Wurld Media was teamed up with three the world's largest record labels to pioneer a new peer-to-peer distribution system for licensed content.

Sony BMG Music Entertainment, Universal Music Group and Warner Music Group will open up their media vaults to the service, called Peer Impact, which will in turn provide customers with access to legal music, videos and other miscellaneous forms of content. The proprietary service is billed as being a low-cost infrastructure for file sharing that respects artists and copyright holders.

While Peer Impact operates like all other P2P systems, there is one important distinction: All file sharing occurs within the boundaries of closed networks. Ultimately, if the service is populated, Peer Impact will lower distribution costs for the content provider.

"The online media market is presently split between authorized legal paid-download services and unauthorized free services; the consumer is stuck somewhere in the middle, and that's where Peer Impact comes in," said Greg Kerber, Chairman and CEO of Wurld Media. "From the beginning our objective has been to reach out to the consumer and help build a secure and legal file-sharing community, created by -- and for -- the fan, but which also ensures that digital-rights owners get compensated."

Although Peer Impact has yet to leave the confines of Wurld Media beta testers, industry analysts have already raised some red flags and questioned the viability of service's business model.

"I see the 'legal' peer-to-peer sharing concept as fundamentally misunderstanding why people trade songs to begin with. If file traders are looking for free stuff, what incentive would they have to pay for it? And if they're going to pay, why wouldn't they go to an established store, like iTunes, MSN, MusicMatch or Napster?" remarked Jupiter Research senior analyst Joe Wilcox.

Unlike current online music stores that distribute songs directly from centralized servers, Peer Impact is expected to rely on the bandwidth of its users. Some pundits have wondered if Wurld Media is simply latching onto the P2P hype to save distribution costs, and whether paying customers want to receive their music downloads from other users.

"The established stores would offer essentially the same catalogs, with great discovery and search mechanisms and high assurance that music buying wouldn't also lead to virus infection or spyware installation. Who knows what dangers might lurk on someone else's hard drive," said Wilcox.

Peer Impact is currently undergoing internal beta testing and is expected to be given the green light for a public unveiling in the first quarter of 2005.