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Although the pieces of the puzzle haven’t all been put together yet, the early signs are that those responsible for the attacks in the U.S. are associated with militant Islamic leader Osama bin Laden. And what could possibly have sparked those horrific attacks? As with so many other aspects of U.S. foreign policy, much of the hatred that emanates from militant Islamic terrorist groups such as Mr. bin Laden’s can be traced back to a single thing: Oil – and more specifically, the U.S. government’s desire to maintain control over the vast quantities that exist in the Middle East.

Mr. bin Laden, a Saudi-born businessman who left the construction business to become a financier of international Islamic terrorism, is only the latest in a series of Middle Eastern figures who have become public enemy number one as a result of U.S. oil policy. Until Mr. bin Laden came along, for example, the most hated man in the Middle East was Saddam Hussein, the leader of Iraq – who some military intelligence observers feel may be involved in assisting Mr. bin Laden with the war of terrorism against the U.S. Many political analysts believe that the war against Iraq was fought largely to ensure that the oil would continue to flow from Saudi Arabia.

During the Gulf War, the U.S. stationed troops in Saudi Arabia at the request of the Saudi royal family – a move that Mr. bin Laden and other Islamic groups have said was an affront to Muslims, and one which many security experts warned against at the time, arguing that it would increase tension in the Middle East. “A lot of people advised [President George W.]Bush’s father not to put U.S. troops in Saudi Arabia – to put them ‘over the horizon’ rather than in the heartland of Islam,” said U.S. policy expert John Sigler, a professor of political science at Carleton University.

While the State Department argued that the troops should be located in some other area, Prof. Sigler said, the Pentagon decided that they needed to be on the ground in Saudi Arabia for reasons of “military efficiency.” Even after the Iraqi threat had eased, U.S. soldiers remained in what Mr. bin Laden’s group refers to as “the land of the two holy places” (Mecca and Medina). American officials said the troops needed to remain because they would protect the Saudi Arabian government of King Fahd from Iraqi attack – but Prof. Sigler said this was largely a fiction, presumably designed to justify keeping troops to protect Saudi oilfields.

Not only does the presence of non-Muslim soldiers inflame the religious passions of fundamentalist Islamic groups such as Mr. bin Laden’s, but their existence is also a regular reminder that the U.S. is primarily interested in the Middle East because of its oil supplies. Much of Mr. bin Laden’s anti-U.S. rhetoric – expressed in several rare interviews with Western reporters over the past few years – concerns the alleged “rape” and “plundering” of the Middle East by the United States, aimed at controlling the area’s oil for the benefit of the U.S. and other Western nations.

This idea is intricately intertwined with America’s policy on Israel. Some Muslim groups believe that the U.S. is in league with Israel to take control of the Middle East – driven, they argue, by Israel’s desire to crush all Islamic nations, combined with the American desire to control the source of the vast majority of the world’s oil. Within Saudi Arabia, meanwhile, many critics of the monarchy see the U.S. as supporting a “puppet” government for its own purposes, in the same way it did in Iran.

The problem for the U.S. is that anything it does to try and influence the flow or supply of oil involves a large part of the Middle East, and impacts on nations that have an abiding hatred for the U.S. – including Iraq, Iran and Libya. And despite sources of oil such as Alberta’s tar sands, some forecasters expect the U.S. and the rest of the Western world are going to need even more supply from the Middle East in the future: A study by the Center for Strategic and International Studies said the world will become increasingly dependent on the Middle East over the next 20 years.

The study said that oil-rich Persian Gulf nations will have to expand their oil production by almost 80 per cent over the next 20 years in order to keep up with demand, particularly demand from China and India. The potential for terrorism, supply interruptions and outright war will remain high, the study says – adding that getting more oil from Iraq will be “crucial” to meeting the world’s demands, since Iraq contains 11 per cent of the world’s oil reserves, second only to Saudi Arabia’s 25 per cent.

