Just in case you haven’t noticed, today USVO was able to announce its extension and expansion of ties to one of the major distribution companies. It the one whose name rhymes with ‘box’. Turns out, and it is totally understandable if you haven’t noticed this either, that this company rarely makes what are called ‘vendor’ announcements. The last one in the IT sector was two and a half years ago when they allowed USVO to announce the initial contract. In an extraordinarily generous moment, they even let us put their logo on the release. A Google search of business news services turns up a great number of press releases from this company-so you know that their in house PR organs are functioning.

But the vast majority of its communications and outreach function only serves to promote its own products. There was, as this contract was finalized and negotiated, push back about how this announcement might divert attention from the upcoming blockbuster holiday release of the Jim Cameron film “Avatar”. Given the multi-million dollar advertising in all media and striking imagery there in, it isn’t clear how many of you small stock press release aficionados would now not be going to the theaters in the next month to see the film that some consider the make or break test of 3D theatrical exhibition as the salvation of the film industry. Really. The film, probably the most expensive production ever mounted, even allowing for inflation, is so important that it wouldn’t surprise if Rupert Murdoch himself asked the White House to go to China some other week.

So thanks to those inside the organization that see the value of telling the world that their organization has been and will be protecting their products and asserting the rights of content distributors with sophisticated state of the art technology integrated with proactive enforcement strategy. We here at USVO appreciate their courage in the face of all manner of opposition and resistance. Thanks for being willing to shine just a little of the light from the mountaintop on our humble enterprise.

As a measure of that appreciation, there will be no direct mention of the company here. See the announcement on our news page. Please go search for any such news from any other watermarking company for a direct relationship with a major content company.

Yesterday savvy heavies and websurfers were focused on the latest FCC hearing on broadband- the 24th since embarking on establishing a national broadband policy. As reported upon in Broadcasting & Cable, John Horrigan, consumer research director for the initiative, “the underlying goal was to figure out what drives adoption, specifically what users wants”.
Judging by those testifying, the main interest was in how to put high value content on the internet- something users have shown they want- and make sure content creators, owners, and broadband providers are compensated- something users are at best ambivalent about.
With high profile representatives like Dan Glickman of the MPAA (“It must be a safe and secure environment”) and Patrick Ross, ED of the Copyright Alliance (“there needs to be a clear distinction between legal and illegal content”) it was clear that the challenge of providing users with quality content and content owners with compensation looms large not just for the content companies, but for providers, and government as evidenced by Patent & Trademark Office rep Michael Shapiro pointing out his office’s “keen interest” in the plan and the “great peril” that the plan might increase piracy.
While it isn’t clear that the hearing produced any paths toward answering the challenge, last week’s release of “The Beatles – Rock Band” along with remastered versions of the Beatles catalog made very clear that the users have no problem paying for both the music and the game. With Abbey Road the top selling album again, and the game expected to have its unique instruments sold out by November, the Beatles once again are proving that content is king.
What hasn’t been reported is any piracy. Extraordinary security and secrecy marked the long project and its many products. Next week we’ll examine how this set of releases may point at new models of content business, where relationship and service are emphasized over products.
Also in the news recently, the Digital Watermarking Alliance announced at IBC in Amsterday last week that “2009 has been a banner year in commercialization and adoption of digital watermarking solutions.”
Noteworthy for USA Videointeractive shareholders is that none of the items on the inventory of the banner year includes contracts with major studios, such as their company has. Since USVO is not a DWA member, it follows that our accomplishments aren’t featured. The list does put USVO’s accomplishments into a context that evidences what has often been stated here- USVO has accomplished more with less ( much much less) than other players in the watermarking space.

Yesterday presented another set of circumstances that suggest, if you will indulge us for the moment, that USVO is part and parcel of what is happening in the world.

You might not have noticed that The US Open began play at Bethpage in New York. Rain shortened the day, and a bunch of unknowns led. Two members of the USVO team hit the links yesterday as well, playing in a relatively unknown charity tourney for the Providence St. Joseph Burbank Hospital Foundation. The event is so unknown that the hospital has no mention of it on its website even though the event raised over $300,000 in a day. Providence is the home of the Roy & Patricia Disney Family Cancer Center, and the Disney company features prominently in the production of the tournament. Operational staff from Disney, Universal and Warner Bros studios- the half of the big six studios based in the valley that also houses the two hospitals that are the beneficiaries, populate the organizing committees and many of the foursomes.
It was a great place to enjoy the sunshine, compete in a friendly match of skills ( or lack thereof) and gauge the thinking of some of the business middle management.

