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Analysis: Napsterization: Music was just the beginning

Industry Standard

July 19, 2000
Web posted at: 10:32 a.m. EDT (1432 GMT)

(IDG) -- The movie industry is expected to strike down in court its latest opponent in its quest to control what happens to its content online. The trial, which began Monday, centers on the distribution of software called DeCSS, which decodes the Content Scrambling System embedded into DVDs so they can be viewed on computers running the Linux operating system.

Eric Corley, the defendant who is being taken to task for making the software available on his Web site, 2600.com, is backed by the Electronic Frontier Foundation, which took up the fight on grounds of free speech. The plaintiffs are eight major studios, supported by the Motion Picture Association of America, which views the legal spar as a test of the Digital Millennium Copyright Act. The presiding judge, who has ruled in favor of the plaintiffs in the past (ordering Corley in January to halt distribution of DeCSS until a trial determined its legality), is expected to find the defendant guilty.

So far, the courtroom has been the movie industry's preferred forum for fighting the onslaught of technologies that make shows and movies originally intended for television and theater available on the Internet. The industry has been rather effective, too, winning fights against Canadian online rebroadcaster iCraveTV; San Fernando Valley, Calif.-based RecordTV, which offered a similar service; and Norwegian Jon Johansen, a 16-year-old hacker accused of pirating movies.

But the legal route the industry has chosen can be viewed only as a stalling tactic. As technologies evolve to create consumer-friendly means of obtaining first-run films on the Internet, the law can only go so far to prevent enabling technologies from seeping silently into the homes of millions of Americans. Is Hollywood ready for that?

The studios don't seem to be. Representatives for six studios responded with either denials of interest in the subject or vaguely referred to projects supposedly under exploration. A representative for MGM said the studio's efforts were in "prenatal stages"; a Warner Bros. rep said, "I don't think anyone here has really thought about that"; and a Sony spokesman said, "We're exploring the potential of digital distribution." Disney's rep said, "Obviously, protecting digital copyrights is a priority for us," faxed over a copy of a recent speech on the subject by Disney Chairman Michael Eisner and directed inquiries on the practical application of the subject to the MPAA.

The MPAA, for its part, has become more vocal in recent weeks but is still in the early stages of incorporating online distribution. The MPAA's chairman, Jack Valenti, who phoned from media investor Herb Allen's summer mogul retreat in Sun Valley, Idaho, said the association would maintain its legal course of action as a stopgap measure. Meanwhile, executive recruiter Heidrick & Struggles has been retained to find someone to head the group's new Digital Strategies division, the only division that will report directly to Valenti.

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"I don't want to be reactive," he says. "We have a narrow window in which to operate."

For now, the MPAA is wading through constant legal battles in an attempt to stave off video piracy. But increasingly, consumers are capable of trading film files the same way they've been trading songs. Such activity could begin to impact the $8 billion video-rental market within a year if online distribution isn't properly addressed.

If the MPAA takes a stronger stance on digital distribution, it could be very influential. In its fight against Napster, the music industry has been led by the Recording Industry Association of America. The MPAA could play a similar role for the movie industry and could even inspire the studios to work proactively to avoid duking out every round in court. Sources say the movie studios do have plans of attack but that they are several and scattered. Each studio seems to be developing its own, proprietary encoding system, a scheme that could be as disastrous as taking no action at all.

"I don't think any of the proprietary, encoding media are the way to go," says Richard Wolpert, who heads VC firm Chance Investments, which has stakes in CheckOut.com, Scour.net and others. "There is going to have to be one way or a third party to come up with a standard."

But the "proprietary, encoding media" plans are the most prominent in an industry of fiefdoms that typically are suspicious of one another. Internet professional-services firms such as Viant, IXL and US Interactive are each developing digital distribution strategies for the studios, often in cooperation with digital-rights-management firms such as Massive Media Group, the company backed by former Universal, HBO and Viacom chief Frank Biondi.

"The music industry did not foresee technologies advancing as quickly as [the technologies] did," says Massive Media CEO Howard Weitzman. "People in the film and TV business know it's coming."

"There's an embedded fear right now, given Napster and MP3," adds Don Meek, VP of media and entertainment in US Interactive's office in Santa Monica, Calif. Meek says studios aren't ready to unleash their content on the Net until a secure, profitable means is proven. He says that one client, a studio he declined to name, will test online distribution using acquired content rather than its own.

The studios might feel they have time to ramp up, but those involved in the Napster dispute know better, pointing to technologies such as DeCSS and new business developments. DivX, for example, is one technology that is gaining ground and making it easy for anyone with a good Internet connection to download feature films in an hour.

While the number of consumers with broadband connections is about 5 million today, technologies for receiving fat movie files on skinny pipes may improve sooner rather than later. Already, the backers of Napster have launched AppleSoup, a peer-to-peer network that makes video easily transferable. But unlike Napster, AppleSoup intends to trace each file and allow individuals to charge others for the right to download, kind of like eBay meets Napster in a copyright-friendly manner. AppleSoup hasn't yet inked any deals with any content owners, and it seems more likely that the primary content shared through its network would be original creations rather than studio films. So far, that seems to be the focus of any attempts to embrace peer-to-peer e-commerce.

Last month, SightSound.com waded deep into controversial waters, posting 12 movies from independent producers on Gnutella, including its own production, Quantum Project. The films are encoded so that users who want to view them must first provide credit card information before the file is unlocked. The company intends to keep funneling movies to Internet audiences this way.

A can't-beat-'em-so-join-'em move? Sort of. "It's clear to us you don't fight gravity," says SightSound CEO Scott Sander. "You don't fight the underlying engineering of the Internet; it was built as a file-sharing network."

That sounds well and good, and it's nice that the film and technology companies are attempting to work together to protect copyrights but talk to any software developer and you'll get nothing but nay-saying.

"All attempts to stop technology are going to fail," says Gene Kan, a Gnutella developer who gave a deposition to Congress two weeks ago in favor of easy distribution of music and movies online. "Plug a DVD into a computer and you can rip a whole movie off of it," he says.

Even attempts to control such piracy by digital-rights-management firms such as Massive Media Group and PassEdge (another that has sidestepped the music mess in favor of movies) are futile, Kan says. "On the Internet, you don't need complex technology to make a pirate," he says. "You and I are pirating intellectual property all the time. Encryption is a joke. Security is predicated on a trust that parties at two end-points have."

As for systems like SightSound's, Kan notes that at least one way of getting around it is to have one person pay for the download and then rerecord it in a distribution-friendly file format, such as MPEG or DivX.

Kan joins others familiar with the technology in saying that the film industry has about a year of build-out time before the consumer base is in place, but he says the audience is already in place.

"There is a strong underground for downloading movies today," Kan says. "I guarantee there are people downloading movies on Gnutella." He adds that all the encryption efforts on the part of the film industry are wasted because they will be decrypted as soon as they reach the Internet.

In other words, you can put all the safeguards in the world in place, but hackers, just as they have more recently in music and forever in software, will find a way around it.




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