As long as the U.S. continues its growing demand for oil, in other words, it will be forced to deal with the troubled politics of the Middle East in one way or another, whether it wants to or not.

At first glance, everything looked peachy keen in Research In Motion’s quarterly results, released late on Thursday. The handheld device maker came in right on estimates with a 5-cent-per-share profit and revenue more than doubled over the same quarter last year. What could possibly be wrong with that?

Well, for starters, the profit wasn’t really a profit on the BlackBerry pagers that everyone is so in love with — and there are some other warning signals lurking around the edges of RIM’s results. It’s possible that investors don’t care whether RIM made any money selling its two-way pagers and a hybrid pager and Palm-style handheld in one.

Those who pushed the company’s stock price up by more than 7 per cent after the results came out didn’t seem to mind that the firm actually rang up an operating loss of more than $3-million and only made it into the black with the help of more than $9-million worth of gains on RIM’s investments.

Investors’ complacency aside, however, it’s important to note that RIM’s core business is still a money-loser — in fact, operating losses were up more than 40 per cent. Although the company’s revenue rose, expenses also increased at a pretty rapid clip: While sales were substantially higher than the same quarter last year, the company’s cost of sales more than tripled, with research and development expenses tripling and marketing and administration expenses doubling.

Gross profit margins fell to 38 per cent from 44 per cent and the company shipped about 25 per cent fewer units than it did in the previous quarter.

There are larger issues for RIM, however. For example, now that everyone is familiar with its “killer app” — always-on e-mail service — because of the publicity about all the high-tech CEOs who use a BlackBerry, what does RIM do for an encore? And how does it do so without eating into the business model that has convinced investors to pay almost 100 times forecasted earnings for the stock?

Those kinds of multiples are as rare as hen’s teeth nowadays, and it’s not clear what RIM has that justifies such a premium. Palm used to command that kind of multiple, too, back in the old days, but the handheld device maker is only valued at 1.5 times revenues now (it has no earnings), while RIM is still trading at more than eight times its revenue.

And in a jab at the Canadian company’s perceived dominance of the wireless e-mail-access game, a Palm executive said this week that Palm’s wireless Palm VII — which can access the Internet using a number of different networks — has more users than RIM does.

Users agree that RIM is far more elegant and efficient an e-mail solution, but for how much longer?

Wireless access is the Holy Grail for handhelds, and both Palm and the various PDAs that use Microsoft’s Pocket PC software (such as Compaq’s iPaq) are rolling out wireless e-mail and Internet access plug-ins or software that will make them far more competitive with RIM.

Rogers AT&T Wireless and Microcell’s Fido are both introducing next-generation GPRS (global packet radio system) high-speed digital networks, which will allow handhelds or telephones to access e-mail and the Internet at faster speeds.

RIM is working on a GPRS model, too, but it will be entering a fairly crowded field.

RIM executives have said they are working with Compaq and others to develop BlackBerry-style “solutions” that could be used to provide the same kind of always-on e-mail for the iPaq or other Pocket PC handhelds, and RIM also has a prototype of a BlackBerry-type unit that runs on Java software — the idea being that it could partner with some of the cellphone handset makers on a combined BlackBerry phone running Java.

The problem with these options, however, is that making a two-way pager that plugs into an iPaq or helping to make a BlackBerry Java phone would eat away at what RIM is: a proprietary handheld device maker with a unique e-mail solution.

In a nutshell, the problem is this: When always-on e-mail was unique to RIM, it stood out as a result — but when other players with more to offer and deeper pockets also have that capability, what will RIM have left that makes it worth the kind of premium it’s getting now?

As with so many other dreams that seemed attainable a year ago, like the idea that a company could make money by giving away Internet access or selling groceries on-line, the idea that Napster and Mp3.com could revolutionize the music business has also collided with reality. After being bludgeoned by lawsuits, the two digital music companies have fallen into the clutches of the big record labels, with Vivendi agreeing on Saturday to buy Mp3.com – a company it was recently suing – for $372-million.

