These are my "notes" i have listed the source above each portion of information.

Wikipedia.org
On October 24, 2005, a 38-year-old Hong Kong BitTorrent user Chan Nai-ming (陳乃明, using the handle 古惑天皇 Lit. The master of cunning, while the magistrate referred to him as Big Crook) allegedly distributed the three movies Daredevil, Red Planet and Miss Congeniality in violation of copyright, subsequently uploading the torrent file to a newsgroup. He was convicted of breaching the copyright ordinance, Chapter 528 of Hong Kong law.[citation needed] The magistrate remarked that Chan's act caused significant damage to the interest of copyright holders. He was released on bail for HK$5,000, awaiting a sentencing hearing, though the magistrate himself admitted the difficulty of determining how he should be sentenced due to the lack of precedent for such a case. On November 7, 2005, he was sentenced to jail for three months but was immediately granted bail pending an appeal to the High Court. The appeal was dismissed by the Court of First Instance on 12 December 2006 and Chan was jailed immediately. On 3 January 2007, he was bailed pending appeal to the Court of Final Appeal on 9 May 2007.
On November 23, 2005, the movie industry and BitTorrent Inc., whose CEO is the creator of BitTorrent, Bram Cohen, signed a deal they hoped would reduce the number of unlicensed copies available through bittorrent.com's search engine, run by BitTorrent, Inc. It meant BitTorrent.com had to remove any links to unlicensed copies of films made by seven Hollywood movie studios. As it covered only the BitTorrent.com website, it is unclear what overall effect this has had on copyright infringement.[15]

http://technology.guardian.co.uk/weekly/story/0,,2023191,00.html#article_continue

“The problem for the content companies is, some of the music and other content on BitTorrent is free - helping to acquaint people who'd not otherwise understand how to use the protocol with the process of getting torrent files legally. ISPs will also now be unable to rely on Bittorrent content being illicit - which some use to throttle its bandwidth. How now can they distinguish Bittorrent transfers that have the approval of the content owners, and those that do not? Illicit Bittorrent use could explode: "You can even search for torrents by putting in what you're looking for, then adding 'torrent' in any search engine," the site says helpfully. That'll surely turn up a lot of illicit material if you don't like the prices the film studios have made BitTorrent charge.”

http://www.internetnews.com/bus-news/article.php/3656911

Sony didn’t tell customers about DRM embedded in the cds they were selling. These DRMs tracked listener habits as well as limited the amount of copies that could be made of a particular Cd.

http://www.theregister.co.uk/2004/11/04/mpaa_p2p_lawsuits/

MPAA follows RIAA to sue p2p file sharers.

http://torrentfreak.com/2006-mpaa-vs-bittorrent-sites/

MPAA sues multiple Bittorrent file sharing sites. One case settled out of court the others are still pending.
MPAA v. Pirate Bay

http://www.pcmag.com/article2/0,1895,1853573,00.asp

MPAA anti-piracy lawsuits target individuals.

More Economics

Apple’s biggest future competitor is Wal-Mart. Wal-Mart has recently signed with 5 major studio companies and has opened an online movie store. Along with Apple, Wal-Mart is the only other retailer to not offer a rental service, but rather varying amounts to purchase new releases and older films. Wal-Mart has incredible negotiating power as it is responsible for over 40% of DVD sales in the US. This allowed Wal-Mart to sign deals with all the major studios and aggressively price their downloads less than iTunes ($1.96 for TV shows, $12.88-19.88 for new releases, and $7.50 for older movies). Studios enjoy the ability to offer variant pricing strategies on their films, a source of many problems for iTunes negotiations with them. iTunes has built itself on a successful model of a standard price per download and wants to continue. Apple should possibly consider altering its strategy in response to Wal-Mart’s undercutting in efforts to license more films and maintain its consumer base.

Internet downloading is expected to generate about $4 billion in annual revenue in five years, compared with an estimated $27 billion from DVD rentals and sales, according to Adams Media Research. This discrepancy is the result of viewers continued reliance on watching movies on their TVs. Consumers derive their utility from the ability to comfortably watch movies in their living rooms on a larger screen with better quality. In order to try to capture this overwhelmingly large consumer demographic, Apple should market its new AppleTv more aggressively. This hardware wirelessly syncs a Mac or PC with iTunes to a television set so the viewer can enjoy over 50 hours of video from the comfort of his couch. As this device (for $299) only works with iTunes, it will continue to attract more costumers to iTunes as their preferred download store.

