SAN FRANCISCO (AP) – Microsoft is scrambling to preserve what’s left of its kingdom.

Since the company released its Windows operating system in 1985, most of the sequels have been variations on the same theme. Not that it mattered much. Regardless of the software’s quality, Microsoft managed to remain at the center of the personal computing universe.

The stakes are much different as Microsoft Corp. puts the finishing touches on Windows 8 – perhaps the most important piece of software the Redmond, Wash., company has designed since co-founder Bill Gates won the contract to build the first operating system for IBM Corp.’s personal computer in the early 1980s.

A test, or “beta,” version of the revamped operating system will be unveiled Wednesday in Barcelona, nudging Windows 8 a step closer to its anticipated mass market release in September or October. The company will offer the most extensive look at Windows 8′s progress since it released an early version of the system to developers five months ago.

Microsoft designed Windows 8 to help it perform a difficult balancing act. The company hopes to keep milking revenue from a PC market that appears to be past its prime, while trying to gain a stronger foothold in the more fertile field of mobile devices. It’s a booming market that, so far, has been defined and dominated by Apple Inc.’s trend-setting iPhone and iPad and Google Inc.’s ubiquitous Android software.

“Microsoft’s future path is riding on Windows 8 and its success,” said Gartner Inc. analyst David Cearley. “This is a chance for Microsoft to re-establish itself in a market where it’s becoming increasingly irrelevant.”

If Windows 8 is a hit, it could also help lift the fortunes of struggling PC makers, including Hewlett-Packard Co. and Dell Inc. Besides giving businesses and consumers a reason to consider new PC purchases, Windows 8 is expected to spawn a new breed of hybrid machines that will be part tablet computer, part laptop.

If Windows 8 is a flop, however, it will increase the pressure on Microsoft CEO Steve Ballmer. His 12-year reign has been marred by the company’s troubles adapting to an Internet-driven upheaval. As Microsoft has stumbled, faster-innovating companies such as Apple and Google have elbowed their way into a position to steer the direction of computing for the next decade or two.

Ballmer, known for his zealous faith in Microsoft, hails Windows 8 as the catalyst for an exciting – and lucrative – new era at the 37-year-old software maker.

Investors seem to be believers, too. Microsoft’s stock gained 52 cents Tuesday to close at $31.87, the highest closing price since April 2008. The shares have climbed by 23 percent so far this year. By comparison, Apple’s stock has surged 32 percent during the same period, while Google’s shares have dropped 4 percent.

Microsoft’s financial performance traditionally improves when it releases a new version of Windows. The last upgrade came in October 2009 when Windows 7 hit the market. The company has sold more than 525 million copies of Windows 7 since then. Part of Window 7′s success stemmed from pent-up demand; the previous version, Vista, was so clunky and buggy that many PC users stuck with the system they already had on their machines or switched to Apple’s technology on Mac computers.

Windows 8 is radically different from its predecessors. The system won’t even have Microsoft’s familiar “Start” menu. All applications are spread across a mosaic of tiles, as part of a design Microsoft calls “Metro.” The tiles, which resemble road signs, can be navigated with a swipe of the finger on the display screen or with a keyboard and a computer mouse. The tiles also provide a glimpse at the activity occurring in applications connected to the Web, such as email.

The system also is expected to enable users to easily back up their pictures, movies, music and other files on a Microsoft storage service called SkyDrive, which will compete against Apple’s iCloud.

The operating system’s versatility means it can be used to power computer tablets, as well as traditional PCs.

Microsoft badly wants a piece of the tablet market that has been cutting into PC sales since Apple introduced the iPad two years ago.

In the quarter that included the holiday shopping season, Apple shipped 15.4 million iPads, more than doubling the volume from the same time a year earlier. Meanwhile, worldwide personal computer sales dipped slightly, and Microsoft’s revenue in its Windows division declined 6 percent. It marked the fourth time in the past five quarters that Microsoft’s Windows revenue has fallen from the previous year.

Reversing or slowing that trend is critical for Microsoft. It still relies on the PC industry for about 55 percent of its revenue, according to Nomura Equity Research analyst Rick Sherlund. “The launch of Windows 8 should provide a few years of robust growth and opportunity for Microsoft to reposition itself to better defend its position against challengers,” Sherlund wrote in a note after Microsoft reported the latest erosion in its Windows division.

Besides spurring more sales of the new operating system, Windows 8 is likely to drive demand for the next generation of the Office suite, another major moneymaker for Microsoft.

Windows 8 could inspire more PC makers to design machines that combine the convenience of tablets with the utility of a notebook computer. These devices would be similar to the so-called “ultrabook” computers that offer a Windows-based version of Apple’s lightweight MacBook Air machines. Once Windows 8 is available, the ultrabook line could be expanded to include machines equipped with a screen that swivels off the keyboard to take advantage of the system’s touch controls and provide a tablet-like experience.

Microsoft clearly envisions Windows 8 becoming the foundation for pure tablets, too. That’s why it’s developing a version of Windows 8 that can run on the more tablet-friendly microprocessor technology licensed by ARM Holdings. That version will complement the Windows 8 design that will run on the Intel Corp. and Advanced Micro Devices Inc. chips that power most PCs.

HP, the world’s largest PC maker, is already counting on Windows 8 to deliver better times. The company’s division that includes desktop and laptop computers suffered a 15 percent drop in revenue during its more recent quarter ending in January. CEO Meg Whitman said last week that HP expects to release PCs and tablets running on Windows 8 in time for the holiday shopping season. HP’s Windows 8 product line will include a tablet designed for corporate customers.

The biggest question hanging over Windows 8 is whether the long wait for the software will leave Microsoft hopelessly behind Apple and Google in mobile computing.

