Digital Hollywood: No Resolution

Studios, cable and satellite companies, TV makers, and consumers will all lose until copyright issues over high-definition content are sorted out

Imagine this: The latest sci-fi thriller is finally being shown on your premium-cable channel in crystal-clear, high-definition video. So you switch on your new digital TV, record the film on a digital videorecorder, upload it to your computer, and zap it off to your sister in Boston, who has been dying to see it. Is this a vision of the digital future, or is it Hollywood's worst nightmare? The answer: both.

Fears of digital-content swapping didn't end with Napster's agreement to start charging for music downloaded online. If anything, the horror of copyrighted music being spread freely around the world via the Internet has fueled fears among movie executives that digital video will be the Net's next victim. This time, though, Hollywood is taking no chances. The Motion Picture Association of America, which represents the major Hollywood studios, is waging a quiet war in negotiations with distributors of its products to prevent the "Napsterization" of digital video -- and the presumed ruination of moviedom's multibillion-dollar business model.

Having all but defeated Internet foes such as Scour, a video version of Napster, in the courts, Hollywood is now focused on pressuring its friends, the cable and satellite operators, which are making big strides in the effort to deliver digital video to the mass market. In complex negotiations over the past few months, the studios have been strong-arming the cable and satellite companies into decreasing the resolution of high-definition digital video -- lowering the broadcast quality so there's less incentive to copy it -- and restricting consumers' right to record what's on TV. The studios defend their actions in the sacred name of copyright protection.


  Problem is, keeping digital-video content in a lock box is bound to alienate an entire roster of movie lovers -- and ultimately push the matter to Capitol Hill. Consumers paying $3,500 to $12,000 for a digital TV expect to see high-definition quality and to be able to record programs, just like they can on their VCRs. Anything less would anger not only them but also technology companies and cable and satellite providers, which stand to make a good buck from digital video.

"The idea that improvements in technology have to stop so that Hollywood doesn't have to change its business model is crazy," says Jim Burger, a lawyer with the Washington firm of Dow, Lohnes & Albertson who focuses on the intersection of technology and media. "Looking for perfect protection in the Digital Age will put you in a loony bin. What they should be looking for is a reasonable balance between making money and making life easier and better."

Finding such a balance has proved elusive. TV-set makers don't want to include copy-protection technology in new sets because it would raise prices. Yet Hollywood doesn't want its content on TV if it isn't fully protected. Satellite and cable companies won't openly challenge Hollywood because of fears that the studios won't sell them the high-definition movies, original dramas, and comedies that viewers, and consequently the content carriers, want.


  Hollywood is afraid that without protections, hackers will make millions of high-quality, black-market copies that, unlike copies of VHS tapes, are every bit as good as the real thing. It's particularly agitated over the fact that, for now, there's no way to prevent widespread copying on the more than 750,000 digital-TV sets already are in American homes.

These sets have no hardware or software to control which digital material is recorded and redistributed. And the number of such sets is expected to hit 2 million by the end of 2001 and perhaps 20 million by 2005, according to the Consumer Electronics Assn. While later generations of digital-TV sets will probably have copy-protection capability -- though the studios and TV manufacturers are still arguing over how that will work -- digital TVs with no copy-protection capability continue to roll off the assembly lines.

Don't count on TV makers for a solution. The MPAA wants satellite and cable companies to "downres" -- or downgrade -- high-definition premium content so that what consumers see isn't high-definition at all but roughly equivalent to what you would see on regular digital cable or satellite. And that isn't all. Hollywood also wants to limit what consumers can copy on personal videorecorders, the digital successor to the VCR, which are being built into satellite and cable set-top boxes. If Hollywood has its way, consumers will be able to record only about 90 minutes of TV programming -- just less than the average length of a feature film.


 To just about everyone but Hollywood, this is tantamount to turning back time. Ever since the 1984 Supreme Court decision in Sony v. Universal Studios, consumers have had the right to record anything on TV for personal use. Consumer-electronics manufacturers and consumer-advocacy groups argue that this right shouldn't change in the Digital Age. "The content providers portray themselves as being besieged by new business models like Napster, but in reality they aren't playing defense, they're playing offense," declares Michael Petricone, general counsel for the Consumer Electronics Assn. "They aren't trying to preserve but to cut back the rights consumers have had for 20 years to record video -- so as to make even more money."

The studios insist that digital is a whole new ballgame that requires new rules. To be sure, the studios do need the right to protect their material. Hollywood is already plagued by piracy in the videocassette market -- losing $250 million annually in the U.S. alone, according to the MPAA. Worldwide, video piracy costs U.S. studios more than $2.5 billion a year. With digital technology, making pristine copies becomes especially easy because picture quality doesn't degrade with each copy made, as it does with traditional videocassettes. "There is no technology other than downresing to protect it from being copied and retransmitted on the Internet," says MPAA vice-president Fritz Attaway.

Hence the deadlock. What's going to break it? Angry consumers. That's one thing that all parties agree on. As digital-TV sets become more common, there'll be an outcry from consumers who feel they're being ripped off by cable and satellite operators. "The public is going to be pretty incensed that the quality of programming they were promised isn't delivered," says Representative Rick Boucher (D-Va.), who is following negotiations on digital copyright in anticipation of congressional hearings sometime during this session.


  That anger will put pressure on the heretofore "recalcitrant" movie studios to come to an agreement, Boucher predicts. Public agitation for consumer protection also will give Congress the freedom to legislate a compromise. That might include investments in new copyright technologies such as watermarking, which encodes hidden digital noise in a film so that illegal copies would be unwatchable. Policymakers might also require TV makers to include an add-on that will let content providers monitor home recording.

Of course, legislation of any kind would be a rich irony. At the dawn of the 21st century, it has been all but assumed that "market solutions" would provide the answers to even the thorniest Digital Age questions. The prospect that Congress will be able to find a way to protect Hollywood's intellectual property and simultaneously spur the spread of digital TV seems dim at best. This drama will no doubt feature many plot twists before the final credits roll.

By Jane Black in New York

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