That means the on-line music game is now controlled by two superpowers: Duet and MusicNet. Mp3.com becomes part of Duet, which is made up of Vivendi’s Universal and Sony Music (Vivendi also bought Emusic.com a month ago), with Yahoo as a delivery partner. MusicNet consists of AOL Time Warner, EMI Group and Bertelsmann’s BMG Music – with Napster as a partner, since BMG owns a stake in the company, and also RealNetworks, which has agreed to provide the software required to use the MusicNet service.

In less than a year, the on-line music industry (if something so new can be called an industry) has gone from being a free-for-all of startups and questionable legality to being a subset of the global record business. Is that going to make things better or worse for music fans? At least in the short term, it’s likely to make things a whole lot worse, and not just for the lawless hordes who got used to downloading with impunity from Napster. In fact, if history is any guide, the record labels could wind up killing the goose before it lays any golden eggs.

One of the ways it could die – or at least become seriously ill – is through sheer boredom. Put it this way: If companies like AOL Time Warner and Universal Music were in charge of the Internet, we would still be typing arcane Unix-style commands and surfing the Web on 9600-baud modems. Despite the fact that the Mp3 format (which made downloading music feasible) has been around for more than four years, the major labels still had to buy Emusic and Napster and Mp3.com just to get in the game.

Why is that? Because rather than seeing downloadable music as an opportunity, the record companies still appear to be motivated primarily by fear: Fear that they will somehow lose control of “their” music, and the massive profits that it generates (for them that is, not the artist – unless the artist happens to be Madonna or Metallica). Fear helped fuel the multimillion-dollar lawsuits against Napster and Mp3.com, lawsuits that softened up the digital music crowd and made them easier to purchase.

And fear is what will probably make the Duet and MusicNet services – whenever they actually arrive – a monumental pain for users. At least there will only be two outlets, which is an improvement on the way things were shaping up, with every record company offering its own competing service. But you will have to pay a monthly fee, and you won’t be able to make a copy of anything (unless you pay a fee, and then only one copy).

You’ll probably get a lower-quality file for the entry-level fee, or it will only be a “streaming” file, and therefore not downloadable. You might be restricted to a certain number of songs downloaded in a certain period, or you might only be able to play them a certain number of times before they “expire” and you have to pay another fee. Not only will the Wild West of Napster be gone, but so will a legal and easy-to-use service such as Emusic, where you could pay $1 and download a song.

Ironically, one of the big roadblocks the record labels are running into involves accusations that they are doing the exact same thing they sued Napster and Mp3.com for: distributing music they don’t own. Music publishers say both MusicNet and Duet are planning to let consumers download songs even though they haven’t paid for the right to do that (the record companies say downloading and/or streaming should be covered under existing deals, but some publishers argue they deserve a separate fee).

In response, both the record companies and some digital music players such as Mp3.com have been proposing – in hearings being held by a U.S. government subcommittee looking at the issue of digital music – that copyright legislation should be changed so that Internet distribution of music can function the same way that radio broadcasting does, with a blanket license that gets paid out to artists and their representatives.

Even if that happens (which isn’t likely), the two superpowers will still control access to something like 90 per cent of the recorded music available for download. If you like the kind of service that comes from a market where two global conglomerates control the supply, then you’re going to love the Internet music business.

Research in Motion’s handheld two-way pager, the BlackBerry, has developed such a passionate following in some parts of the U.S. that one water-cooler humorist dubbed it the “CrackBerry.” Devotees can be seen obsessively checking their e-mail and tapping away on its tiny keyboard with their thumbs during meetings, in restaurants, in buses or taxicabs, or any time they are sitting down.

The rise of the Waterloo, Ont.-based company’s stock since 1999 produced a core of devotees who believed that RIM, as it’s known in financial and stock circles, was destined for once-in-a-lifetime mass-market success. But RIM’s stock plunged in early 2000 as the air escaped from the dot-com bubble. Despite the dose of reality that hit the rest of the market, RIM’s share price then climbed again. That share price still seems to assume that RIM will fulfill the wildest dreams of its supporters, and then some.