Whatever headlines Microsoft grabs during Wednesday’s preview are likely to be quickly overshadowed next week when Apple is expected to show off the third version of the iPad.

Meanwhile, Google says more than 300 million smartphones and tablets are already running on its Android software, with another 850,000 devices getting activated each day. At that rate, another 155 million to 180 million devices could be running on Android by the time Windows 8 comes out in September or October. As it is, a version of Android is already running the second hottest-selling tablet, Amazon.com Inc.’s Kindle Fire.

“Microsoft is late to the game and this is a different game than they have been playing,” Cearley said. “But if they hit a home run with Windows 8, it could still turn some things around.”

CHICAGO (AP) – Whether it’s pruning friends lists, removing unwanted comments or restricting access to their profiles, Americans are getting more privacy-savvy on social networks, a new report found.

The report released Friday by the Pew Internet & American Life Project found that people are managing their privacy settings and their online reputation more often than they did two years earlier. For example, 44 percent of respondents said in 2011 that they deleted comments from their profile on a social networking site. Only 36 percent said the same thing in 2009.

The findings come a day after the Obama administration called for stronger privacy protections for people who use the Internet, mobile devices and other technologies with increasingly sophisticated ways of tracking them. Pew’s findings suggest that people not only care about their privacy online but that, given the tools, they will also try to manage it.

Along those lines is “profile pruning,” which Pew reports is on the rise. Nearly two-thirds of people on social networks said last year that they had deleted friends, up from 56 percent in 2009. And more people are removing their names from photos than two years ago. This practice is especially common on Facebook, where users can add names of their friends to photos they upload.

Among other findings:

- Women are much more likely than men to restrict their profiles. Pew found that 67 percent of women set their profiles so that only their “friends” can see it. Only 48 percent of men did the same.

- Think all that time in school taught you something? People with the highest levels of education reported having the most difficulty figuring out their privacy settings. That said, only 2 percent of social media users described privacy controls as “very difficult to manage.”

- The report found no significant differences in people’s basic privacy controls by age. In other words, younger people were just as likely to use privacy controls as older people. Sixty-two percent of teens and 58 percent of adults restricted access to their profiles to friends only.

- Young adults were more likely than older people to delete unwanted comments. Fifty-six percent of social media users aged 18 to 29 said they have deleted comments that others have made on their profile, compared with 40 percent of those aged 30 to 49 and 34 percent of people aged 50 to 64.

- Men are more likely to post something they later regret. Fifteen percent of male respondents said they posted something regrettable, compared with 8 percent of female respondents.

- Possibly proving that with age comes wisdom, young adults were more likely to post something regrettable than their older counterparts. Fifteen percent of social network users aged 18 to 29 said they have posted something regrettable. Only 5 percent of people over 50 said the same thing.

Pew’s phone survey of 2,277 adults was conducted in April and May 2011. It had a margin of error of plus or minus 2 percentage points. The data about teens came from a separate phone survey Pew conducted with teenagers and their parents.

SIMI VALLEY, Calif. (AP) – When AT&T started slowing down the data service for his iPhone, Matt Spaccarelli, an unemployed truck driver and student, took the country’s largest telecommunications company to small claims court. And won.

His award: $850.

Pro-tem Judge Russell Nadel found in favor of Spaccarelli in Ventura Superior Court in Simi Valley on Friday, saying it wasn’t fair for the company to purposely slow down his iPhone, when it had sold him an “unlimited data” plan.

Spaccarelli could have many imitators. AT&T has some 17 million customers with “unlimited data” plans who can be subject to throttling. That’s nearly half of its smartphone users. AT&T forbids them from consolidating their claims into a class action or taking them to a jury trial. That leaves small claims actions and arbitration.

Late last year, AT&T started slowing down data service for the top 5 percent of its smartphone subscribers with “unlimited” plans. It had warned that it would start doing so, but many subscribers have been surprised by how little data use it takes for throttling to kick in – often less than AT&T provides to those on limited or “tiered” plans.

Spaccarelli said his phone is being throttled after he’s used 1.5 gigabytes to 2 gigabytes of data within a new billing cycle. Meanwhile, AT&T provides 3 gigabytes of data to subscribers on a tiered plan that costs the same – $30 per month.

When slowed down, the phone can still be used for calls and text messaging, but Web browsing is painfully slow, and video streaming doesn’t work at all.

AT&T spokesman Marty Richter said the company will appeal the judge’s ruling.

“At the end of the day, our contract governs our relationship with our customers,” he said.

AT&T area sales manager Peter Hartlove, who represented the company before Nadel, declined to comment on the ruling. He argued in court that his employer has the right to modify or cancel customers’ contracts if their data usage adversely affects the network.

Companies with as many potentially aggrieved customers as AT&T usually brace themselves for a class-action lawsuit. But last year, the Supreme Court upheld a clause in the Dallas-based company’s subscriber contract that prohibits customers from taking their complaints to class actions or jury trials.

Arbitration and small-claims court cases are cheaper and faster than jury trials, but they force plaintiffs to appear in person and prepare their own statements. In a class-action suit, the work can be handled by one law firm on behalf of millions of people.

That means thousands – and possibly hundreds of thousands – of people who feel abused by AT&T’s policy could seek to challenge the company, one by one, in arbitration or small claims court. The customer contract specifies that those who win an award from the company in arbitration that is greater than the company’s pre-arbitration settlement offer will get at least $10,000. Spaccarelli picked the same amount for his claim, though AT&T’s stipulation about a minimum award doesn’t apply in small claims.

