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BitTorrent Bubbles Up

Kevin Kelleher

Finally, there is a start-up that just may become the next gigantic tech IPO. I mean, on the scale of eBay or Amazon.com (AMZN) in the 1990s or, more recently, Google .

Don't laugh: It's BitTorrent.

Yes, I know. There are plenty of obstacles between BitTorrent, the maker of lightning-fast file-sharing software, and the public markets. The software is seen as the tool of choice for those pesky music and movie pirates, its not as intuitive to use as other peer-to-peer programs, and, like Napster before it, it risks being sued into oblivion.

But BitTorrent has been quietly working during the past year to become more palatable to the mainstream. Above all, it's been working with major content companies to show its technology can help replenish their profits, rather than deplete them.

And with YouTube taken out of the running by Google and social networking sites like Facebook starting to lose the youthful allure they had even a few months ago, there aren't a lot of strong candidates left. BitTorrent may be a dark horse, but if it can overcome the hurdles before it, it's a horse that could deliver remarkable returns in short order.

On Wednesday, according to tech news blogs GigaOm and TechCrunch, BitTorrent received $25 million in funding in a private investment round led by Accel Partners (which has backed companies such as Macromedia and RealNetworks in the past). Neither the company nor its reported investors have made a formal announcement.

But BitTorrent did announce that it had reached licensing deals for movies and television shows from the likes of News Corp.'s (NWS) 20th Century Fox, Lions Gate Entertainment and Viacom properties such as Paramount Pictures and its Comedy Central, Nickelodeon and MTV cable networks.

That news follows earlier licensing deals with Time Warner's (TWX) Warner Bros. Home Entertainment and several smaller studios.

It's easy to read about those licensing deals and be skeptical. After all, the same studios have inked agreements with other companies, notably Amazon and its undead Unbox offering, with little impact. And Napster tried to negotiate with the big media companies before it was shut down.

But much of BitTorrent's popularity is due to its ability to break the download bottleneck. Rather than load a file from a single server to any and all PCs that want it, BitTorrent's software divides up a file so that users essentially download it from each other. Not only is BitTorrent faster and less taxing on bandwidth resources, it's also cheaper than conventional downloading.

So, if Internet users have taken to the grainy 10-minute videos on YouTube, imagine how they'd feel about downloading high-quality, full-length movies.

The other obstacle preventing widespread adoption of video downloading is the restrictions placed on using them -- many can't be played on a DVD player and some, unlike a standard DVD, expire after a few viewings. It seems like BitTorrent may start off with similar restrictions, but if consumers give in to common sense and object, this will probably end soon enough.

As for the Napster analogy, I'd argue that BitTorrent is in some ways the opposite of Napster. When Napster fell, the supposed lesson was that its technology, in helping to spawn the free downloading of copyrighted music, doomed its financial prospects.

But in retrospect, that was the smaller part of a bigger story. The real reason Napster failed was that the record labels chose to stamp out a technology that could have helped them drive up profits. They found a gift horse, and smothered it.

Movie studios have had every chance to take BitTorrent to court, but they haven't tried. Instead, they've taken on sites offering pirated content and signed deals with BitTorrent. Maybe that's because, this time around, they realize that blaming BitTorrent for piracy is like blaming DVD disk manufacturers for pirated copies of Hollywood films that are commonplace abroad.

The bigger obstacles facing BitTorrent aren't potential lawsuits, but that many potential users still harbor misperceptions of what BitTorrent can really do. Many in particular are tentative of allowing others to use their Internet connections to upload movies onto their PCs.

Another barrier is that BitTorrent could be bought out by a larger company first. It's always hard to read the mind of Google's management, but they must be at least considering a BitTorrent buyout, if for no other reason than it would completely sew up for them the emerging market of online video.

But if BitTorrent can work out the kinks and make it public, it could make current broadcasting even less relevant than it is now, and be a boon for Internet service providers, online advertisers and storage companies. It just might be that big.