Is that possible? Anything is possible, of course. Is it likely? There are some fairly compelling reasons to believe that it’s not. That’s not to say Research in Motion isn’t a good company, or that the original BlackBerry and its newer cousin, the 957, which looks a bit like a Palm handheld, aren’t useful products. But it’s often said that investors shouldn’t confuse a good company with a good stock, and RIM is a good example.

At RIM’s peak price of $260 on the Toronto Stock Exchange in March, 2000, its market capitalization was $18.6 billion, more than the Canadian Imperial Bank of Commerce or Canadian Pacific, and twice as much as Petro-Canada or Canadian National Railways. That couldn’t last. RIM sank to $35 last May, which reduced the company’s market value to $2.5 billion. But the stock turned upward as RIM signed various distribution deals, including one with America Online, even though those deals had no immediate impact on the bottom line.

After climbing into October, RIM’s share price sagged into the new year. In January, it was near $90. At that level, RIM was trading for 1,125 times its earnings per share for the previous 12 months, and 26 times its sales per share for the same period. By comparison, the much larger handheld- maker Palm, Inc., based in California, was selling for 230 times its trailing earnings and 10 times its sales.

In other words, investors seemed to feel that RIM was somewhere between 2.5 and 5 times more valuable than Palm, the company that virtually invented the handheld device market in 1996 with its PalmPilot. Palm still has a worldwide market share of over 80%, and had revenues of $1.55 billion (U.S.) for calendar 2000. RIM’s revenues during the same period were roughly $157 million, and it was expected to make about 54 cents a share in the 12 months ended February, 2002, meaning this February the stock was trading at 170 times forecast earnings.

One reason RIM’s fans believe the company is worth more than its competitors is the unique nature of the BlackBerry, which can be summed up in three words: instant e-mail access. Like the pager that inspired it, the BlackBerry is always connected to a wireless network, meaning e-mail can be sent and received instantly at all times. Other devices require users to connect to a phone line and dial their provider, or connect to a web site, or call a special phone number.

But that instant access may not be worth as much as RIM fans think it is. Nor is the BlackBerry all that unique. Motorola also has a line of two-way pagers that can retrieve e-mail, and they come in a range of cool colours. Plus, they’re popular with the Los Angeles sports and entertainment crowd. Basketball star Shaquille O’Neal uses one, and rapper Jay-Z wrote a song in which he used the popular phrase “two-way page me.”

Defenders point out that the RIM product has more features than Motorola’s, and that it is designed to integrate with a company’s internal e-mail system, whether that is Microsoft’s Exchange network or IBM’s Lotus Notes/Domino system. That’s one of the main reasons why the BlackBerry is so popular with brokers, traders and sales representatives of any kind. RIM’s strategy is to derive much of its revenue from its proprietary server software and other elements of its system, as opposed to sales of the BlackBerry device itself.

Palm, meanwhile, is focused more on consumers, potentially a far larger market. Palm users can access any e-mail account, not just corporate e-mail. The company also permits designers to create add-on software for its devices. So does a Palm-like competitor called Handspring, formed by the three original developers of the Palm after they left its parent, 3Com Corp. Handspring went public last year, and it markets the Visor, which some industry watchers see as a cheaper and more flexible version of the Palm. Using various plug-in modules, the Visor can become everything from an MP3 player to a GPS receiver to a cellular telephone.

Then there’s Microsoft. As part of its ongoing attempt to diversify away from the slow-growing PC industry, Microsoft has developed a version of its Windows operating system for handheld devices that competes with Palm’s. As well, Compaq Computer Corp. has introduced a handheld Palm-style device called the iPAQ. It doesn’t do instant e-mail–at least not yet. But not everyone wants instant access to their e-mail in the same way stockbrokers and day traders (or basketball stars and rap artists) do. Even if they do, iPAQ, Palm or Visor users can add that capability fairly easily using a snap-on modem to access a digital cellular or data network.