Amazon and TiVo have also noticed the importance of allowing viewers to watch their downloads on their own TVs. Amazon and TiVo have struck a recent deal to allow for movie downloads through Amazon to be played on people’s TVs through their TiVo recorder. This type of technology could be threatening to Apple, but there are currently only 1.3 million compatible TiVo’s in the US for this type of technology. Assuming that not all of the 1.3 million will download movies, this does not look to greatly affect Apple’s sales.

http://www.businessweek.com/ap/financialnews/D8N40R4O0.htm

http://store.apple.com/1-800-MY-APPLE/WebObjects/AppleStore?family=AppleTV

Why might Apple want to use a BitTorrent system to distribute files? According to Businessweek.com, “Distributed delivery is attractive because the technology downloads files by collecting bits and pieces of it from many sources, rather than putting the burden on just one source. That means it costs next to nothing for content owners to distribute movies or music -- a huge advantage over the current approach, in which files are streamed over individual servers and the massive amount of bandwidth required for video can run up huge bills.

One example is MovieLink.com, an online movie store that uses direct-server distribution and is owned by Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros. Studios. The movie store cost the studios as much as $150 million over the last four years, despite selling only about 70,000 downloads a month, according to one source with knowledge of Movielink's financing.”

Although it is too soon to find relevant statistics on the movie downloads from iTunes (given its recent start-up), an inquiry into the iTunes music store proved interesting. Apple currently averages selling about 3 million songs a day at $.99 each. iTunes Music Store also represents 83% of the downloaded music sold on the internet. Yet, analysts say with such low pricing, “Apple's iTunes business roughly breaks even. That's because after paying its partners, such as the music labels, Apple receives only about 25 cents to 30 cents per song. Add in operating costs and the business hovers around the break-even point, said Michael McGuire, an analyst at the industry research firm Gartner.” But these sales help stimulate the sales of iPods, which accounted for half of Apple’s $5.75 billion revenue in the last three months of 2005 alone (14 million iPods).

This would also seem true for its new movie downloads. At prices lower than DVDs, it would be difficult for Apple to earn a high profit from downloads. Switching to a BitTorrent system might lower operating costs so as to give Apple a higher profit margin. Yet, I don’t feel as though it would sufficiently lower the costs of supplying bandwidth to stream the files over individual servers enough to make it economically wise. Apple should run the Movie Store in the same way as the Music Store—not as a mega cash cow, but rather a device to supply locked-in users with video iPods and Macs, hopefully fueling more sales of video iPods or their new AppleTV device. After all, the overwhelming majority of Apple’s profits are the result of its hardware sales.

http://www.businessweek.com/technology/content/may2006/tc20060508_693082.htm

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2006/02/24/BUG9THDRI31.DTL&type=business

How to increase iTunes profits in wake of competition

A November 2, 2006 report from NPD Group on the paid online movie download market shows Apple iTunes as having
a 67% share of the market, with the next closest competitor (Movieflix) at 19% and CinemaNow with 9%. With such a
advantageous position in the market, Apple should not risk the success of the current conventional download format by
switching to an unproven bittorrent system. Doing so may cause customer dissatisfaction as download rates could very
greatly. Instead of switching to a bittorrent system, Apple should look to increase its consumer base and profits by licensing
more films from different studios. 
But as more competitors enter the movie download market, there is reason for Apple to worry. The newest entrants into
the online movie download market are big competitors such as Amazon, Wal-Mart, and Bit Torrent Inc. Although iTunes
is the preferred and trusted store for television downloads for a majority of online users, the new competition offers a wider
selection of movies. Bit Torrent’s Entertainment Network has licensed films from major studios such as: Twentieth Century
Fox, Warner, Lionsgate, Paramount/MTV and MGM. Amazon and Wal-Mart currently offer downloads from the same studios
as BitTorrent, plus both have Sony/Universal and Wal-Mart has Disney. Apple only offers movies from Disney, Miramax, Pixar,
and Touchstone. 
The online movie download market is fresh and developing. Many well-known companies such as AOL, Amazon, Wal-Mart,
Bit Torrent, and NetFlix are just opening download services or are in the process of development. Apple had an earlier entry
into the market than most back in September 2006, and should make every effort to maintain their clientele. Capitalizing on
the enormous success of their television downloads, Apple already has a broad range of costumers that are familiar and pleased
with their current system of downloads. In order to not lose these costumers to other retailers, Apple should not implement the
unpredictable bittorrent system. Although some downloads of highly popular movies may be faster than the iTunes current system,
older films with less demand will tend to have highly variable rates that may frustrate customers. Instead of switching download
networks, Apple should look to license with more studios and offer a wider selection of films with HD quality.