What can be reported is that people are interested in new ideas, especially about increasing sales. Getting new ideas in front of this crowd costs money, and then once they are on board, requires the ability to execute on those ideas. While USVO wasn’t in a position to use the golf event to push our agenda, the good news is that our competitors weren’t even there, much less sponsoring a hole, or a prize. We were the ones taking the opportunity to shift people’s focus from their hooks and slices to their digital delivery strategy and concerns.

Another item you might not have noticed yesterday, while you are doing what constitutes your daily business, was the announcement of a court verdict of $1.92 million against a single mother of four in Minneapolis for downloading 24 songs. The RIAA, which spearheaded the suit, has provided a great demonstration of what we here as USVO have been stating about the issue. In winning the suit, the RIAA has created a lose/lose result.
Headlines abound, and analysis make it clear that in winning, the record industry has cemented it’s reputation as the least sensible sector of the digital economy. While the RIAA spokespeople express satisfaction with the verdict, the revenues of the members’ music units continue to slide.

The absurdity of prosecuting a single mother of four for downloading, while ignoring those that actually facilitate and exploit that activity for material gain seems to be lost on the RIAA. While it has promised to not sue any individuals, thousands of individuals have received the lawsuits that are the method of message delivery to the public that while listening to music for free on the radio is ok, copying that music and sharing it with others isn’t.

It also brings out those who wish to challenge the constitutionality of the suit and award.

While out on the course, we discussed these and other important issues. The world is in need, dire need, of a proactive and credible way for rights holders to brave the digital distribution world. USVO is in need of the means to deliver it. That’s what we are working on everyday.

Events of the last week prevented my posting a more timely comment upon what has become the most visible violation of copyright in some time- the online availability of the Fox film “Wolverine”. As CNN noted in their article “In digital age, can movie piracy be stopped?” this is an especially troubling example for a business further challenged by the stalled economy and ownership more than ever concerned with the bottom line.

It is also troubling to a leadership which recognizes that the motion picture industry generates the single largest positive contribution to the nation’s balance of trade, as was discussed in a Congressional Judicial Committee hearing earlier this year. “”During our hearing in Los Angeles, director Steven Soderbergh said that in 2007, the entertainment industry generated a trade surplus of $13.6 billion,” committee chair US Congressman Howard Berman added. “Imagine what those numbers would be if we could rein in piracy.”

As any follower of USVO already knows the answer to CNN’s question about stopping piracy. First of all, it’s the wrong question. As noted in an earlier CNN article, a more immediate and relevant query is what is the harm to the film’s release? “Whether the leaked video will eventually hurt the film’s box office earnings “is very difficult to discern,” according to CNN’s source.”

“Wolverine” opened with $85.1 million in box office, first among movies that weekend. It ranked first every day since opening until “Star Trek” opened this last weekend and now has over $200million in global receipts. Did more or less X-men fans go to theaters based upon what they heard or saw of the ‘incomplete” version? Can #1 ranked $85million plus weekend be considered a damaged result?

The motion picture industry can’t tell, and would have a hard time pleading its case as it has enjoyed, especially in these times, a good year so far. And ultimately that is the question that both the industry and policy leaders need to examine- how to generate more business. Piracy existed before today’s BitTorrent, or ubiquitous processing and connections made it available to all. And the industry always found ways to be profitable regardless. It isn’t that piracy isn’t important, costly in many ways or full of individual and corporate ethical concerns. For the industry it is that the threat of digital piracy has stopped the world’s content distribution leaders from using innovative technology to engage and profit in new markets and channels to reach customers.

The good news for USVO is the mention of forensic watermarking in a number of places including the CNN initial report. In a Wired report, watermarking is mentioned as the reason Fox has confidence in catching the person who put their product outside the licensed system. USVO is cited as Fox’s vendor. Currently USVO’s product is used by the Home Entertainment unit for business to business marketing of finished product.

Overall, the expanded visibility of piracy, and its many impacts on a leading US industry sector, is good news for USVO. We find our enforcement and exploration of new business message resonating with policy leaders. We continue to field queries from business unit managers in the content distribution industry. We continue to seek the partners that will enable us to answer those queries with new business.

Although Jon Stewart of The Daily Show, asserts that copyright infringers will have to give up the word to those modern seafaring criminals off the Horn of Africa, today’s news can still assert that copyright Pirates have been convicted. Four people associated with the site The Pirate Bay, were found guilty as announced today in Swedish courts.
The trial was considered of sufficient importance that Swedish television broadcast the entire proceeding online, a first.
While the defendants were sentenced to one year of jail and over $3.6million in fines, they are expected to appeal the verdict.

