Values

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.

Recently published at arstechnica.com, Nate Anderson has neatly quoted over a hundred years of objections to new technologies by those whose business models were perceived to be threatened by those new technologies. Starting with John Phillip Sousa having concerns for ‘the national throat’ that player pianos would cause to atrophy through the recent transition to digital television, Anderson illustrates that copyright holders have never made a significant contribution to either creation or distribution of content. The basic argument is that copyright limits innovation.
Much like the current national debates on healthcare or climate, those who benefit by the current situation are vigorously defending the status quo while stirring up as many worst case scenarios for the proposed changes as they can. While it can’t be said that the advent of mechanical reproduction of music that Sousa expressed concerns about destroyed music or even the music industry, it is true that many businesses changed or were lost and that while some benefited, others did not.

This is true of every change in our world. When the Clean Air act was passed, many predicted that our economy would be choked. And while polluters did have to spend money to adapt, they spent that money with innovators who invented and produced solutions to cleaning the outputs that had been defined as polluting. New businesses were generated, and others were reduced- in particular areas of health care that were in less demand as people suffering from asthma and other related conditions suffered less.
In the area of copyrighted content, the malaise of the music industry has not meant the end of it, much less the creation of music. New music is being produced and distributed through an explosion of new channels. While there may never again be the focused attention that the combined forces of music and television combined to make Michael Jackson the world wide phenomena of the 80s, thousands of artists are finding audiences and sustaining their existence.
The motion picture industry is continuing this pattern. Today within the industry are people who have experience with both winning and losing in the cycle of innovation and disruption. The losers include all the vendors of various analogue services that are dwindling. Kodak for instance, already dealing with the consumer shift to digital photography, is busy seeking new business supporting the new digital capture and release in the industry. On the winning side are those companies supplying new digital cameras, digital projectors and screens as well as those who are installing and servicing them.
New models of revenue at every level are being tried out, with both successful and failing results. For every iPod there are several struggling MP3 player brands, and for each Steve Jobs – now holding the single largest position and a board seat at Disney, there are VPs and vendors struggling to find a product or service that will succeed and replace the revenues lost. Not every producer of blank VHS tapes has successfully become a DVD manufacturer.
In the not too distant past, there was a ride at Disneyland, sponsored by General Electric, as it was still known, called “the Carousel of Progress”. Animatronic families demonstrated the lifestyles of the 20th century. The emergence of leisure time and how to use it is revealed as the circular building rotated the audience from one stage to the next. As each movement occurred the robot cast would sing “there’s a great big beautiful tomorrow, waiting at the end of everyday’.
This lyric remains both the promise and the problem society, organizations, and individuals face continually; how to make it through the night without going bankrupt.
What does succeed historically, as Anderson points out, is giving buyers more choice and more power. Rights holders that exploit this will always succeed. USVO sees itself as a partner with the copyright holder companies, is to make that transition profitably.
For extra insight into the issue- read the comments on Nick’s article.

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.

The field of competitors in which USA Videointeractive is operating has seen recent activity, changing the geography for all.

Civolution, a year old company created by Phillips spinning off its digital watermarking division, acquired the assets and team of Thomson. Given that the two largest operations and investments in the field were those two multinational giants, this is effectively a consolidation of those efforts.
Funded by Prime Technology Ventures of Holland, Civolution now is integrating two distinctly different technology teams and approaches to watermarking, as well as dealing with the overhead of two international organizations. Phillips continues its interest in watermarking by virtue of being a partner in PTV.
However Prime Technology Ventures has made a long term commitment to Civolution that makes such a process orderly. The stated goal of the new company is “international domination” of “content identification services” a term coined to cover all the ways in which watermarking and its cousin fingerprinting are being deployed and monetized. Such a far horizon view translates into a commitment of tens of millions of dollars, which certainly indicates not only financial stability for the company, but extraordinary potential for return based on what the company and industry analysts view as the revenues this market will generate.

Another significant transaction took place this summer in the field when Nielson, the company famous for its ratings services to the broadcast industry, committed tens of millions to Digimarc, the watermark patent holding company ( and a partner of USA Videointeractive). Nielson will use watermarking technologies to further automate and simplify the process of verifying just who is watching what and when. Again the commitment is long term, and the amounts point to significant return on investment as well as to a validation of the size of the market.

Like watermarking itself, one has to have special expertise or techniques to read these transactions. In terms of impacts upon USVO, the news is good. In spite of Civolution’s stated goal of global domination, the content industry has demanded multiple vendors and technologies for security. In watermarking, this consolidation along with Dolby’s having shuttered its watermarking operation Cinea, means fewer competitors, and especially half as many Goliaths in the field.