http://blogs.zdnet.com/ITFacts/?p=11995

http://www.cinematical.com/2007/02/26/bittorrent-joins-legit-movie-download-market/

http://www.techcrunch.com/2006/10/24/aol-video-adds-paramount-product-still-lags-market/

More legal
In theory, if Apple chose to charge individually for HD movies, the same way iTunes sells its music, and simply transferred them using a Bittorrent file sharing model, there would be virtually no legal problem. However, because Apple can not expect all of its customers or non-customers to be honest, upright individuals the real world model of this problem is a bit trickier.
If Apple chose to use Bitorrent for transferring video content, which I would not suggest, they may have issues with vicarious copyright infringement. However, I would argue that would likely not be libel for vicarious infringement if they chose to use DRM protection. Obviously by enlisting protection for the materials transferred through the Internet (identical to how they currently transfer songs) Apple would appease groups like the MPAA. On the other hand with strict regulation of how their customers could use their newly purchased videos, I think it may encourage piracy such as creating illegal copies prior to transfer, cracking DRM protection or even hacking into the transfer period to obtain copies. This seems like something that may eventually create a copyright or licensing problem for Apple and is why I suggest they avoid the issue altogether. Overall it is difficult to speculate if in fact Apple would be in the clear if a lawsuit came to head due to the lack of legal precedent in this area.

Brief Legal Update
The largest issues to consider when determining whether or not Apple incorporate Bittorrent file sharing with iTunes are:
1. Can Apple trust that their clients not crack DRMs protecting purchased DVDs?

my response: Probably not. There is already a very strong culture of defeating protection to use your purchased property however you desire. However, if this would be the case with iTunes, it seems like the use of Bittorrent and its copying nature would only further encourage piracy.

2. Can Apple utilize the Bittorrent file sharing model legally?

my response: Probably. Because Apple would hold licensing agreements and be charging for these services, they most likely would not be breaking any copyright laws or licensing agreements as long as they were giving throw backs to the movie companies. On the other hand, once the movies were transferred it would be difficult to control how the customers used their materials.

my sources and case summaries will follow.

justin's paper

Sorry I didn't see his paper had already been published under Brady's as a comment

Justin's Report on BitTorrent

Justin Wickett
2/28/07
Duke 2010

Apple and BitTorrent: A Disaster Waiting to Happen…

As the market for HD-DVDs is on the rise, Apple must come up with an efficient
means of distributing content to their end users. Although many different techniques are
under investigation, BitTorrent has become one of the preferred methods. Currently, any
iTunes user can log in to their account to access the wealth of data stored on Apple’s
servers available for download. By implementing a BitTorrent style system, Apple would
be essentially redesigning their existing system by storing small bits and pieces of files on
their user’s computers. After researching BitTorrent in detail and carrying out various
experiments, I believe that Apple should continue to offer their iTunes store without
incorporating BitTorrent technology.
Apple’s FairPlay DRM is one of the main reasons why BitTorrent is an unfeasible
solution to the issue of HD distribution. Apple encrypts the video content available from
within the iTunes store as protected MPEG-4 files, which require a user key to decrypt.
When a user makes a purchase at the iTunes store, they are essentially using their own
unique key to scramble a file that contains a master key. Only the user with access to this
key can unscramble the file afterwards. Because the way the system is currently set up, it
is impossible to use BitTorrent to access content that has been encrypted by a wide
variety of different user keys. Due to the fact that BitTorrent downloads small portions
from all nearby users, if someone were to download a chunk of data from each uniquely
scrambled file, they would end up having unplayable content. In order to make use of
BitTorrent, Apple would have to come up with a new means of encryption so that all
portions of the file work together.
The lack of simplicity is yet another reason why BitTorrent is not a suitable
replacement. Users who choose the iTunes Store have certain expectations and desire a
straightforward experience. Most torrent applications do not incorporate a dynamic hash
table, thus users are forced to locate and download the torrent they desire to supply the
application with the relevant metadata, tracker, etc... This procedure does not embrace
simplicity, and has the potential to turn many customers away from using Apple’s
product to download HD content.
Constant performance is also lacking on BitTorrent overlaying networks. Even
though popular torrents download at high rates because of large swarms of users storing
and sharing bits of content, as the torrents get older, swarms disappear and seeds have
fewer reason to continue offering their complete version to the rest of the community.
The result is that it takes a shockingly long time to download older and less popular
media using BitTorrent. While the Apple iTunes Store might never reach the download
rate peaks BitTorrent users experience, it doesn’t suffer from the extremely slow rates
exhibited when only one person is a seed. Customers expect constant performance for all
types of media. I did a test comparison to determine whether or not BitTorrent allowed
me to download “The Hunt for Red October” any faster than the traditional iTunes Store.
I was shocked to discover that my 1.46GB download took merely 9 minutes, and even
more amazed to see that my BitTorrent client informed me that I had 17 hours remaining.
Even though “The Hunt for Red October” is an older movie released in 1990, the fact that
my BitTorrent client was only able to connect to 7 seeds is unacceptable. On top of that, I
was able to watch my video from iTunes while it was in the process of downloading,
which is impossible in BitTorrent due to bits and pieces arriving out of order.
BitTorrent also violates people’s privacy by forcing users to allow uploads in
order to enjoy high download rates. People who purchase content from Apple have the
right to keep their transaction confidential. However, BitTorrent would attempt to
download private content from nearby seeds without first seeking their approval. Apple
iTunes already offers adult-oriented material, and as adult oriented HD-DVDs become
increasingly popular, people may not want to disclose to nearby nodes their entire library.
In a BitTorrent system, someone who attempted to download pornographic content could
see all of the nearby seeds that have already purchased it due to the way IP addresses are
disclosed. This could lead to very embarrassing situations and privacy violations, which
could result in potential lawsuits.
While BitTorrent does provide its users with many benefits, Apple’s conventional
method of distributing media content to purchasers seems to work very well. While a
single layer HD-DVD is capable of storing up to 15GB of content, Apple must dedicate
more hardware and bandwidth to ensure that their customers can enjoy fast download
speeds. Requiring users to rely on a BitTorrent client adds complexity and is counter
productive to Apple’s end goal of being the number one HD-DVD distributor.

