billion dollars over the past seven years. Is it any wonder that music lovers have tried to find other ways of getting the songs they want?

And if Napster is shut down, they will find other methods. There are services such as Freenet and Gnutella that would be even harder to police than Napster: neither uses company-operated servers, the way Napster does, making it harder – perhaps even impossible – to track those swapping songs. Other services offer total user anonymity. And Internet users can already find almost any digital file, song or software, even movies, offered free through a variety of services such as IRC (Internet relay chat).

In other words, shutting down Napster is like cutting one head off a multiheaded monster. The industry should think about finding a way to use the Internet, instead of trying to get someone to uninvent it.

So long, and thanks for all the beef

I have to say, it sure was nice of Calgary to put on such a fancy going-away party. A couple of free drinks and a Stampede cowboy hat would have been fine — the city didn’t have to go and invite all those 2,500 people from places like Norway and the Middle East. On the other hand, maybe some of them came for something else. I thanked a few foreign-looking gentlemen for coming to see me off, and they didn’t seem to have any idea what I was talking about.

As fate would have it, the end of the World Petroleum Congress just happens to coincide with my departure from Calgary, after almost four years of covering business in Western Canada. Although it was a bit of a washout if you were hoping for a big pepper-spray type of protest, this global event is as good a note as any to depart on — even after you strip away the hype, hosting a show like the WPC is a major coup for Calgary, and also a pat on the back for an increasingly international oil industry.

I can’t stick around for the Stampede, unfortunately, so I won’t be able to see who some of the new names are sponsoring in the chuckwagon races, a staple of corporate sponsorship. Over the past few years this became a game in which the contestants tried to guess whose company would still be around the following year, after all the usual takeovers and mergers. Hurricane Hydrocarbons and Fracmaster Canada are just two of the companies that seemed to go downhill as soon as their name went on the wagon.

Lots of other companies have faded into the sunset one way or another in the past few years: giant companies like Nova Corp., Conwest Exploration, Wascana Energy and Norcen Energy; medium-sized players such as Stampeder Explorations, CS Resources, Elan Energy, Morrison Petroleums and Amber Energy, as well as dozens of smaller firms. Others are either on their way out or doing their best to avoid being swallowed up, including firms such as Ranger Oil, Renaissance Energy and Gulf Canada Resources.

Many of the industry’s larger-than-life personalities have also departed. Anderson Exploration CEO J.C. Anderson is about the most colourful guy left in the oil patch, next to Scottish scrapper Bob Lamond, who keeps an eye on the scene from his stone castle in Mount Royal. Former Gulf Canada CEO and Texas gunslinger J.P. Bryan has been and gone, unable to get the industry to agree that $6 of debt for every dollar of cash flow is a good thing. The woman who helped resurrect Suncor, Dee Parkinson-Marcoux, has also moved on, as has Greg Noval of Canadian 88 Energy.

And yet, while many Alberta companies have been gobbled up by U.S. giants, others are becoming giants themselves. Take Murray Edwards: Yesterday’s $1-billion bid for Ranger by Canadian Natural Resources makes it obvious that he plans to continue expanding his empire. In the past year or so, Canadian Natural has spent about $2.5-billion buying assets from various companies, and is on its way to being a major force — despite the fact that, if they saw a picture of him, 90 per cent of Calgarians would think Mr. Edwards was the guy who bags their groceries at Safeway.

Alberta Energy CEO Gwyn Morgan is no slouch in the corporate acquisition game either, having pushed the former provincial Crown corporation to the forefront of the natural gas business both nationally and internationally, and Jim Buckee has turned Talisman Energy into another major international player. Suncor has also become an industry stalwart, thanks to CEO Rick George and his drive to make the oil sands game more efficient — his example has helped convince others the oil sands can be a good business.

The oil and gas industry got ignored to some extent over the past couple of years, a result of low oil prices and a frenzy of interest in technology and Internet stocks, but there is still plenty of action to be had. Oil prices are higher than they have been in almost 30 years, and no one is too sure where they will stop, or when — and Alberta natural gas prices are higher than they have been since the industry was deregulated 15 years ago, helping to drive offshore development and convincing dozens of companies to take another look at the resources of the far North.