For our investors, it also provides external evidence of confidence in the market potential of watermarking. These transactions also indicate the numbers involved in developing that potential. As before USAVideointeractive remains a unique value proposition in the field, having accomplished services and secured relationships that its much larger competitors haven’t, and at a fraction of the costs. These transactions also highlight the nature of the opportunity. It has a long horizon. It requires continued investment over time. That such investments are being made during such a difficult economic cycle speaks to the vision and commitment of those companies.

As a technology development and service company, USAVideointeractive is actively seeking such partners, and we are grateful to the engagement and patience of our investors in the process.

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.

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.

USVO sponsored the title panel at last week’s Telecosm conference at Lake George New York. The panel discussed the coming Exaflood- a George Gilder coined term that anticipates that by 2015 traffic on the internet will multiply fifty times.
The panel was set up by Andrew Odlyzko, Digital Technology Center, University of Minnesota, who presented measurements of current demand that questioned the Exaflood’s premise.  This led to a lively discussion that fed well into USVO’s message that the motion picture industry has immediate need for more bandwidth, and the security strategy that will let it turn that bandwidth into high value transactions.
The USVO team then had a forty-five minute breakout opportunity to discuss the value proposition that USVO represents.

The highlights of the overall conference were many, but the level of economic analysis, technical insights, and revelations in a wide variety of technical and investment areas was world class, and it was a major landmark in the company’s evolution to be marketing at this level. We were in great company.

My favorite statement from the week- Steve Forbes in his keynote said “economics is making scarcities into abundances.”

Some of you may have seen this author’s recent appearance on MoneyTV in which the mission and product of this company was reviewed, along with the announcement of our successful implementation at Fox Home Entertainment was discussed.

One of the points ( of the many that I struggled to jam into those precious moments of exposure) was that this is a landmark, a ‘stake in the ground’ of significance.

First let me share the basis of the analogy. The ‘territory’ of the distribution business is divided up into the mountain top, which is the now six major studios, and multiple hills, some of which send their products to the mountain top, and others that feed multiple lesser channels. For watermarking, the studios are a relative ‘green field’- an as yet untouched marketplace. At the same time these companies are also extraordinary walled gardens, where getting into business with them has multiple barriers, and the processes to overcome them are often outside what might be thought of as usual and customary.

Once inside those walls, the plots of territory for USVO and watermarks in general to work and cultivate are many. From the beginning of production till a product arrives at ‘library’ status, its value to the copyright holders depends on judicious use of both containment and exposure.

We all get teased by the promotional exposure of films ‘coming soon’ or the involvement of recognizable names, or subjects while they are in production or actively being marketed. The key to a successful product is having the public be aware of it, and develop a desire to see it, whether at the theatre, or renting or buying it for home viewing, or waiting for it to reach broadcast or cable. The vast expense of distribution is in the marketing effort which generates this awareness and desire.

Unintended release (piracy) of the product exploits the marketing without ensuring a cash return to the copyright holder. Thus from the first image captured, to the last possible stream of revenue, control of the product is desirable. Conversely, wide dissemination is also desired, because the more people with access to the product, the higher the potential return, provided that access is under license and thus revenue generating.

Within the complex enterprise of motion pictures today, the production, post production, marketing and theatrical distribution processes today, a product crosses departmental, business unit, and vendor boundaries thousands of times in a variety of forms, states, and media. Each and every one of those is a transaction that can, and should be watermarked.

Each of those boundary crossings require an analysis of security threat, workflow and optimum implementation before USVO can determine the opportunity represented by developing the unique appropriate application of its technologies. So while we have made it inside the walls of one of the occupants of the mountain top, our working of the fields within will require creative industrious effort.

That effort is significantly bolstered by the ‘stake in the ground’ that the existing implementation is. It is a point of location, stability and credibility. It is a point to push off from, not just within the NewsCorp enterprise, but all of the other occupants of the mountaintop.

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.

Last Tuesday marked the publication of the USVO watermarking story in pretty complete form in The Hollywood Reporter.

Thanks to Martin Grove, for not only shining light on the company, but giving a pretty strong support by not going out and looking for a naysayer, as is what often is regarded as journalism today.

Note also that Martin is generally on the creative beat, interviewing filmmakers of many stripes. This indicates broader interest in the security area than the engineers and lawyers in the business.

That smiling face on the Grove index page next to the article is the mug of USVO CEO Ed Molina, whose work with Grove was critical to having Martin use his platform for this subject. Way to go Ed!