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Sony's Grouper Hug

Grouper Check out Chris Gaither and Dawn Chmielewski's piece in today's LA Times about Sony Pictures Entertainment buying Grouper. Much has changed about Grouper since, oh, YouTube and MySpace became hugely popular. The company originally distributed peer-to-peer software that let users share music, pictures and videos with up to 30 of their closest pals. In the past year, though, it stapled on a Web-based community-video application that looks a lot like YouTube. Voila, the company is worth $65 million. Nice exit strategy! You don't see many file-sharing companies selling for that kind of money. In fact, they tend to be paying that kind of money to get out from under entertainment-industry lawsuits.

As much as this deal looks like a poor man's version of News Corp.-MySpace, Grouper's peer-to-peer features add an intriguing twist. You've got to wonder whether Sony, which has a mixed record with community-based software online (Everquest on the one hand, Screenblast on the other), will be able to harness their power for viral distribution. But the p2p software is a double-edged sword (as is Grouper's reliance on user-supplied videos): the more popular the software becomes, the more copyright-infringement headaches it will bring. The quick-and-easy aspirin fix is for Sony to phase out the file-sharing capabilities, but that would sap some of Grouper's potential as a distribution platform.

There's also a strategic element for Sony Corp., most of whose revenues still come from the electronics side of the business. Grouper is part of a growing horde of broadband video applications that cry out for an easy route to TV sets. The content moving online may be spotty, but it includes programming from all the major networks. Increasingly, that content is time-shifted TV -- in the past few days, Fox and ABC announced plans to make hit shows available online for free shortly after they air, as ABC did for a few months earlier this year and CBS has said it will do this fall. All this activity is stoking the market for a new breed of Sony TV that can display video from the Net as easily as it does from the nets.

Set manufacturers have tried to peddle "smart TVs" before, on the mistaken assumption that more than a few people wanted to surf the Web and write e-mails on their TV sets. More recently, the PC industry has tried to sell digital media adapters that enable TVs to play audio and video files stored on a computer elsewhere in the house. And both Microsoft and Apple have offered software that can turn a computer into an advanced set-top box, if you're willing to put the computer next to a TV set. None of these approaches, though, seems fit for the mass market.

Sony, Panasonic and other Japanese TV manufacturers are reportedly working on a standard way to make Internet-enabled TVs. Rather than relying on a set-top box, these models would simply plug into a home network and rely on their own computing power to browse the Web. (A natural offshoot would be to make enhanced TV receivers that could bring the Net to existing digital TV monitors.) Of course, it won't be easy. Perhaps the most popular outlet for TV programs online has been Apple's iTunes Music Store. Apple relies on a DRM that it (so far) refuses to license to any other company. Still, the new sets could cover much of what's available by working with Microsoft and Google's DRMs, as well as such would-be universal systems as the Coral Consortium's. Here's hoping set manufacturers find a way to handle a wide range of video options online, both free and paid, even if a rapprochement between Apple and competing DRMs seems like an impossible dream.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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