Vid sites could be a legal landmine

Sony Pictures is learning the downside of owning a video-sharing Web site.

Grouper Networks, the Netco the studio bought this summer, and media-sharing site Bolt.com have been sued for copyright infringement by Universal Music Group. Last week, U Music inked a revenue-sharing deal with YouTube.

The lesson for other video Web sites is clear: Start sharing revenue or you’ll be sued by Universal Music.

Lawsuits indicate video-sharing Web sites may be the next target of content owners’ legal wrath, now that most peer-to-peer networks are being shut down in the wake of the Supreme Court’s Grokster decision.

That could mean major headaches for Google, Sony Pictures and other big media companies acquiring video-intensive Netcos, which will now have to defend them from legal action over copyright. In its suit, UMG said it “reserve(s) the right to add SPE as a defendant once the nature and full extent of SPE’s relationship with Grouper.com is known.”

No other labels have joined Universal Music in its lawsuits. An exec at another major label said his company isn’t eager to sue any of the video sites since it is in negotiations to do business with several of them.

U, however, has been particularly vocal over concerns that video sites are building their businesses on piracy. Weeks before making the deal with YouTube, UMG topper Doug Morris blasted the Netco and others like it, stating: “We believe these new businesses are copyright infringers and owe us tens of millions of dollars.”

Morris is concerned about the posting of Universal musicvideos online and use of the diskery’s music in user-generated videos.

The two suits were filed just a week after UMG signed a deal with YouTube to share revenue from advertising that appears on a Web page when U Music works are being played on the No. 1 video site. Google bought YouTube for $1.65 billion the same day that several major labels announced their deals with Google Video and YouTube.

Grouper and Bolt are both relatively small video sites with significantly less traffic and content than players such as MySpace Videos, Yahoo Video and Break.com. Nonetheless, UMG said both sites had significant copyright infringement and encouraged users to further violate copyright laws. UMG may hope to use them as examples to pressure bigger Netcos into signing deals.

UMG claims it reached out to Bolt in an attempt to settle before suing, but Bolt CEO Aaron Cohen disputed that. “We had no idea they intended to sue us,” he told Daily Variety. “I have had no interaction with Universal Music Group.”

However, it seems Universal Music may stand alone in taking an adversarial approach. Not only is it the only label to sue a video Web site, but no network or studio has filed any suit, even though TV piracy is extremely common on such sites.

Thus far, most have asked Web sites to take down their content once it is identified. They seem likely to follow the example set by CBS, which recently signed a revenue-sharing agreement with YouTube.

It’s part of a new attitude among many media companies: Focus more on the potential revenue to be made from online distribution than the potential losses from piracy.

” ‘Innovation’ that breaks the law and runs roughshod over the rights of content creators is not innovation at all,” Universal Music said in a statement. “User-generated sites like Grouper and Bolt, that derive so much of their value from the traffic that our videos, recordings and songs generate, cannot reasonably expect to build their business on the backs of our content — and the hard work of our artists and songwriters — without permission and without in any way compensating the content creators.” 

Reps for both Grouper and Bolt issued statements noting they take down copyrighted content when notified by owners such as UMG. Grouper CEO Josh Felser called the lawsuit “without merit.”

Universal is seeking $150,000 for each infringed work, which could easily add up to hundreds of millions of dollars for both Netcos.

In the Grouper suit, Universal singled out nine works, including songs by Mariah Carey, 50 Cent and Black Eyed Peas; in the Bolt case it mentioned six, including tracks from Bon Jovi, Fall Out Boy and the Killers.

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