Sources:
http://online.wsj.com/public/article/SB112199964473193071-
wHD0jEWmn1XrxuhE5HgGCs4siD0_20060721.html?mod=tff_main_tff_top
http://www.tracktrap.com/whatis.php
http://portal.acm.org/citation.cfm?id=1015508
http://www.roughlydrafted.com/RD/RDM.Tech.Q1.07/2A351C60-A4E5-4764-A083-
FF8610E66A46.html

Email updates

Here are emails our group has used to determine our arguement: (newest on top)

Who is the person in charged of making money? I personally don't understand at all how a BitTorrent style system could ever be profitable. What do people purchase when they select a movie or song from the all new iTunes that relies on bit torrent? Do they get a torrent file from an Apple sponsored tracker? What if someone were to create their own torrent and use their own tracker system?
Apple can't register the file to a single user, since the same exact file is being passed around throughout the "swarm" of users in bits and pieces. Because of this, the video file cannot be encrypted using Apple's conventional .m4v algorithm, since the torrent users in the swarm will not have the original user's key, and thus will not be able to decrypt the purchased video. If the content is decrypted however and not registered to a single user, it can be passed around to everyone. This means that the entire video section of the Apple iTunes store has to be recreated to address this issue, which not only would take time and money, but would probably result in problems concerning users not being able to understand the new interface.
For the reasons mentioned in my email, I believe that we should be against using BitTorrent in the Apple iTunes store.
Justin Wickett


But, that movie is from 1990 - through my limited knowledge of bittorrent older stuff is always going to be slow. Could we see how fast a new movie comparison might be? This would deefinitely be a disadvantage for apple using bittorent bc when movies fall out of popularity they are going to be slow.
hayley

I have never even used bit torrent before. I just downloaded The Hunt for Red October on Bit Torrent and Apple iTunes store. It took me 7 minutes to download the 1.4 GB movie from Apple, whereas my BitTorrent client still has 19 hours remaining... If you do the math, I think the answer is pretty straight forward. I will write a mini-paper tonight concerning the advantages of Bit Torrent, and discuss my findings. My friend also claims that I can watch the movie as it downloads from Apple, but I wont be able to watch while it downloads from Bit Torrent. Do you guys have any experience downloading illegal music and videos? Is this true? Thanks
Justin Wickett

I can go either way pretty much also.
- Hayley

I think by our check tomorrow we are supposed to have our main argument for the proposal. Personally, I could argue either way whether or not we should tell Apple to do it or not. Hayley or Justin, what are you guys thinking? If you tell me what you are thinking (to use the bittorrent system or not) then I can go ahead and make economic advisements. Thanks!
Brady

Don't Change Horses Mid-stream

Second Economic Report:

After consulting with Justin, Hayley, and Marion, I feel that Apple switching to the BitTorrent distribution system is currently not an economically sound investment.

