Video Pirates in the Caribbean?

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It could be “YouTube: Part Deux”— and content owners may not like this sequel any better than the original.

The two Scandinavian dudes who gave the world Skype, the free Internet-phone startup bought by eBay last year for $2.6 billion, are dabbling in a new venture that is targeting high-quality video delivered over the Internet. Copyright owners — and YouTube — should be watching closely.

The startup, whose registered name is Baaima N.V., is developing a service that “combines the best things about television with the social power of the Internet.” Code-named The Venice Project (www.theveniceproject.com), the service is being spearheaded by European entrepreneurs Janus Friis and Niklas Zennstrom, who not only fathered Skype but KaZaa, a file-swapping service that the music industry sued for copyright infringement.

ATTACKING COSTS

The idea, apparently, is to mimic YouTube’s wildly popular video-sharing site, combining both user-generated segments with professionally produced video content. YouTube was slurped up last week by Google in a $1.6 billion deal reminiscent of the days of dot-com delirium (see related story, page 4). But Friis and Zennstrom hope to overcome what has been one of YouTube’s biggest shortcomings: Bandwidth and server-hosting costs.

The Venice Project, as described in an Oct. 5 BusinessWeek article, will use proprietary software that relays video streams among individual computers connected to the service rather than pulling video from central servers. That so-called peer-to-peer architecture, in theory, would greatly reduce the need for massive Internet pipes and servers, which YouTube has needed to install to keep up with demand.

There’s another wrinkle. Despite its name, The Venice Project isn’t based in Italy. Its headquarters is on Curacao, a Caribbean island that’s part of the Netherlands Antilles.

Curacao? To some analysts, that alone indicates that The Venice Project crew is intent on skirting U.S. copyright laws.

“If you’re based in Curacao, that’s a red flag right there,” said Mike Goodman, a digital media analyst with Yankee Group. “I think they’re definitely trying to get around the DMCA.”

That would be the U.S.’s Digital Millennium Copyright Act of 1998, which says service providers are not liable for transmitting content deemed to infringe on a copyright but stipulates that they must promptly remove any copyrighted material when notified by the content owner.

This is YouTube’s other Achilles heel. Many industry observers think the company isn’t immune from lawsuits from copyright holders whose content has become the site’s most popular attraction. While YouTube has inked deals with the likes of CBS, Universal Music Group and Sony BMG Music Entertainment, all it takes is one media company to decide it’s not going to play along to cause legal headaches, said Josh Bernoff, principal analyst at Forrester Research.

“You can’t host copyrighted content and say, 'Hey, it’s not our problem,’ ” he said. “That isn’t going to cut it anymore.”

NOT LAWSUIT-PROOF?

The Venice Project may be attempting to avoid a legal thicket by arguing that it doesn’t actually host any content, since the service, as planned, would distribute video via peer-to-peer software. In 2003, Zennstrom told The Wall Street Journal that he considered the technique used by his PeerCache peer-to-peer file-distribution project to be legal in the U.S. and Europe.

Being based in Curacao could also discourage lawsuits, or at least make them more difficult to pursue, said John W. Dozier Jr., an intellectual property lawyer in Glen Allen, Va. Still, he added, “if they infringe on content, they’re going to get their butts sued wherever the infringement is happening.”

Kate Larkin, who’s been hired as the New York-based director of public relations for The Venice Project, strongly denied that Baaima’s brainchild is trying to evade U.S. copyright laws.

“We’re working collaboratively with our content partners,” she said, declining to name any content producers the company has approached. The fact that Baaima is based on Curacao “has nothing to do with copyright [infringement] — that would be completely against our model.”

By press time, however, Larkin had not provided an explanation for why the company is incorporated in the Caribbean.

Baaima’s Web servers are based in Amsterdam, according to an Internet-network trace of theveniceproject.com. The company’s domain name, meanwhile, is registered to one Fredrik de Wahl, who had worked with Friis and Zennstrom on another peer-to-peer networking project, Joltid Ltd.

The phone number listed for de Wahl in Curacao was answered by a receptionist for Ascor Trust Co., an independent trust company with offices in Curacao, Aruba, The Netherlands and Switzerland. She said de Wahl is based in the Netherlands. Larkin said Baaima company executives were “not ready at this point to talk.”

And what’s eBay’s role in all this?

EBay spokesman Hani Durzy said the company doesn’t have an ownership stake in The Venice Project. But he acknowledges that eBay is granting Zenn-strom, Skype’s CEO, and Friis, its director of strategy and innovation, the latitude to freelance on their latest pet project.

“We knew when we bought Skype that these guys were serial entrepreneurs,” Durzy said. “EBay has always encouraged them to pursue their passions. This new effort is an example of that. But both remain committed to [Skype], in the same positions they have been in.”

Even if The Venice Project manages to convince content producers that it’s not a pack of pirates from the Caribbean, there’s no guarantee the service will accumulate enough eyeballs to be interesting, notes Yankee’s Goodman.

“You’ve got to be better than the market leader, which is YouTube, and not just as good,” he said. “To a consumer, what do I care that the guys from Skype are doing this? It’s about having scale, having the videos I want to see, and having a usable interface.”

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