Nadel looked instead at the remaining 10 months in Spaccarelli’s two-year contract with AT&T and estimated that he might pay $85 a month on average for using additional data. AT&T charges $10 for every extra gigabyte over 3 gigabytes.

Nadel said it’s not fair for AT&T to make a promise to Spaccarelli when he buys the phone while burying terms in his contract that give the company the right to cut down data speeds.

Spaccarelli, 39, researched his case for a few months, and then spent three days putting together a binder of documents to bring to court.

“I need the money, but for me, this case is not about money at all,” Spaccarelli. “You don’t tell somebody ‘you have unlimited’ and then cut them off.”

Spaccarelli didn’t quite uphold his side of the customer contract, and that’s one reason his data usage was high. He used the iPhone to provide a link to the Internet for his iPad tablet, a setup known as “tethering.” AT&T doesn’t allow tethering unless customers pay extra for it, which Spaccarelli didn’t do. It detected his tethering last year, and switched him from the “unlimited” plan to a limited one. He complained, and got his “unlimited” plan reinstated.

Even with the tethering, Spaccarelli’s data usage wasn’t excessive, he said – about 5 gigabytes per month. AT&T’s Hartlove told Nadel about the tethering, and Spaccarelli admitted to it.

Earlier this month, a Southern California woman won a small-claims action against Honda over the gas mileage she got out of her Civic hybrid car. She was awarded $9,867. Meanwhile, a pending class action against Honda over the same issue would net Civic owners a few hundred dollars each. The plaintiff, Heather Peters, is an ex-lawyer who had opted out of the settlement.

AT&T’s throttling of “unlimited” data comes as it tries to deal with limited capacity on its wireless network. When the iPhone was new, AT&T had ample capacity on its network, and wanted to lure customers with the peace of mind offered by unlimited plans. Now, a majority of AT&T subscribers on contract-based plans have smartphones, and the proportion is growing every month. That’s putting a big load on AT&T’s network.

Verizon Wireless and T-Mobile USA also throttle users, but their policies are gentler. Verizon only throttles if the specific cell tower a “heavy user” subscriber’s phone is communicating with is congested at that moment. T-Mobile’s throttling levels are higher for the same price, and the levels are spelled out ahead of time. AT&T subscribers have no way of knowing if they’ll be throttled before a warning message drops in. If they keep using their phones, throttling kicks in a few days later.

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AP Technology Writer Peter Svensson reported from New York. He can be reached at http://www.twitter.com/petersvensson

WELLINGTON, New Zealand (AP) – On his way up, he fooled them all: judges, journalists, investors and companies.

Then the man who renamed himself Kim Dotcom finally did it. With an outsized ego and an eye for get-rich schemes, he parlayed his modest computing skills into an empire, becoming the fabulously wealthy computer maverick he had long claimed to be.

Now his wild ride may be over. Last month he was arrested in New Zealand for allegedly facilitating millions of illegal downloads of songs and movies through Megaupload, his once-popular website, now an important focus of the entertainment industry’s war on online piracy.

U.S. prosecutors are seeking the 38-year-old German’s extradition in what they say could be one of the largest copyright cases in history. Dotcom, who denies the charges, was freed on bail Wednesday after a month in jail, and authorities have seized, among other things, his twin giant TV sets, massive statue of the “Predator” movie monster and Rolls-Royce (vanity plate: GOD).

His story is one of breathtaking audacity that spans both the globe and the modern computing era. Interviews conducted by The Associated Press and a review of court documents and other records indicate that Dotcom was able to create a legendary past, trade upon it by manipulating the news media and avoid serious consequences when he broke the law.

Dotcom makes for a larger-than-life defendant in almost every respect: U.S. court papers describe him as about 1.95 meters (6 feet, 5 inches) tall and weighing 146 kilograms (322 pounds). At various times, he has depicted himself online as a playboy surrounded by beautiful women, fast cars and guns; a terrorist hunter and a technology martyr ready to commit suicide.

Now he is confined to his home, has refused through his lawyers to grant interviews, and is forbidden to log on to the Internet.

Born Kim Schmitz in the German coastal town of Kiel, Dotcom grew up with an alcoholic father. As a teen, he created a mystique for himself that led the Sunday Telegraph of London to call him a “superhacker.”

German hackers interviewed by the AP, however, say he did little of what he claimed.

“He was trying to make half a buck on every occasion offered him,” said Dirk Engling, spokesman for the Chaos Computer Club, which eventually banned Schmitz from attending any of their events. “Not having some real skills of his own, he was always using other people’s inventions to attack systems and then claim he did it.”

Engling said Schmitz ended up putting club members in legal jeopardy through his recklessness, but some wanted to work with him anyway because he radiated the social ease they lacked.

One of his first schemes, according to Engling, was selling pirated software from an online mailbox.

In 1998, a Munich court convicted Schmitz and an accomplice of computer fraud and of buying and selling stolen phone cards. They got off with a fine and probation for what the judge called “youthful foolishness.” Schmitz came to court wearing a black suit and sunglasses, saying he loved “feeling like a spy.”

Three years after his first conviction, he had resurfaced as a high-flying venture capitalist. He told reporters his company was worth $200 million and that he was rescuing the struggling online startup company “LetsBuyIt” with an initial cash injection of up to four million euros ($5 million) and a promise of another 50 million euros ($65 million).

Reporters published his bogus story, sending the stock skyrocketing. On the first day, LetsBuyIt leaped from 19 cents to 27 cents a share. The next day, it was up to 77 cents.

He appeared in an online video depicting himself living it up on a superyacht in Monaco, with beautiful women draped on his arms: “Kim Schmitz is a PR man’s nightmare and a journalist’s dream,” wrote the Telegraph.

