MESSAGE
| DATE | 2002-06-09 |
| FROM | Ruben I Safir
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| SUBJECT | Subject: [hangout] Washington Post
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See
Tony is loosing opputunities here to make himself look good...
Why is this man smiling?
June 10, 2002
By Alex Daniels/adaniels-at-washtech.com,
Olivier Douliery/Techway
Jack Valenti of the Motion Picture Association of America
SEE ALSO: Recording industry: Now it's time to get paid
The entertainment industry may have won a few battles against online pirates, but the war has just begun
Music and movie moguls crowded a Capitol Hill reception last month to toast the four-year-old Digital Millenium Copyright Act, the landmark law guarding copyrighted material from digital pirates.
Jack Valenti, the snowy-haired chief of the Motion Picture Association of America, stepped to the microphone to laud congressional efforts on behalf of Hollywood. Hilary Rosen, president and CEO of the Recording Industry Association of America and the sworn enemy of legions of Napster fans, beamed nearby.
"If you can't protect anything you own," said Valenti, "you don't own anything."
As the guests clinked champagne glasses, digital thieves around the world were double-clicking to buy pirated copies of "Star Wars: Attack of the Clones" from Web sites that were hawking the movie ? a flick still days away from release in theaters.
Though the International Intellectual Property Alliance hasn't tabulated how much is lost to piracy on the Internet, it estimates that book publishers, recording and movie studios and software developers already lose more than $20 billion a year from physical piracy.
So why were Valenti and Rosen smiling?
Good question. The combination of the Internet with bigger, faster and cheaper computers, including ones that burn CDs, is making it easier than ever to make and distribute flawless copies. Attempts to provide a tech fix have fallen flat.
"There is no such thing as a hacker-proof technology," says Michael Miron, CEO of ContentGuard, a Bethesda company developing a system to protect digital content from easy copying. "If you make such a claim, you're hanging a big target on your back."
Meanwhile, the digital dilemma clearly threatens to hold up already disappointing rates of broadband adoption. Media companies remain wary of putting valuable content online for fear it will be pirated and spread round the world at cyber-speeds. But without more available content, consumers have less incentive to abandon their dial-up connections for DSL or cable modem services that can cost twice as much. Just 7 percent of U.S. households have high-speed Internet service.
IN THE WASHINGTON AREA, the fight to protect digital rights holds enormous implications for two media giants, AOL Time Warner and Discovery Communications, not to mention dozens of other smaller companies, from newsletter publishers to independent filmmakers.
Last year's mega-merger of Dulles-based AOL and Time Warner was supposed to create a giant, combining AOL's Internet dominance with Time Warner's cable empire and huge portfolio of movies, music, magazines and television shows. But when it comes to digital rights, the giant has two heads.
Nearly 90 percent of AOL's 25 million U.S. Internet subscribers still use a dial-up connection. To lure customers to higher-speed services?and keep them in the AOL tent?the company wants to offer splashy content such as movies and music. But the Time Warner side of the house worries that releasing its valuable assets online could open the door to unauthorized use, diluting their value.
"We're on both sides of this," acknowledges Joe Cantwell, AOL Time Warner's vice president for broadband affiliate marketing.
AOL did not respond to requests to interview other company officials about the dilemma. But Paul Kim, an analyst at Kaufman Brothers, a New York investment bank, says the company is straddling the fence while it waits for the murky issue of digital piracy to clear up.
"You have existing distribution channels that are doing very well for you," Kim says, referring to cable television, movie rentals and retail sales. "Why mess with that?"
Discovery, the Bethesda-based media company, plans to introduce a video-on-demand television service June 17. Subscribers will be able to access network servers full of Discovery content such as Animal Planet and the Travel Channel.
The service is a milestone in Discovery's move into digital media. Along with it come fears that its content will be swiped.