The pressures on the existing content companies are showing up in multiple ways as the continuing credit crisis and resulting recession in economic activity impacts grow.
But for content companies, which have traditionally done well during lean times, this cycle promises to force the issues that confronted them during the boom years.

Theory meets reality in two items in the last week. First is the budget squeeze. With recession a reevaluation of all expenditures are in order. At the studios, TV series production budgets, already under intense scrutiny, have been dropped across the board- 2- 20% according to The Hollywood Reporter. At the MPAA, the studios lobbying and unified agency for all manner of things, not the least of which is reminding the world of how much money piracy costs them, the budget for the upcoming year is expected to be cut by about $20 million. Since about half of the MPAA’s $100 million was expended in areas related to piracy, it is to be expected that the studios will have even more pressure on them to innovate their way through the digital distribution jungle while the existing strategies of lobbying for extended copyright, legislation of college networks and the cat and mouse of hunting enterprise pirates will be curtailed.

The other area is highlighted by well read blogger and Linux Journal senior editor Doc Searls complaints about his options as a TV subscriber to Verizon’s FIOS service in Boston MA. Like many of us, Doc is unhappy having to pay for all those channels he doesn’t watch. And while HD over the air is pretty well supported in his neck of the woods, those same shows are coming to him via the internet. So his call for ‘ala cart’ television is neither unique nor likely to shrink under economic duress. This week Doc dropped his TV service from Verizon.

For both Verizon, and the studios, such calls mean further erosion of steady and predictable cash flows, more complicated development and distribution processes.

Naturally, we think digital watermarking, and SmartMarks in particular, are part of the answer to both of these circumstances. If Doc could buy just the shows he wants with a personalized watermark that could be used to hold him accountable for using the content outside of his acquired rights, the risks to the producers of his favorite shows could be mitigated while new revenue streams develop. For the MPAA, which conducts much of the sleuthing for the studios, going public with catching crooks is an opportunity to let the content consuming public know that it is thieves that concern the content owners, not viewers, while trumpeting they are defending the rights of content owners.

We bang this drum here a lot, but it bears repeating. Watermarks are a smart and elegant solution to much of what ails and challenges the content industry. We have proven that this technology is adaptable, effective, and can be cost efficiently used and installed in the studio environment. We are eager to expand our demonstrations, and need our audience to support this effort, in the public discourse, and in the marketplace of both content and equity.

Happy New Year to all of you.  Here on this page, we have been discussing content distribution and protection issues for two years, beginning in January of 2007. Our core story has been that there is a tremendous business opportunity for content owners in digital distribution, and that watermarking is the enabling technology, and that SmartMarks, USVO’s watermarking technology, is a great choice in watermarking.

Most of the news so far this year is very negative, but there have been some bright spots. Chief among them was Apple’s announcement that it was dropping DRM from its iTunes store. Nearly two years after Steve Jobs wrote an open letter to the world on his “thoughts on music” in which he criticized DRM, the company has worked out agreements to eliminate it from the world’s single largest music store.  It is important to note that the very companies that it took this long for Apple to work out DRM free licenses with, had already allowed DRM free sales at Amazon.com and Play.com among others, for over a year. 

One doesn’t have to dig too deeply to see a number of agendas and issues being played out here, but for those looking forward to, and investing their efforts in a world free of transaction blocking, customer hating, inhibiting prevention oriented applications and thinking, this is a landmark. One challenge in the watermarking space is to distinguish it from DRM, so let me state once again that SmartMarks are not DRM, but rather an enforcement approach to content security.

As stated in these pages time and again, the key to leveraging digital technology for content distribution is trust. All of us prefer to deal with entities we know and trust, and for as long as the motion picture industry has existed, it has not trusted new technology or its customers with that technology. As a result, it has not benefited from the power and cost effectiveness available there. 

Instead suspicion has been the dominant thinking. If theft was possible, it was probable, even though the vast majority of computer enabled customers just wanted the content as conveniently as possible.  Until iTunes was rolled out, that convenience was supplied by various pirate services. Because of its success, iTunes has become the flagship of a slowly modernizing music industry. So the dumping of DRM from that ship is clearly worth the headlines and analysis given it.

