Invasion of the Movie Snatchers

Jack Valenti, the firebrand longtime head of the Motion Picture Association of America (MPAA), was never one to mince words. As the movie industry's chief lobbyist, he knew how to portray his business's challenges in dramatic terms. Back in the 1980s, faced with new technology that supposedly threatened the studios' bottom line, Valenti once famously compared the VCR to the Boston Strangler.

Rhetoric like that took the battle against Betamax all the way to the Supreme Court, which ruled against the movie industry and helped establish the right of fair-use copying. We all know what happened to the VCR: not long after that defeat, the studios discovered that tape rentals were even more of a cash cow than movie tickets.

Fast-forward a generation. This time the supposedly disruptive technology facing the film industry is peer-to-peer networking. Whereas the original Napster offered free music only and was easy to shut down, its successors Kazaa, Grokster, Morpheus et al.--trade movies too and have proved more resilient. The music labels fought all instances of unfettered file sharing until Apple CEO Steve Jobs helped broker a cease-fire in the form of the iTunes Music Store, which won praise from consumers and a route to profits for the labels. The film industry, however, is still in the trenches, trying to stall what it sees as an onslaught of movie theft. Already as many as half a million movies are swapped online every day, according to the MPAA. But a diverse chorus of critics says that Hollywood is on the wrong track and that file sharing may well hold as much potential profit as the VCR did.

The industry's efforts to block the new technology in the courts aren't going well. Last month a Federal Court of Appeals declared Grokster and Morpheus as legal as a VCR or a Xerox copy machine, whose legitimate copying uses outweigh illegitimate ones. The movie industry is furious. "These are folks who hide behind a curtain of plausible deniability, like they don't know what's being traded on their networks," says Dan Glickman, a Clinton Cabinet member and former Democratic Congressman who took over the helm of the MPAA after Valenti retired.

Now Hollywood is pinning its hopes on a new tactic: federal legislation that would essentially target file-sharing technology. If passed, the so-called Induce Act, backed by such powerful legislators as Senate majority leader Bill Frist and Senator Hillary Clinton, would close the legitimate-copying loophole and empower the MPAA to sue peer-to-peer file-sharing services like Grokster after all. Opponents of the bill include usual suspects like the Electronic Freedom Foundation the A.C.L.U. of the digital world but also a surprising number of big businesses.

Internet service providers like Verizon and gadget stores like Radio Shack say the act's wording is too draconian and makes them liable if customers use their wares to break copyright law. "It will be hard for us to introduce any digital product or service that delivers entertainment content," argues Sarah Deutsch, general counsel for Verizon.

At the same time, the studios can't exactly argue that file sharing is about to put them out of business. DVD sales, which grew 33% last year, and box-office receipts have never been stronger. So if technological breakthroughs were a boon for the movie industry in the past, why is the industry acting as if the sharing of movies online, as Valenti said a year ago, heralds the "undoing of society"?