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Digital Rights: Give Peace a Chance

By Cliff Edwards and Cathy Yang Why is it that Hollywood marriages never seem to last? Just last winter, it looked as if gadget makers and content providers had finally settled on a plan to prevent the Napsterization of digital-video broadcasts. Now comes word that the seven major Hollywood studios and the National Football League are already complaining that one of their partners has broken its vows. They're trying to block digital-recording pioneer TiVo (TIVO) from rolling out a new technology that allows subscribers to use the Internet to legally transfer their recorded shows to nine other devices, including PCs and laptops.

Wake up, folks. Now is not the time to send the fragile digital-rights peace treaty back for a rewrite. The Motion Picture Association of America (MPAA) and the NFL say TiVo's plan creates a system for consumers to steal their copyrighted content. In fact, TiVo's proposal strikes a good balance between giving viewers more freedom to watch their legally recorded content while still setting limits that would protect copyright holders.

Instead of assuming consumers will illegally obtain music and movies by any means necessary, the studios and other content providers should embrace workable solutions that encourage digital distribution in a "personal area network" -- at home or on the road. The TiVo model could open new revenue streams if consumers were able to obtain content when and where they want it. After all, what TiVo is proposing isn't much different from a video iTunes. The FairPlay technology Apple (AAPL) introduced in conjunction with the iTunes Music Store allows consumers to download songs and send them to any compatible device but also includes safeguards to prevent mass copying. More than 100 million songs later, users are still flocking to the service and the music industry seems happy.

FLAG-WAVING. Unlike TiVo, 12 other companies, including such heavyweights as Microsoft (MSFT), RealNetworks (RNWK), Thomson (TOC), and Sony (SNE), appear to be toeing the MPAA's line. They've agreed to include software that effectively restricts digital-video transfers to devices in the home. These companies don't necessarily think theft is a big risk since downloading a movie is still a time-consuming process. But they believe that by agreeing to the restrictions, their technology may get promoted by the studios to equipment makers, providing new licensing revenues. "It's pixie dust to think that stolen television is a reality today, but they're trying to keep the genie in the bottle," says David Arland, director of government and public relations at media company Thomson.

The troubling part about the latest squabble is that it was thought that content providers' concerns were resolved with the so-called "broadcast flag" agreement. Under pressure from the Federal Communications Commission (FCC), which is trying to speed the adoption of digital television, the two sides agreed that any show broadcast on local TV would contain a flag -- a piece of code that would prevent the show from being sent out over the Internet without authorization. Starting next July, all new television sets are supposed to recognize the flag. In the coming weeks, the FCC is expected to certify various other copyright-protection technologies that would prevent mass distribution of recorded content over the Internet.

TiVo, which doesn't plan to license its technology, is balking. Company execs argue the MPAA effectively is trying to control its business by demanding access to and approval rights of its digital-rights system. What's more, TiVo already has a robust content-protection scheme that many users complain about today. The company prevents viewers from sending a show to another TiVo unit before it is fully recorded on the first one. As a result, users can't share a digital file of, say, a football game until it finishes.

QUESTIONS OF LEGITIMACY. Even then, there's an additional delay, since it takes about 30 minutes to send a 30-minute show over the Internet. These current restrictions would also apply under the new system -- and it would add additional controls, such as requiring registration and passwords to unlock shared video as well as registration of the devices to play shared content. These steps would help TiVo block illegal activity. "The standardin the FCC's broadcast flag rule] iswhether technologieswould permit indiscriminate mass distribution onthe Internet.It wasn't meant to keep peoplefrom doing legitimate things like viewingshowson TiVo at homeor from the office," says Alan Davidson, associate director of the Center for Democracy & Technology.

TiVo execs say they will prevail. "We're confident that [the FCC] will rule in favor of technology innovation that provides consumers with additional flexibility while respecting the rights of content creators," the company says in a statement. FCC staffers declined comment, but noted the commission's only mandate is to make sure technologies comply with the broadcast flag rule, which TiVo's seems to do. Let's hope so. A decision the other way could lead to a consumer backlash and maybe exacerbate the very problem content providers say they're trying to prevent -- Internet piracy. Edwards is a BusinessWeek correspondent in San Mateo. Yang is a correspondent in Washington

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