A great summary of web reactions was published at Billboard magazine, the trade paper of the music industry. Opinion varies, but in all cases the impact is considered significant. At the Boston Globe, the judgment is right in the headline, “Apple’s iTunes changes may show digital rights management’s a loser”

The chip heads have dug in and have investigated the details of the execution as well, and pronounced their own judgments. This too bodes well for watermarking, because while the songs are now DRM free, they are not without some security. Turns out that Apple is making each download traceable to the email address registered to the iTunes application that downloads the song, whether that is on a computer or the latest channel for delivery, the Apple 3G iPhone.  While a savvy user can be expected to work around this, as they have much of the restrictive aspects of iTunes, the model for enforcement strategy is in place at the world’s largest music retailer.

While it is nearly a decade that the motion picture folk have been saying that they aren’t going to do what the music people did, and have done just what the music industry had done, there are still those saying that DRM free video downloads won’t ‘ever’ happen. But the cognoscenti are already calling for DRM free video. Driving this demand is the need for new sales- “But until the day consumers can buy content once and move it to any device they want, the market for purchasing video content won’t see the kind of growth that many of us in the industry have been waiting for.”

And this is the big promise of the decision. For the first time, in a well established marketplace, vendors can watch how DRM free content sells. This is the beginning of the DRM free era in content. We should expect more theft, a number of new schemes for cost avoidance and more. But key will be how much new business Apple can do now that one of the restrictive aspects of the iTunes/iPod/Apple silo has been deleted.

Welcome back, and expect to see more comments in the days ahead as the pressure on content distribution companies create new opportunities, especially for strategies that are targeted on new sales.

The USVO team has been engaged in a summer long effort to expand capacity of the company to fulfill the demand that has resulted from our successful installation at Fox.

That means that I haven’t been keeping you appraised of all the developments in the wider world of copyright, digital distribution, and piracy that our products are directly a part of. My apologies.

And this week has so many pieces of news that it is a good time to review-

First and foremost is the challenge to traditional content distributors that digital technology presents and how they have been responding. Once again this week we see the studios resorting to the lawsuit in challenging RealNetworks latest product which makes it easier for consumers to use their computer to make a copy of a DVD.

Without getting too deeply into the details of the technology, and how it will be interpreted in courts, copyright law allows you to make copies of the content you have licensed for your personal use.  The studios see this application as encouragement to copy rental DVDs instead of buying them. Which it may be. We don’t really know.

What we do know is that this sequence of events is fear based by the studios. Much as Luddites sought to destroy the mills and spinning machines that brought hardship upon the hand spinning and weavers of pre industrial England, today every technological development generates new winners and makes losers out of some previously existing business.  The issue is usually one of adaptation, as history shows that those who attempt to stop progress get run over.

Now the studios are not Luddites. Also in the news this week is their agreement to finance the conversion of theaters to digital presentation equipment.  The effort to convert theatrical presentation from prints shipped in cans to files sent over wires is almost a decade old.  One of the many sticking points has always been over who should pay, as while the distributors have always acknowledged that they will save nearly a billion a year on print and shipping costs, paying to upgrade some one else’s business has been a hard sell. Especially since digital projection and connection will make it easier for the theater owners to sell other content than movies.  

The business proposition for the studios is now clear. In order to revive theatrical attendance and thus grosses in what is considered the ‘flagship’ market window, the studios have committed to 3D production and distribution. There have been demonstrations in the market that the customers will not only come out to see a 3D film, but pay more for it.  But to have a broad release, a 3D film needs more than the less than 900 digital screens currently in the USA.  So long-term financing of another 20,000 digital screens now makes sense to the decision makers atop the majors.

Other new propositions are on the horizon too. The studios are searching for a way to have a home cinema window, delivering a high definition screening to all those high end home theaters that have been installed in the last four years. Somewhere between being in your local cinema, and on the shelves of your local Blockbuster, they will sell you a premium screening of their recent release. They have even started a standards committee to explore how to do this with their 3D films. 

So when the business opportunity is clear, the high and mighty are willing to change their way of doing business and even invest in their partners’ infrastructure.  And this is why we are excited about MediaEscort and SmartMarks.  Experience has shown that prevention of theft is a failure. Prohibitions always fail. But enforcement has secured not just banks but the social contract. Order in our streets prevails because we understand that there are consequences to not following the rules.  And in enforcement (watermarking) the studios will find confidence to embrace the digital world.

There are lots of issues to sort out. Note the decision announced yesterday that royalty payments for digital song sales will not be increased. On the one hand music publishers have a very good argument that file delivery is much less costly than physical, so their percentage of gross sales should be raised. Apple on the other hand has a pretty good position about margins already being thin for the proprietors of the iTunes store- now the largest seller of retail music in the US.