In late January, most analysts still rated RIM a “strong buy.” But when it comes to the consumer market, the BlackBerry faces some stiff competition. Unfortunately for RIM fans who are also shareholders, the stock price seems to assume that the company will not only succeed, but will virtually take control of the entire sector. And that isn’t going to happen.

To paraphrase John Goodman’s character from The Big Lewbowski, Nortel investors have just entered a world of pain. Their beloved company – the pillar of everything technological in Canada, the superstar of the networking equipment sector, the big fish of the Toronto Stock Exchange – has just fallen from its pedestal. Anyone who bought shares a month ago has lost 35 per cent of their investment, and those who got in last September have seen more than 75 per cent of their stake obliterated.

More important than just the stock-market losses, however ($260-billion and counting), is the loss of faith in Nortel’s ability to continue its remarkable growth – not to mention the loss of faith in the company’s ability to forecast. As everyone knows, stock prices rise and fall based not on current performance but on future potential, and investors aren’t likely to trust Nortel’s crystal ball gazing as much as they did a week or so ago. How long will it take for that trust to return? Good question.

Just three weeks ago, Nortel reassured the market that its business still looked strong – despite all the warnings from telecom equipment companies such as Lucent Technologies and even Cisco Systems. The company made a point of saying it still expected to increase its revenues and earnings by 30 per cent this year, projecting a profit of 16 cents a share in the first quarter and revenues of $8.3-billion. Now it says its revenues will be $6.3-billion or so, and it will lose 4 cents a share for the first quarter – and growth for 2001 will be more like 10 to 15 per cent.

The difference between those two forecasts is a massive, head-rattling change for a business the size of Nortel to undergo in just three weeks – the kind that should give a chief financial officer or a CEO whiplash. It’s certainly the kind of change that would make the most trusting investor wonder what the hell is going on over at Nortel HQ.

How could the business have gone sour so quickly, for the company to lose almost $2-billion in sales and 20 cents a share profit in three weeks? Either the company doesn’t know what is really going on in its industry – which is hard to imagine, given the obvious warning signs over the past months – or Nortel suffers from a massive case of hubris, believing it could somehow win while everyone else was losing. In the West, this is known as “drinking your own bathwater,” and it is bad news.

If you’re a retail investor who has a few bones to pick with John Roth about his ability to manage his business, you’d better get in line. The phones at Nortel probably started lighting up within moments of the announcement about slower growth, and the list of aggrieved investors and others is likely to be long. Up near the top would be JDS Uniphase, which just a week ago took $2-billion in Nortel stock in return for a plant in Zurich, Switzerland – those shares are now worth 35 per cent less.

Nortel’s bombshell announcement about slower growth has also torpedoed the share price of many other members of the telecom equipment sector, stocks that just finished getting a boost from a bullish report by optical equipment maker Ciena on Thursday. JDS Uniphase tanked by more than 20 per cent on Friday, as did fibre-optic maker Corning, which said its growth would be hurt by lower sales to a certain customer – a customer analysts said was likely to be Nortel itself. Even Ciena was down 8 per cent.

If you’re wondering who comes out of all this looking pretty good, look no farther than Sanford Bernstein analyst Paul Sagawa, the guy who was jumped on by many of his fellow Nortel-watchers when he came out with a negative report on the company and the entire sector in September, when Nortel was at $66 (U.S.). He looked smart when Nortel underperformed expectations in October, at which point the stock lost 25 per cent (and pushed the TSE down by over 800 points) and he looks even smarter now.

The financial wizards at BCE Inc. also look pretty good, seeing as how they locked in their profits on their remaining stake in Nortel when they spun the company off as a separate entity a year ago. They “hedged” the Nortel stake by striking a deal with a consortium of banks to guarantee BCE $90 a share on Nortel, regardless of what happened to the stock after the spinoff. In effect, the company has $2.8-billion more now than it would have if it had not hedged that Nortel stake. Let’s hope the banks sold those shares short at some point, or they are now stuck holding the bag.