Bob Allman, senior vice president and general manager of Discovery Online, admits he's nervous the video-on-demand service will bring out the "buzzards." The company plans to employ technology to stop piracy, though Allman refuses to discuss how.
But perhaps a more important point is that Allman is convinced consumers are willing to pay for online videos if the services are easy to use?even if other content is available for free. After all, before compact discs arrived in the mid-1980s, teen-agers bought plenty of music cassette tapes even though they could easily make copies of equal quality.
"There's a state-sponsored Napster for books ? it's called a library," says Allman. And although public libraries have been around for decades, people still buy plenty of books at Barnes & Noble.
A survey released last month by Jupiter Media Metrix suggests that Napster-like file-sharing programs may actually boost sales. The survey found that music listeners who were experienced with file sharing were 75 percent more likely to increase their music spending than those without file-sharing experience.
"We've been too slow in offering music for sale online," admits Rosen. Her bigger problem, however, is figuring out how to get consumers to pay for something that's available for free at the click of a mouse.
More then 350,000 movie files are illegally downloaded on the Web each day, according to Viant, a Boston-based Internet consulting company.
And to Rosen's dismay, the online trading of music files continues to flourish. True, the once mighty Napster was vanquished in the courts and sold off as a shell last month to German media giant Bertelsmann for a paltry $8 million. But many of Napster's 64 million users have simply turned to alternate sites such as Morpheus and KaZaA to swap copyrighted music for free. Those services have escaped Napster's fate ? so far ? because the files aren't stored on their networks.
The music industry's few online offerings of licensed content have been met with a shrug. Susan Kevorkian, an analyst for market research company IDC, predicts online music services are generating just a few hundred thousand dollars in annual revenue and says the industry will be hard pressed to top $10 million in revenue by 2005.
"They've been very closed mouthed about it," Kevorkian says. But she concedes that meeting even her conservative projections "may be hard given what they're up against. Free music services are still available."
MusicNet, a subscription-based music service launched last October with music licensed by BMG, EMI, Warner and Zomba, would not disclose sales or subscriber figures. MusicNet offers 80,000 titles, well below the hundreds of thousands of titles that Napster was offering at its peak.
TO ENCOURAGE THE DEVELOPMENT of more online pay sites, nearly two dozen software companies are busy at work developing digital rights management (DRM) software to help content owners put a digital leash on copyrighted material. But their solutions are far from foolproof.
DRM software allows copyright holders to write usage rules into their music and video files. The software typically is a set of data that describes each media file and sets terms for its use. A song file can be overlaid with a "digital watermark" that confirms its authenticity and an encryption code only allows authorized users to access it. The software can be written to destroy a file after it's played a certain number of times and can even limit the file's use to individual computers or media player devices.
For instance, a media company can write rules in to a music file that allows a user to download it off of the Internet and make a back up copy for personal use. But the rules can also restrict further copying.
But DRM software is off to a rocky start. Last year, IDC pegged the annual DRM market in the United States at $96 million and predicted it would grow to $3.5 billion in 2005.
IDC analyst Joshua Duhl says that prediction will be revised downward when new figures are made available next month, thanks to a sluggish economy, unprofitable transaction-based pricing models and a patchwork of offerings and standards.
For instance, Microsoft makes software that will only work on its media players, and RealNetworks makes software tailored for use on its Real media players.
Interoperability isn't the only problem. Unless software is totally invisible to the average consumer and easy to use, securing content with DRM software could fail and rip-off artists will reign unchecked, analysts say.
Even if software becomes standardized, it probably won't be hard for skilled digital pirates to give it the hook. Content providers and DRM software developers concede some level of piracy is inevitable. Their goal is to keep it out of the hands of the masses.
Patrick Breslin says all it takes to copy electronic music files is a trip to an electronics store for a cable and basic computer know-how. "That's not amazing technology and it doesn't mean I'm a hacker," says Breslin, CEO of Relatable in Alexandria.