This is a fast moving, but long story. Expect news constantly. Meanwhile, we are putting our heads back down to concentrate on our branch- which is about making lightweight, robust and economically viable watermarking available to the world’s largest mnedia distribution companies for the world’s most valuable content.

Another subject that we have covered previously, but that bears repeating in view of some recent announcements regarding the motion picture industry.
The business model that has served Hollywood is under siege.

Since the beginning, Hollywood decided what the public would see, and when it would see it in what venue. Today, digital technologies have made it possible for the public to get used to the idea that when and where, and increasingly, what, is up to them.

This stress, if you will, has been around for about a decade now. The music industry gave a tutorial on what not to do, yet the MPAA has cribbed many of the pages from the RIAA playbook. Based on the availability of pirated titles, both in physical and digital forms, these efforts are failures.

Being able to market and launch a ‘property” in the theaters, and then sequentially release it to wider and less expensive to the consumer channels over a period of time is how Hollywood has made a profitable industry out of a segment in which there are always more losing products than winners. Thanks to this ‘windowing’ model, even losers like “Waterworld” eventually return on the investment. (“Waterworld” eventually broke even thanks to licensing for games, theme park attractions etc). At least that is the thinking that continues to search for a way to have ‘display without capture.’ This last phrase is shorthand for the idea that we can show your eye a movie while making it impossible for there to be any kind of recording of it, or theft of the source that showed it to you. This is a modern holy grail, except that there is nothing ‘holy’ about it; just wishful.

Meanwhile new ventures are grabbing the shelf space in that modern geography of the internet. The studios, being part of multinational corporations, are buying those ventures in whole or part to hedge their risks. But neither the acquisition of such outlets, nor the selling of movies online suggests that the solution to the fundamental problem of answering the challenge to the business model has been met.

USVO’s SmartMarks offer an alternative. Engage the marketplace in ways that let people watch what they want when they want, and trust them to do just that- watch. Embed proof to catch the crooks- the people that steal to make their living off the investments of others.

One of the allures of the silver bullet, or the technically magical prevention of theft, strategy is that it promises a simple clean solution. Despite the fact that it is 1) highly hackable – all strategies aimed at prevention so far have been hacked, 2) alienating to customers – complicating purchase and use of consumer electronics devices and 3) been a failure, this approach still seems ‘easier’ than enforcement.

Let’s look at why. Take this example from the Business Software Association. A large unnamed international corporation had multiple illegal copies of various software applications. The BSA filed “a criminal complaint made by the BSA on behalf of Adobe, Autodesk, Avid and Microsoft” which “led to police raids on the company’s premises and the freezing of its assets.”

Note that a business association led the effort- not law enforcement. While theft of software is a crime, galvanizing law enforcement efforts around this has not been as attractive to the MPAA as lobbying Congress for changes in the copyright law that also allows them to inspect the contents of private computers.

Another enforcement challenge is scale. The longer pirates are in play in the current model, the more outlets and places exist. Looking at DirectTV’s efforts at enforcement of the pirating of their license cards - an effort somewhat aided by the fact that in order to steal a scrambled satellite signal one must have a dish, a set top box and a card to enable the box – DirecTV has busted a lot of operations. This can be seen on this page of links to sites that DirectTV has control of. The names of the domains read like pirate addresses “pirateden.net”, “dishnethack.com”, “satellitesorcery.net”. Over a 120 domains that DirectTV has pursued and captured through their enforcement efforts. People have been fined, and dealers of hacked equipment and cards have been sentenced to jail time.

Justice of this sort demands patience, persistence and collaboration. Of these three, only persistence can be said to be a historical trait of Hollywood, and then mostly of the talent.

Just last year, the US Chamber of Commerce, through its Global Intellectual Property Center, proposed a Campaign to Protect America with specific steps toward increasing enforcement. The membership includes all of the Hollywood majors (except Sony) among the 539 companies listed. As their video states, “this isn’t about Madonna or Fifty Cent”. It’s also about airplane parts, pharmaceuticals and other public safety related businesses.

This points up the other aspect of the challenge. Even when law enforcement is on the job, will they be available to work on the theft of movies, when there are fake pharmaceuticals to be kept off the shelves? Just how important is the lost revenue to anyone other than the distributors and related stakeholders in a given film or television show?

At the end of the discussion, the lost opportunity costs of focusing on theft instead of the possible new services and products that could be sold through digital technologies far outweigh these challenges. Shifting focus from theft to opportunity is the most serious challenge to the industry.