As for the retail investors who believed Mr. Roth’s repeated reassurances that all was well at Nortel, they are now holding the bag as well, and they aren’t likely to cut the CEO much slack for the foreseeable future. Does Nortel still have good prospects? Yes – it’s still a leader in the optical equipment game, and it will continue to grow (although at a much slower rate). But investors are going to feel burned, and rightly so – and they will be twice as reluctant to believe any future rosy forecasts.

The major music labels may be crowing about their legal victory against Napster earlier this week, but there are those who believe that the record industry would have far more to gain from working with the “peer-to-peer” file sharing service than by trying to crush it in the courts. For one thing the disk drives of more than 50 million Napster users are a huge storehouse of information – information that could be used by smart companies as an unparalleled marketing database.

For example: Over the past month or so, thousands of Napster users who have songs by the independent artist Aimee Mann on their computer have had messages pop up that appear to be from another user, messages that mention a new song by the artist that is available on her Web site. These messages actually came from an Internet-based marketing firm called BigChampagne, which chose Napster as a novel way of promoting Ms. Mann’s new single, Ghost World.

In a recent interview with Inside.com about the campaign, BigChampagne co-founder Eric Garland said that by trying to put Napster out of business, record companies were ignoring the potential gold mine that users of the service represent. Music publishers “have just been given the greatest marketing tool they have ever had,” he said, but most of the major record labels are still determined to put the company out of business, rather than trying to find a way of working with the technology instead.

Customer surveys and marketing research are a huge part of other retail sales-oriented businesses, Mr. Garland points out. Packaged-goods companies pay millions of dollars to do research on shopping behaviour as it relates to the colours and shapes of their products, where they are placed in a store, and so on. They “can model whether the shading on a package will gain them an extra 10th of a per cent of market share,” BigChampagne partner and market research expert Tom Allison told Inside.com.

In fact, some consumer goods companies such as Procter & Gamble, Mr. Garland said, “used to pay housewives 10 bucks to look in their fridges” so they could try and get some insight into buying patterns and consumer behaviour. The ability to look at which songs Napster users have chosen to download would give record labels a similar insight, allowing them to see patterns – do most users with the latest Jennifer Lopez single also have Puff Daddy or Eminem? – and also make various promotional offers.

BigChampagne isn’t the only firm to come up with the idea: When the rock band Metallica sued Napster, it got a British firm called NetPD to collect the names of users who had the band’s music as evidence of copyright infringement. But NetPD now reportedly also does peer-to-peer marketing using such lists, and has even done some research for the same record labels that are busy suing Napster. According to a recent story at Salon.com, smaller firms such as A.D.D. Marketing are also conducting Napster campaigns, as are independent music labels such as Moonshine.com.

Many Napster users might not like the idea of letting some marketing firm snoop into their hard drive, but that ability is built right into the structure of the file-sharing service: You show what you have to share, and others show what they have. The fact that this could be used for marketing purposes is just a byproduct of the original intent of the software – and marketing messages such as those from BigChampagne are a nuisance Napster users might be willing to put up with if it kept the service free, or reduced the price that a user would have to pay for access.

Napster is working with Bertelsmann AG – owner of the major record label BMG Music – to try and create a subscription service, in which users would pay a monthly fee for access to Bertelsmann music. But what about music from other record labels? So far, none of the other major music distributors have said they are interested in such a service – at least, not one they don’t control – which means users would be restricted to downloading songs that happen to be produced by BMG artists.

That kind of market fragmentation, with 5 or 6 or 10 different services to sign up for, doesn’t seem like a good way to get music into the hands of music lovers. Napster already makes it quick and easy – why not find a way of working with it instead of trying to kill it?

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.

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.

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? 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.”

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.

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.

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.

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.