Relatable, which Breslin founded in 1999 with less than $1 million from friends and family, has developed software that recognizes music files based on their acoustic properties, helping content owners verify the authenticity of the files. It can make "fingerprints" of consumers' song files and compare them to original recordings held in copyright holders' databases. Relatable's software can identify bootlegged recordings sent out under bogus file names.
Last summer, after promising to honor copyrights, Napster installed Relatable's software to sniff out unlicensed songs on its network. Breslin says the software scanned hundreds of millions of files on the network
The future of Napster is unclear, and Relatable has yet to turn a profit. But Breslin says he is negotiating deals with other music providers. The key, he says, will be convincing content owners to jump into the Internet.
"They're saying, 'Let's put plywood on the windows and bar the door,'" Breslin says. "We're saying, 'Let's make this a huge Wal-Mart.' Everyone who wants to go out the door needs to pass the cash register."
Miron, the CEO of ContentGuard agrees that content owners can make money on the Internet, even in competition with free music and video offerings.
Reliable DRM software and exciting content will help, he says, but the patchwork of different protection products on the market is holding things back. "The industry would be a hell of a lot better off if all participants had a common way to express rights," for their material, he says.
Content Guard is majority owned by Xerox and funded in the "triple-digit millions" by Microsoft. The company hopes that XrML, a language developed at Xerox's Palo Alto Research Center, will become the standard language for expressing rights on media files due to its ability to operate on different computer systems and applications.
ContentGuard designs custom software using XrML and hopes to earn revenue from patents it holds on computer languages expressing copyrights. The company won't disclose revenues.
Two other languages, ODRL and XCML, are also in the running to become the standard. Last fall, ContentGuard scored a win when the MPEG-21, an international group working to develop standards for the creation and distribution of multimedia content selected XrML as its base language.
The company is now submitting XrML to other standards bodies. But even if the software becomes the coin of the realm in the digital copyright world, it won't matter unless studios and record labels to warm up to the Internet. And Miron isn't sure how that will happen.
Options include monthly subscriptions or fees for downloads. Media companies also are experimenting with putting premium information on the Web, such as anthologies, live recordings and tour and concert information. While such material can be copied, media owners are betting people will pay if it is cheap and easy to access.
"The business models that will succeed online probably do not exist today," Miron says. "The state of the industry is mostly dabbling and experimenting, which is why piracy is still the dominant, scaled offering."
WHILE COMPANIES LIKE CONTENTGUARD and Relatable work on a tech fix, policy makers are taking a closer look at digital piracy law. For some, the DMCA doesn't go far enough. To stop music and video pirates, Sen. Ernest F. Hollings, the South Carolina Democrat, is sponsoring a bill that would require all interactive devices to incorporate anti-piracy technology.
The measure would give manufacturers one year to comply, but doesn't call for a specific type of technology to be used. The bill has the support of media and entertainment executives such as Rosen and Valenti.
But the technology lobby opposes the bill. Groups such as the Software & Information Industry Association believe anti-piracy technologies are at too early a stage in their development to draw up government standards. The only way copyright protection standards will develop, they argue, is if the government gets out of the way and allows the marketplace to sort out what works.
"It doesn't have legs," declares Rep. Rick Boucher, a Virginia Democrat, an opponent of the Hollings measure. Boucher, co-chairman of the House Internet Caucus, believes the DMCA should be re-examined because it favors copyright holders at the expense of legitimate users.
Opponents of the DMCA, who include libraries and universities, contend that the law restricts what is known as the "fair use" of a copyrighted material. Because of the fear of mass distribution of content via the Internet, critics say the DMCA wrongly makes it a criminal act to make back up copies of music and video or sell a single copy to a friend.
Rather than jealously protecting their copyrights, Boucher thinks media companies should make the jump online.
"They think all of the world is full of pirates," he says. "It's not. They should start aggressively using the Internet."
© Copyright 2002 The Washington Post Company
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