A German court would hear later that he had pulled a textbook “pump-and-dump” move, borrowing money to buy Letsbuyit shares, and then quickly selling them to those who swallowed his investment story, gaining himself a quick profit of 1.1 million euros ($1.4 million).

But before authorities could catch up with him on the LetsBuyIt scam came the Sept. 11 attacks, and he captured fresh headlines by offering $10 million for the capture of Osama bin Laden. He claimed to have formed Yihat – Young Intelligent Hackers Against Terrorism – to wage cyberwar against banks harboring terrorist money.

That one backfired on him when hacker pranksters calling themselves Fluffy Bunny posted a lewd picture on his website.

Sought by German authorities over the LetsBuyIt scam, he fled to Thailand In January 2002, writing on his website that “A German high-tech fairy tale is to end.”

He then posted a troubling message suggesting he would commit suicide on his 28th birthday:

“Enough is Enough. Kim Schmitz will die next Monday. See it on this website live and for free. When the countdown is over, Kim steps into a new world and wants you to see it.”

Authorities got to him first, arresting him at a Bangkok airport a few days before his birthday. He had meanwhile posted another strange message to his site: Henceforth he would answer to the title of “His Royal Highness King Kimble the First, Ruler of the Kimpire.”

In May that year he was back in a Munich court, convicted of manipulating stock prices in the LetsBuyIt scam. Again he got lucky, avoiding jail but drawing a fine of 100,000 euros ($130,000).

He also claimed to have learned something about the perils of the spotlight. “My mistake was that I embraced the media and gave them the stories they wanted,” he wrote on the filesharing-news website TorrentFreak.

But it didn’t take him long to get back in the fast lane. George Gurley, a reporter writing for Vanity Fair magazine, came across him at the 2004 Gumball 3000 rally, an unofficial European road race for jet-setters, driving at 250 kph (155 mph).

“He’s a controversial figure here, part buffoon, part Dr. Evil, but a skilled and very fast driver,” the reporter wrote.

The next year he launched his most significant venture, registering Megaupload.com in Hong Kong. And he reinvented himself, legally changing his name first to Kim Tim Jim Vestor, then to Kim Dotcom.

“Hong Kong, what an awesome place to do business and to host my new phantom persona,” he wrote on TorrentFreak. “People there leave you alone and they are happy for your success.”

It took a few years before authorities began paying attention to Megaupload.

In 2009, Forbes magazine wrote that little-known Carpathia Hosting had increased its business 100-fold almost overnight, and was suddenly generating 0.6 percent of all online traffic, at the time twice the bandwidth consumed by Facebook. It was because the hosting site had some new clients: Megaupload.com, Megarotic.com, Megaclick.com, Megavideo.com.

“Forbes readers probably haven’t heard of them,” Craig Labovitz of Arbor Networks, the Internet security provider, told the magazine. “Almost every teenager has.”

The sites, Forbes said, were open to anyone with little or no money to download songs, TV shows or movies.

His notoriety again on the rise, Dotcom nevertheless managed to secure New Zealand residency in 2010, under a scheme to attract wealthy investors to the country. He invested 10 million New Zealand dollars ($8.4 million) in government bonds and sponsored a fireworks show in Auckland, the main city, to the delight of many including the mayor.

He leased one of the country’s plushest mansions, worth $24 million. He also appeared to be settling down, having married Mona, a Filipino, and had three children with her.

In early 2011, U.S. porn site Perfect 10 sued Dotcom and Megaupload, claiming he was running a pirate site engaged in massive copyright infringement. Megaupload responded that it operated a virtual locker service, and had no control over what its users uploaded. The company added that it routinely removed any offending content whenever it received a notice of infringement.

The case was settled out of court. But Dotcom’s problems were not over.

Kevin Suh, the senior vice president of content protection at the Motion Picture Association of America, said the association filed a detailed complaint against Megaupload in 2010, which triggered a federal investigation. Prosecutors claim the “mega conspiracy” netted Dotcom and others $175 million in illicit advertising revenue and download fees.

“He is the biggest copyright infringer in the world,” Suh said to the AP.

Megaupload’s lawyer, Ira Rothken, said the claims are without merit and will be fought vigorously.

He called the case an unwarranted show of force by authorities desperate to prove they are serious about battling copyright fraud. If federal authorities had a problem with Megaupload, Rothken said, they should have sued first in civil court rather than having people thrown in jail.

Dotcom now faces a series of charges in the U.S., including copyright fraud and money laundering. The racketeering charges alone carry a maximum sentence of 20 years.

In New Zealand last month, 10 years after threatening to kill himself on his 28th birthday, Dotcom planned a big celebration for his 38th. After all, those youthful fantasies of wealth and notoriety had come true.

But police were ready. On Jan. 20, the day before his birthday, they swooped down in helicopters onto the grounds of his mansion and cut their way into a safe room where they found Dotcom hiding. They also arrested three of his colleagues.

The party is on hold.

—
Associated Press writer David Rising in Berlin contributed to this story.

CHICAGO (AP) – Young people want their music, TV and movies now – even if it means they get these things illegally.

A recent Columbia University survey found, in fact, that 70 percent of 18- to 29-year-olds said they had bought, copied or downloaded unauthorized music, TV shows or movies, compared with 46 percent of all adults who’d done the same.

With such an entrenched attitude, what can be done about widespread online piracy?

Certainly law enforcement has gone after scofflaws like these, hitting them with fines and, in some cases, even jail time. Congress is considering controversial anti-piracy bills that would, among other things, forbid search engines from linking to foreign websites accused of copyright infringement. And there are lawsuits pitting media heavyweights against Internet firms – notably Viacom’s billion-dollar litigation against YouTube.

