How the FCC killed BitTorrent's promising business

When Comcast was caught blocking file sharing on its network, the Federal Communications Commission seemed to strike a blow in favor of peer-to-peer startups everywhere by fining the cable company. Observers assumed that the FCC decision would open the field for file sharing to turn into a legitimate business. But for BitTorrent Inc., a San Francisco startup seeking to commercialize the BitTorrent file-sharing protocol, the move against Comcast led to layoffs instead. The ruling may ultimately prove fatal to the company.

The problem for Comcast and other Internet service providers is that they can no longer block file-sharing traffic from their networks. And yet file-sharing usage is consuming more and more bandwidth, which they must pay for. Broadband providers are businesses, not charities. So they are increasingly considering charging their users by the bit for bandwidth over a certain level. Most users won't be affected, but file-sharing downloaders will be.

The prospect of pay-by-the-bit bandwidth had immediate consequences for BitTorrent's two main businesses: an online-media store delivered via file sharing, and a content-delivery network which competed with the likes of Akamai and Limelight Networks.

For users who would have to pay bandwidth fees to their ISPs on top of paying the usual charges, BitTorrent's Torrent Entertainment Network store would soon look uncompetitive with the likes of Apple's iTunes Store and Microsoft's Xbox Marketplace — which prompted Best Buy to back out of talks to acquire TEN for $15 million.

As for BitTorrent's content-delivery network, it was premised on the notion that BitTorrent would negotiate with ISPs to get privileged delivery for their file-sharing packets, while Comcast blocked others. With the FCC forcing Comcast to treat all file-sharing traffic equally, the promise of that business evaporated.

Which leaves BitTorrent with not much of a business. As the first Napster showed, peer-to-peer file sharing is easy to make popular — and surpassingly hard to make profitable. BitTorrent may have improved on Napster's technology. But it never solved the fundamental business problem.