A Real Hollywood Horror Story

New technologies may do to movies what MP3 did to music

Picture a fellow named George sitting in his living room on Sunday evening. He's watching a digital playback of the latest episode of The West Wing. Zapping through commercials, he starts yawning and decides to finish watching it in bed. With a flick of his remote, he wirelessly dispatches the show to the bedroom TV. He also sends a copy via the Internet to his sister and asks her in an e-mail to make a DVD of the show to pass along to their mom.

This vision of the future is closer than you think. To date, Napster and its music-sharing offspring have reigned supreme as Hollywood's biggest headache. But four insurgent technologies that will make George's Sunday possible are fast picking up steam. Together, they promise to turn the gamut of copyrighted programming into convenient files that can be downloaded, stored, and shared almost as easily as e-mail. And this shift could happen quickly--within 18 months--because early forms of these technologies are here now.

The insurgency starts with compression, a new system to shrink digital files into smaller packages that are easier to send through networks. Step two is storage: Advances there put enough memory for shelves of movies into laptops or even handheld gizmos. The third technology is digital recording, such as the one used by TiVo Inc. (TIVO ), which is now being jammed into a host of devices and computers. And to link all of this programming, whether in a house or on campus, a new high-speed wireless system is emerging that can zap an episode of The Simpsons between laptops 50 times faster than most broadband connections. Add it all together, and Hollywood will be reaching for a bigger dose of aspirin.

The danger is evident. Unchecked, these advances spell the Napsterization of movies and the scorching of TV ad revenues. The threat already is pushing Tinseltown to raise two levels of defenses. The industry is hurrying to build safeguards into networks and computers to limit copying or transmission of copyrighted fare. And entertainment companies are pressing cases in court, suing companies, and pursuing individuals. "It's not just one fight," says Clay Shirky, a tech consultant and professor at New York University. "The entire [technology industry] is playing against music and movie companies."

It's easy to understand why. With a weak economy dragging down sales and earnings, tech companies are pulling out all stops to entice consumers to buy new products. And what's more alluring than entertainment? So it's little wonder that all four technologies--wireless networking, massive data storage, faster compression speeds, and powerful recording technologies--are showing up everywhere, from Toshiba home media centers and Apple Computer laptops to Samsung Group handhelds. "The next wave of the personal computer is the digital lifestyle," says Philip W. Schiller, Apple's (AAPL ) senior vice-president for worldwide product marketing.

It was a compression innovation called MP3 that opened the Internet to music-sharing in the late '90s. That technology transformed songs into files small enough to send over a dial-up connection. Now comes MPEG4. This compression standard shrinks audio and video by a factor of two to three, and it will be programmed into most computers, stereos, and DVD players by yearend. "It's the MP3 of video," says analyst Lou Latham of Gartner Inc.

Thanks to breakthroughs in high-density storage, there will be loads of room to warehouse those videos. When Napster surfaced in 1999, a gigabyte of storage--enough to hold around 250 MP3 songs--cost $12.27 wholesale. Now, it's down to $1.15, according to IDC. With storage this cheap, it's easy for RCA to stuff 20 gigabytes into its $400 handheld personal video recorder, which can handle 80 hours of video.

Such recording machines are at the heart of Hollywood's vulnerability. Pioneered by startups TiVo and ReplayTV Inc. (SBLU ), PVRs make it a snap to digitally record any TV show--and it's just as easy to skip through commercials. Now, PVR technology is starting to pop up in Toshiba laptops, Panasonic's $1,000 DVD machines, and Hewlett-Packard's $1,600 entertainment PCs. These devices all connect to networks, and they can make movie-length copies on DVDs. This makes it ever easier for viewers to own, and to share, nearly everything they see.

In time, most entertainment systems will sport their own PVRs, with gobs of storage and connections to the Net. At January's Consumer Electronics Show in Las Vegas, Panasonic, Royal Philips Electronics, and Sony (SNE ) unveiled their new media centers. These machines, costing from $1,000 to $2,000, offer next-generation remote controls and servers that link virtually every home-entertainment device in the house. Meantime, RCA, Samsung, and others are rolling out mobile video players to let consumers take all this content on the road. "The threat that the mobile MP3 players was for music, this is for movies," says Tim Bajarin, president of consulting firm Creative Strategies. "It's video on the go."

The final piece of the puzzle is wireless. In the past year, networking in homes, campuses, and cafes using low-cost Wi-Fi, or wireless fidelity, has taken off. This summer, a high-speed cousin, compatible with the previous version, is coming out. Known as 802.11g, it's five times faster than its predecessor.

The implications are huge. One example: Even as universities battle piracy by monitoring mega data transfers on their networks, students will soon be able to set up their own high-speed networks in dorms or labs and trade files willy-nilly. That will be easier with the new standard, whose 150-foot range is about twice the length of old Wi-Fi.

These advances are setting the stage for a new round of conflict among tech companies, consumers, and Hollywood. The technology industry is working with music and movie studios to create new services, digital locks, and filters that can balance consumer rights and copyrights. But they'd better hurry. Once consumers get their hands on the power these new technologies deliver, Hollywood will have a tough time getting it back.

By Heather Green in New York

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