But here’s a radical notion to consider: What if young people who steal content weren’t viewed as the problem?

What if they and advocates for maximum online access could persuade the entertainment industry to loosen its tight grip on its coveted, copyrighted material – quite the opposite of what the industry is trying to do right now?

“The real problem is not pirates downloading illegally, but a failure to innovate on the part of the content providers,” says Steven Budd, a law student at Drexel University in Philadelphia.

Like it or not, that’s how a lot of people of his generation view the situation. And some experts think they’re gaining clout, as they insist on easy access to music and other content while the Internet world loudly protests anti-piracy legislation that it says unfairly puts the responsibility of policing piracy sites on search engines and other sites.

“We’ve seen the emergence of a real social movement around these issues,” says Joe Karaganis, vice president of The American Assembly, a public policy institute at Columbia University, which oversaw the recent survey, funded by a grant from Google.

He’s talking, in part, about “blackouts” staged by popular Internet sites that included Wikipedia, the user-generated online encyclopedia, and Reddit, the social news website. With support from Google, Facebook and Twitter, they were protesting the proposed federal anti-piracy bills.

But here’s the surprising part – a lot of young people don’t necessarily expect to get movies, TV shows and music for free.

“I do think people would pay for this content if it’s reasonably priced and it’s available when they want to watch it,” says Srikant Mikkilineni, a law student at Drake University in Des Moines.

Not wanting to mar his law school record, Mikkilineni pays for the songs, movies and TV shows he downloads. But he does so grudgingly. “Right now, they want us to pay multiple times for the same content,” he says, complaining that that’s not reasonable.

If he buys a DVD, for instance, it’s $15. He can watch it on his laptop – but it’s illegal for him to copy it in order to watch it on his iPod or smart phone.

Many young people point to Apple’s iTunes service as a model that could be replicated by other entertainment companies.

“iTunes changed the landscape for music because it made it far too convenient and much easier than downloading music through alternative methods (even illegal ones),” says Matt Gardner, an information technology student at Rochester Institute of Technology in New York.

But even more than convenience, a recent study at Duke University found that cost was the major factor that drives college students to copy entertainment content illegally. Researchers there found that the lower the students’ income, including their parents’ income, the more likely they were to search for free, illegal options.

To address the issue of cost, the study’s authors suggested that universities consider making licensing agreements with services that sell entertainment content so that students could get a discount.

Cornell University is one institution that has experimented with this. From 2004 to 2006, an anonymous donor paid for two years’ worth of Napster service for Cornell students, but students ultimately declined to have their student activity fees raised to continue the service because the music couldn’t be played on all devices, according to the Duke study.

There are those who doubt that students would pay for content they can pirate, especially when the habit has become so ingrained.

“Nobody’s going to pay you for something they can get for free,” says Glenn MacDonald, an economics professor at the Olin School of Business at Washington University in St. Louis.

So he asks: What if you gave music and movies to consumers for free, or asked them to pay what they thought the content was worth?

Some bands such as Radiohead are already doing that – in essence, using their songs to build a following and entice people to pay to see them in concert and, once there, to buy their merchandise.

The song becomes the ad, MacDonald says. Or a movie on the small screen becomes the driving force for a line of merchandise or drives the wish to see it again on a big screen in 3-D or at a special theater event. A free clip from a TV show seen online draws viewers to the show.

“It’s like a bar. They give you the peanuts so you buy the beer,” MacDonald says.

He notes that music companies already take a cut of money made from concerts, merchandise and endorsements. So he thinks that should, at the very least, offset the cost of the recorded music to consumers, who’ve been increasingly willing to pay big prices to see artists live.

“Music companies would be better served by increasing their focus on how to make artists’ music, and especially their concerts, even better,” MacDonald says.

Nice thought, but not realistic, says Thomas Carpenter, general counsel for legislative affairs for the American Federation of Television and Radio Artists, a union that represents people working in the entertainment industry.

As it stands, he says 90 percent of the earnings that a musician currently makes under a recording contract is tied directly to royalties from sales, including lawful downloads. For actors, he says, it’s about 50 percent.

“There’s a lot at stake – much more than most people realize,” Carpenter says.

And he adds, “You have to be paid in order to be good. You have to use the funds from your projects to fund your future creativity.”

Still even some people who’ve spent their careers defending copyrights say it’s time to find some middle ground.

“It really is a failure to come up with practical, reasonable models for sales and distribution,” says Michael R. Graham, a Chicago attorney who specializes in trademark and copyright law. “There’s a real disconnect.”

Like many, he thinks iTunes has set the standard for the future.

Another possible approach: licensing agreements – with online services, for instance, paying a fee to content creators so they can provide it to consumers for free or for a monthly subscription fee.

Popular options, so far, include online music streaming services such as Spotify and Pandora. Others point to movie and TV services such as Netflix, though some complain that content on Netflix’s online streaming service is still too limited. Hundreds of thousands of people also quit Netflix last year after it started charging more to those who wanted both the streaming service and DVDs sent to them in the mail – another indication of just how much impact the public can have in these matters.

A major lawsuit now before a federal appeals court has put a spotlight on these issues.

Viacom Inc. is appealing a lower court ruling that found YouTube, Google Inc.’s popular video sharing service, is protected from copyright infringement claims. Viacom claims that YouTube is making millions when people post copyrighted videos -including some shows Viacom owns. YouTube says it forces people to remove the content when discovered, as the law allows.

During October proceedings before the 2nd U.S. Circuit Court of Appeals in Manhattan, Judge Roger Miner asked, “How in the world can damages be computed here?”

“The number could be quite large,” said Viacom attorney Paul Smith.

Miner responded: “Maybe what you’re really looking for is a license agreement.”