With Bit Torrent, Inc.’s new Entertainment Network just being released, initial reports on the effectiveness of the network to distribute protected multimedia are shaky. A report on the system by “Ars Technica” showed many early flaws in the Bit Torrent Entertainment Network. According to the report, many of the problems found by the user were the result of Bit Torrent’s increased focus on legality. This caused two blocked attempts from the user to purchase movies, saying she was in a country that was not permitted to use the system. But the user’s billing address and computer location were registered in Chicago, IL. Next there were problems with the compatibility issues of DRM between Mac and PC users. This would be a problem that Apple would have to research and develop a new system of DRM that could be costly R&D. Upon the final successful completion of a download, when attempting to view the movie, the user was met with a prompt that declared “the media usage rights for the file are not valid.” Also, the download of the popular new release, “Nacho Libre,” took 47 minutes to complete. In Justin’s trial download from iTunes, “The Hunt for Red October” too barely 9 minutes.

This trial of Bit Torrent’s attempt to legally distribute licensed media raises many economic concerns if Apple were make the same attempt. Many encrypted bits of data from many different users would could cause problems (such as in the report) that may affect the user’s viewing experience. A recent study of the iTunes Music Store shows its growing popularity among internet users. In November 2006 alone, the Music Store attracted 20.8 million new users. This is reflected in iTunes revenue in the first three quarters of 2006 being up 84% from the first three quarters of 2005. And iTunes’ popularity continues to soar. Initiating a new unproven system in the hopes of delivering HD DVD movies more quickly is inherently risky. But the risk is even greater given iTunes’ success and popularity. If users have a frustrating experience like the trial of Bit Torrent’s system, Apple could be at a huge risk of alienating its loyal consumer base.
Consumer confidence and familiarity are certainly not to be overlooked. iTunes currently has a simple, artistic, and enjoyable interface that has attracted many customers. I feel Apple must take a risk-averse approach to completely altering its downloading format.

The need for alteration of downloading format is in fact very questionable. iTunes users have come to rely on paying for a download and receiving their movie order in a short time, in many times shorter than BitTorrent. BitTorrent’s own Vice President stating, “the download time [of BTEN] is analogous to downloading from [Apple's] iTunes.”
Many users enjoy the ability to begin a movie download and begin viewing it as the download is in progress. Essentially, this could cut the waiting download time down to just a couple of minutes. This is unfeasible under the BitTorrent system where separate pieces of data arrive in random order and must be pieced together upon completion of the download. Apple’s current system is arguably faster, more reliable, and more assuring then BitTorrent. When a user downloads from iTunes, he knows he is receiving his movie directly from a reliable and reputable Apple Server. Many concerns can be raised when consumers are forced to start downloading from other unknown users that could be potentially harmful.

Apple already holds a strong share of the online movie download market. Mac users are locked in to using iTunes as a downloading platform, and PC users are given the option—which many choose to accept. Coupled with this is the incredible importance of the video iPod. “total iPod sales reached 88,701,000 units as of January 2007.” Users hoping to download movies must use iTunes and Apple’s DRM to play on their iPod. This gives Apple a quasi-monopoly on a fairly sizeable consumer base of iPod users and Mac loyalists. There does not seem to be a need to change their current pricing strategy of $14.99 for new releases and $9.99 for all other movies. This standard pricing strategy (modeled on the $.99 per song Music Store pricing) has been one of Apple’s greatest causes of success.

Since nearly 48% of Apple’s profits are a result of iPod sales, I would advise them to spend investment funds on developing a new piece of hardware through which to play movies downloaded from iTunes. Although the video iPod is an option, some type of small portable device with a larger display more geared toward viewing would result in greater sales from users forced to download from iTunes. It is smarter to force consumers to purchase movies from iTunes after they buy their hardware than to try to attract them by “hopeful” better download times after investing in a new BitTorrent system.

Finally, the HD-DVD/Blu-Ray market has yet to be proven a wild success. Not all new releases are even formatted to this new standard. Yet, if they do prove to be successful, Apple may have to dedicate more hardware and bandwidth to its iTunes infrastructure to ensure reliable downloads. But this investment would be less risky (Apple would simply be expanding what it has already found success) than applying funds into a BitTorrent experiment that could have high detrimental effects on Apple’s role in the future of online movie downloads.




Sources:

http://arstechnica.com/news.ars/post/20070227-8929.html

http://www.macdailynews.com/index.php/weblog/comments/comscore_apple_itunes_sales_are_surging_revenue_grew_84/

(http://www.pcmag.com/article2/0,1895,2098221,00.asp)

(http://www.techcrunch.com/2006/10/15/itunes-movies-v-the-rest/).

http://en.wikipedia.org/wiki/Ipod

Progress Check #2

The Progress updates from all members will appear as comments to this post.

Check in #1

Here is the progress blog for Marion, Justin, Brady, and Hayley!