I may be leaving Calgary, but I hope to continue writing about those kinds of issues and ideas — and lots of others as well — in my new job: writing for The Globe and Mail’s new real-time Web site at http://www.globeandmail.com . And if you happen to be coming East some time, bring me a steak and a bag of those mini-doughnuts from the midway at Stampede Park.

Industry sleepless over Napster

Unless you’ve been living under a rock for the past few months, you’ve probably heard about something called Napster — which, depending on whom you listen to, is either an abomination used by criminals or a tool that has freed music from the clutches of evil record companies. The fact that such a tiny piece of software can generate these kinds of wildly divergent opinions suggests something significant is going on.

Napster is a small “freeware” program that can be downloaded from the Internet in about 15 minutes. Perhaps because its inventor is a 19-year-old college student named Shawn Fanning (whose curly hair led to the nickname “Napster”), the software doesn’t have all that many bells and whistles, but it is fairly easy to use, and does what it does very efficiently.

What Napster does is allow anyone on the face of the planet to connect to thousands of other users and trade digital music, or MP3 files. That’s all it does — but that’s enough to make it Enemy No. 1 for the recording industry. The entire might of the U.S. music business has come down on Napster like one of those two-ton weights in a Road Runner cartoon.

The Recording Industry Association of America is currently suing the company, arguing that its service breaches copyright laws, and several prominent artists — including the band Metallica — say it facilitates piracy. Metallica got a lot of press recently when it produced a list of 350,000 names of Napster users it claimed were trading songs illegally.

The company promptly banned those users, even though it admitted it would be relatively easy for users to sign onto Napster with a pseudonym — which may help to explain Napster’s claim that it has more than nine million users, a figure that is growing at a rate of 10 per cent a day.

One of the interesting things about Napster is that — despite all the furore surrounding it, and the recent dramatic selloff in technology stocks — the company seems to have had no trouble getting funding from venture capitalists. Not only did the well-known firm of Hummer Winblad invest $15-million (U.S.) in the currently non-public company, but also one of the firm’s senior partners, Hank Berry, recently became Napster’s interim CEO.

The fact that such a firm would be interested in a tiny startup is even further evidence that something big is going on — and it’s more than just Napster, which is part of the reason critics like Metallica and the recording industry are missing the boat. For one thing, there are already half a dozen programs available that do the same thing, and more.

A little program called Wrapster, for example, allows Napster users to disguise any kind of digital file as an MP3 file and trade it through Napster’s servers. Gnutella allows users to trade software and other files by connecting to a rotating series of servers, as does a service called Scour.net, while something called Hotline allows any user to turn their own computer into a server and trade digital files of all kinds.

Napster is just one front in an all-out war that the music industry is waging with the Internet, a war in which the tide seems to be favouring the consumer. The arrival of the MP3 compression standard allowed users to download and trade songs for the first time, and the industry has been trying to come to grips with this new threat for almost two years. Record companies have tried to develop their own MP3-type standard that would prevent file-trading, but so far the effort has produced nothing but press releases.

The kind of legal challenges that have been launched against Napster and a Web site called http://www.MP3.com only serve to show how blinkered the industry is. Even if they are both crushed financially, the phenomenon that created them is not going to go away. Just as music fans have made bootleg audio tapes for decades, they will continue to trade MP3s because they can — and the sooner music companies embrace that, the better off they’ll be.

This doesn’t mean all music suddenly has to be free. All those Napster users spend hours searching for, trading and downloading files because to some extent they love music — and it’s worth a bet that some of them would probably pay for those songs, as long as they didn’t have to pay too much. The U.S. Federal Trade Commission, for example, recently ruled that consumers paid close to $500-million more than they should have for CDs in the past three years. That’s not the best way to appeal to your customers.

But what if, instead of paying $25 for a CD that has two songs you like, you could pay 99 cents each for the ones you want? Sites like http://www.emusic.com already offer this kind of service, but they can’t offer any of the really popular songs consumers want — and the few record companies planning to offer music for download are stuck on the idea of using standards that will prevent copying.

This effort is almost surely doomed. Similar attempts to control digital content — such as the DIVX variation on the DVD movie standard — have been spectacularly unsuccessful, and there’s no reason to think digital audio will be any different. Instead of hiring legions of copyright lawyers, the industry should spend its money coming up with some way of getting on board the MP3 train rather than trying to block it.

After all, those people trading MP3 files are the industry’s core market. Instead of suing them, record companies should be trying to figure out how to give them what they want.