Smith said that was possible – an outcome that some would consider a win for those who want greater access to content on the Internet.

Whatever happens, college student Omar Ahmad says the entertainment industry has to realize that people his age aren’t likely to change their piracy habits, even with the threat of more serious punishments that Congress is considering.

“They’re going to continue doing it – that’s the truth,” says Ahmad, a senior at Seton Hall University who’s also manager of the New Jersey school’s radio station.

Karaganis at Columbia agrees that young people and the Internet community in general have proven they can influence the entertainment industry, whether it likes it or not.

“Change is inevitable,” he says. “The question is how quickly will it happen – and how much of a fortress will be built around intellectual property in the meantime.

“Now, I think all bets are off.”

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Martha Irvine can be reached at mirvine(at)ap.org or via http://twitter.com/irvineap

NEW YORK (AP) – A startup backed by media billionaire Barry Diller has launched a service that sends live local TV feeds to iPhones and iPads. But the service may be short-lived, since TV stations are likely to challenge its right to use their broadcasts.

The service, Aereo, launched in New York this week, but it is available only by invitation. It hopes to broaden access to more people next month, and then launch in other cities.

Subscribers pay $12 per month and use their web browsers to access streams from 27 local channels, including the major broadcast networks ABC, CBS, NBC and Fox. For now, the service works only on iPhones, iPads and iPod Touches, but Aereo is planning to make it accessible to PC browsers and Android-powered phones as well.

In a test by an Associated Press reporter, the service provided high-quality streams over Wi-Fi to an iPad, but often it wouldn’t show particular channels. The company says kinks are still being worked out of the system.

Aereo has more than $25 million in venture capital backing, with more than $20 million of it coming from a funding round led by InterActiveCorp, which owns Match.com, Ask.com and other websites.

Diller, the chairman of InterActiveCorp and the former CEO of Fox, says he’s “excited” about Aereo and the chance it has to disrupt the way TV is consumed.

Aereo exploits what it believes is a loophole in the laws governing retransmission of local broadcasts. Yet TV networks and stations are unlikely to buy that legal justification, and could drag Aereo to court.

Representatives of CBS, NBC and ABC and the National Association of Broadcasters had no comment on Aereo’s launch.

Cable companies pay local broadcast stations for the right to retransmit their signals to subscribers. Aereo doesn’t, and founder and CEO Chet Kanojia says it doesn’t have to. That’s because Aereo doesn’t use one big antenna to pick up the local broadcasts and relay them to the Internet. Instead, it uses one tiny antenna for each subscriber that’s watching.

Aereo has created a dime-sized TV antenna, and crams hundreds and perhaps thousands of them into boxes the size of a dishwasher. The company places these boxes anywhere they can pick up local TV signals.

“Every one of these little antennas has a person’s name on it,” Kanojia says.

However, he clarified that each subscriber doesn’t necessarily use the same antenna all the time. Subscribers do share antennas – they just don’t use the same antenna at the same time.

Kanojia reasons that because there’s one antenna per subscriber, Aereo is just an intermediary between a viewer and an antenna, sort of like a very long antenna cable. That means, he says, that Aereo not a cable company and doesn’t have to negotiate with TV stations for the right to relay their signals, or pay them.

Scott Flick, a media lawyer and partner at Pillsbury Winthrop Shaw Pittman LLP in Washington, thinks Aereo is skating on thin ice, legally speaking.

“When you take somebody’s programming and you make it available on some device that wouldn’t normally receive that, that sounds a lot like retransmission,” which means that Aereo should be paying the TV stations, he says. “The laws here are fairly tight. There’s not a lot of room for wiggle.”

The one-antenna-per-subscriber setup doesn’t look like much of a loophole, Flick says, since courts ruling on retransmission cases have “a fundamental history of saying over the years: ‘Look, if it quacks like a duck and walks like a duck, it’s a duck.’”

NBC, Fox and ABC make their shows available on iPads, iPhones and other tablets and phones through Hulu.com, which doesn’t have live programming or local news. And shows aren’t available on Hulu until the day after they air. Hulu charges $8 per month for access from mobile devices. Cable companies are also making some programming available on iPads and iPhones in the homes of people who subscribe to cable.

Meanwhile, TV stations are trying to make their live feeds accessible on phones through special “mobile DTV” broadcasts. But to receive those, viewers would need phones with special antennas, and phone companies have shown no interest in carrying such phones.

Foxconn employs about 1 million workers at its massive plants in China that are run with military-like discipline. The workers assemble iPhones and iPads for Apple Inc., Xbox video game consoles for Microsoft Corp. and computers for Dell and Hewlett-Packard.

Chinese workers at Foxconn now receive between 1,800-2,500 yuan ($285-$400) per month following the raises that became effective Feb. 1, the company said.

Foxconn is also taking measures to limit workers’ total work hours, and the raises come as a compensation for their reduced overtime, company spokesman Simon Hsing said in a statement.

The announcement came as the U.S. Fair Labor Association is inspecting Apple’s Chinese suppliers for their labor practices.

Foxconn said it is cooperating with the U.S. inspectors, pledging again to provide workers “a safe and fair work environment.”

In 2010, a spate of worker suicides at an enormous Foxconn complex in the southern boomtown of Shenzhen drew attention to the stress many young workers faced working in some factories.

The company denied allegations that it ran excessively fast assembly lines and demanded too much overtime, but it soon announced two pay hikes that more than doubled basic worker salaries to up to 2,000 yuan per month.

Last month, dozens of workers assembling video game consoles climbed to a Foxconn factory dormitory roof in the central Chinese city of Wuhan and some threatened to jump to their deaths amid a dispute over job transfers that was later defused.

NEW YORK (AP) – It’s become the routine in the cable industry that subscribers stream out the door every quarter, hanging up on cable in favor of service from satellite or phone companies. But in the October to December quarter, Comcast Corp. nearly managed to stop that flow.

The country’s largest cable company on Wednesday said it lost 17,000 TV customers in the fourth quarter, the smallest number of defections in five years. It compares with a loss of 135,000 subscribers in the same quarter a year earlier.

Comcast credits added TV channels and better customer service for the better retention. Its stock jumped nearly 8 percent before regular trading.

The Philadelphia-based company added a net 336,000 broadband customers in the same period. That was the best fourth-quarter result in years. Both cable and phone companies have been reporting declining numbers, since more than two-thirds of U.S. households already have broadband.

The result indicates that Comcast keeps stealing broadband customers from phone companies. Together, AT&T Inc. and Verizon Communications Inc. added a net 51,000 broadband customers in the period.

Comcast on Wednesday reported net income of $1.29 billion, or 47 cents per share, for the quarter. That’s up 26 percent from $1.02 billion, or 36 cents per share, in the last three months of 2010.

Analysts polled by FactSet were on average expecting earnings of 41 cents per share.

Revenue was $15.04 billion, up 55 percent from $9.72 billion in the fourth quarter of 2010. The increase was due mainly to the acquisition of NBC Universal, which closed a year ago. Revenue rose 3 percent when factoring in NBC Universal in the previous-year figure.

Analysts had forecast revenue of $14.94 billion.

The cable provider said it was raising its annual dividend from 45 cents to 65 cents per share, and also authorized a new $6.5 billion stock buyback program. The company intends to buy back $3 billion in shares this year. The dividend is worth $1.8 billion to shareholders annually.

Comcast shares rose $2.09 to $29.34 in premarket trading. In recent days, the shares have been trading at the highest level in four and a half years.

SAN FRANCISCO (AP) – Google’s $12.5 billion bid to buy cellphone maker Motorola Mobility has won approvals from U.S. and European antitrust regulators, moving Google a major step closer to completing the biggest deal in its 13-year history.

Monday’s blessings mean Google Inc. just needs to clear regulatory hurdles in China, Taiwan and Israel before it can take control of Motorola Mobility Holdings Inc. and expand into manufacturing phones, tablet computers and other consumer devices for the first time.

Getting government approval in China looms as the biggest stumbling block remaining. Google’s relationship with China’s ruling party has been on shaky ground since the company blamed hackers in that country for breaking into its computers two years ago. The breach prompted Google to move its Internet search engine from mainland China in protest of laws requiring some results to be censored.

Google prizes Motorola Mobility’s more than 17,000 patents – a crucial weapon in an intellectual arms race with Apple, Microsoft and other rivals maneuvering to gain more control over smartphones, tablets and other mobile devices. Google announced the deal six months ago.

The deal will “enhance competition and offer consumers faster innovation, greater choice and wonderful user experiences,” Don Harrison, Google’s deputy general counsel wrote in a blog post.

Besides signing off on the Motorola Mobility deal, the Justice Department also approved two other moves in the mobile patent battles. The approvals cover the $4.5 billion purchase of Nortel Networks patents by a group including Apple, Microsoft and BlackBerry maker Research in Motion Ltd. and a separate Apple acquisition of Novell Inc. patents.

The Justice Department ended its investigations after concluding the new patent owners won’t try to drive up the prices of competing mobile devices by demanding exorbitant licensing fees. The agency said it was particularly concerned about key patents held by Motorola Mobility and Nortel.

Apple Inc. and Microsoft promised to license the Nortel patents on reasonable terms while Google’s commitments on the Motorola Mobility patents were “more ambiguous,” according to a statement from the Justice Department’s antitrust division.

Nevertheless, the Justice Department didn’t find any evidence that Google’s ownership of Motorola Mobility would lessen competition in a mobile device market that is becoming increasingly important as more people connect to the Internet on smartphones and tablet computers instead of desktop and laptop computers.

In granting its approval, the European Union also raised concerns about Motorola’s aggressive enforcement of its patents. EU Competition Commissioner Joaquin Almunia said regulators will “keep a close eye on the behavior of all market players in the sector, particularly the increasingly strategic use of patents.”

In its statement, the Justice Department also vowed to crack down on any sign that mobile patents are being used to throttle competition. Microsoft said it was encouraged by the regulatory commitments.

Other key concerns centered on Google’s Android operating system, free software that now powers more than 250 million mobile devices made by a variety of manufacturers, including Motorola Mobility. Competition could be hurt if Google gives Motorola Mobility the most advanced versions of Android or withholds the mobile software from other cellphone makers.

Google, though, has pledged to make Android available to all its mobile partners. Even if Google were to discriminate, cellphone makers still could rely on mobile software from Microsoft Corp., Research in Motion and Hewlett-Packard Co., among others.

The European regulators see no danger that Google will prevent other device makers from using its popular Android operating system after the takeover.

“Android helps to drive the spread of Google’s other services,” the Commission said. “Given that Google’s core business model is to push its online and mobile services and software to the widest possible audience, it is unlikely that Google would restrict the use of Android solely to Motorola,” which only has a small market share in Europe.

The government reviews in U.S. and Europe have come as regulators also have been conducting a broader inquiry into whether Google has been abusing its dominance in Internet search to hobble its rivals. Those investigations are still ongoing.

Assuming Google eventually takes over Motorola Mobility, the union will open new opportunities and pose potentially troublesome challenges for a management team that so far has concentrated on Internet search, ad sales and other software-driven online services.

Motorola Mobility’s expertise in mobile devices and set-top boxes for cable TV will allow Google to play an even more influential role in shaping the future of hand-held computing and home entertainment. Even as it navigates the regulatory gauntlet, Google has begun testing a device for connecting electronic components within homes, according to a filing with the Federal Communications Commission.

Absorbing Motorola Mobility also threatens to crimp Google’s earnings growth and drag down its stock price. That’s because Motorola Mobility has been struggling on its own as Apple’s iPhone and other smartphones made by rivals such as Samsung Electronics undercut sales of its products.

Google is making a huge bet that Motorola Mobility can do better. The $12.5 billion price is more than the combined amount that Google has paid for the 185 other acquisitions that it has completed since going public in 2004.

Google’s stock rose $6.29, or 1 percent, to close Monday at $612.20. Motorola Mobility’s gained 18 cents to $39.63, just below the proposed sale price of $40 per share. Google is based in Mountain View, California, while Motorola Mobility has its headquarters in Libertyville, Illinois.

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Steinhauser reported from Brussels.

NEW YORK (AP) – Mike Trang likes to use his iPhone 4 as a GPS device, helping him get around in his job. Now and then, his younger cousins get ahold of it, and play some YouTube videos and games.

But in the past few weeks, there has been none of that, because AT&T Inc. put a virtual wheel clamp on his phone. Web pages wouldn’t load and maps wouldn’t render. Forget about YouTube videos – Trang’s data speeds were reduced to dial-up levels.

“It basically makes my phone useless,” said Trang, an Orange County, Calif. property manager.

The reason: AT&T considers Trang to be among the top 5 percent of the heaviest cellular data users in his area. Under a new policy, AT&T has started cutting their data speeds as part of an attempt to manage data usage on its network.

So last month, AT&T “throttled” Trang’s iPhone, slowing downloads by roughly 99 percent. That means a Web page that would normally take a second to load instead took almost two minutes.

AT&T has some 17 million customers with “unlimited data” plans that can be subject to throttling, representing just under half of its smartphone users. It stopped signing up new customers for those plans in 2010, and warned last year that it would start slowing speeds for people who consume the most data.

What’s surprising people like Trang is how little data use it takes to reach that level – sometimes less that AT&T gives people on its “limited” plans.

Trang’s iPhone was throttled just two weeks into his billing cycle, after he’d consumed 2.3 gigabytes of data. He pays $30 per month for “unlimited” data. Meanwhile, Dallas-based AT&T now sells a limited, or “tiered,” plan that provides 3 gigabytes of data for the same price.

Users report that if they call the company to ask or complain about the throttling, AT&T customer support representatives suggest they switch to the limited plan.

“They’re coaxing you toward the tiered plan,” said Gregory Tallman in Hopatcong, N.J. He hasn’t had his iPhone 4S throttled yet, but he’s gotten text-messages from AT&T, warning that he’s approaching the limit. This came after he had used just 1.5 gigabytes of data in that billing cycle.

John Cozen, a Web and mobile applications designer in San Diego, hasn’t been throttled yet either, but he’s been so disturbed by a warning that he’s “almost scared to use the phone,” he said. Complaining to AT&T got him nowhere, and now he’s looking to switch to another carrier.

“I don’t think two to three gigabytes is an exorbitant amount,” he said. “Really, I’m just looking at pictures and text once in a while.”

AT&T spokesman Mark Siegel said that as of last summer, the top 5 percent of data users were using 2 gigabytes of data per month. But he also said the company doesn’t actually throttle all of the top 5 percent “unlimited” data users. Last month, the figure was only 0.5 percent, or about 200,000 people, he said.

That’s because AT&T only throttles users in areas where the wireless network is congested that month, Siegel said.

Siegel also pointed out that aside from moving to a tiered plan, “unlimited” plan users on the cusp of being throttled can use one of AT&T’s 30,000 Wi-Fi hotspots, where usage is unmetered.

The unlimited plan worked fine for AT&T a few years ago, when the iPhone was new. The company had ample capacity on its network, and wanted to lure customers with the peace of mind offered by unlimited plans. Now, a majority of AT&T subscribers on contract-based plans have smartphones, and the proportion is growing every month. That’s putting a big load on AT&T’s network.

But AT&T’s approach to managing data congestion differs from that of the other phone companies. Verizon Wireless doesn’t slow down the “5 percent” unless the cell tower their phone is connected to is congested at that moment, and it slows them down by the minimum amount necessary. By contrast, once AT&T has decided to throttle your phone, it will be slow for the rest of the billing cycle, even if it’s 3 a.m. and there are no other cell phones competing for the capacity of that particular cell tower.

Verizon’s measures have drawn few complaints, and indeed, may have gone unnoticed even by the “5 percent.”

T-Mobile USA is up front about the level it starts throttling at: 5 gigabytes. AT&T subscribers have no idea if they might be among the top 5 percent until they get the warning, which is soon followed by throttled service. While Trang was throttled at 2.3 gigabytes, he knows other iPhone owners who are using 5 or 6 gigabytes per month with impunity.

“It seems very random,” Trang said.

Sprint Nextel Corp. is hanging on to unlimited data plans without throttling, alone among the “Big Four” national wireless carriers.

Tallman sees few prospects for a lawsuit against AT&T. The company is still providing unlimited data usage to throttled customers, even if the speeds are so low as to make the phone useless for anything but phone calls and text messages. The company made no promises that “unlimited” data would always be coupled with high speeds, he notes.

“They just guaranteed the highway. They didn’t guarantee the speed limit,” he said.

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Online:

AT&T’s July 29 letter on throttling: http://bit.ly/qddCeI

Verizon page on its version of throttling: http://support.verizonwireless.com/information/data_disclosure.html