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.

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.

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.

The current issue of Wired Magazine has this “Dear Hollywood” column by Frank Rose.

There is a lot to discuss in this essay, but let me point out the first obvious problem- there is no “Hollywood” to address. As pointed out in last week’s post, these are not coherent transparent well aligned entities. Each and every one of the now six major studios is a multiple business unit amalgamation that itself is a serfdom of a multinational corporation.

What this essay does very well is articulate the opportunity that the motion picture industry misses because it is focused on the threat of theft in digital delivery, instead of the potential profit.

Equally significant, is Rose’s point that if the legal distribution isn’t made available to the public, then the public will go find the product they want wherever it is, which means on a illegal dark net site, or some other source.

Remember, much of the movie business cost is in creating the demand, or desire to see their products. As an example, I wanted to see “Charlie Wilson’s War” but it was only in my town for a week, so I can’t see it in the current Hollywood ‘window’ model of delivery until it is available on DVD (April 22- a detail that isn’t on the film’s official website) unless I want to drive nearly 80 miles to the closest theater it is playing in (thanks to zap2it for this bit of information) But it is available right now on The Pirate Bay, a ‘torrent’ website, whose homepage has a convenient set of instructions on ‘how to download’ and get started with BitTorrent.

Drive an hour and a half, pay $9, or download for free here at home? Hmm.

An interesting sidelight is that The Pirate Bay was able to automagically recognize my zip code and supply me with advertising localized to me while the Hollywood distributor (Universal) and production company (Participant Productions) don’t even have this title (“in theaters now” according to the film’s site) on their home pages. Universal has already buried the film, and since it isn’t available now, you don’t see it on the DVD page either. Participant does at least show the title on its ‘Films’ page, but doesn’t tell you when you could get it or give you a way to find out where it is showing.

So although the technology clearly exists for a web page to adapt to where the viewer lives, and present relevant information, like say the closest theater to where I live that the title is playing in, or offer at least some information about the product I am looking for, the legal owners who have invested a lot of money and effort to have me want to see their movie, can’t seem to find a way to make it available, or even tell me how I will eventually be able to get it.

Netflix, the most clued in legal way to get the film, makes it relatively easy for me to not only learn about the product, but put it on my queue and be in line to have it delivered when the DVD is out, which they also publish.

The Pirate Bay listing was on the fourth page of my Google search because there are that many more relevant items to list, even when the word ‘download’ is added to the search. But the fact that a free download is even making the listings, begs the question of just how well are the studios protecting their current business model.

On the one hand, the Hollywood Rose is writing to is clueless, and focused on the wrong end of the threat/opportunity line. On the other, they have a tremendous amount of enterprises partnering to do all sorts of things like tell me when the DVD will be out or where I can go to a theater near me.

They dominate the marketplace they are in and have for nearly a hundred years. Is Rose right about them missing the opportunity or are they just too profitable now to mess with a good thing?

Our commitment at USVO is to provide content rights holders with the tools to distribute digitally confident that they can enforce their licenses, particularly against enterprise pirates- people actually stealing the product for profit. By enabling the distributors to engage the digital distribution marketplace trusting their customers instead of suspecting them, SmartMarks are a critical technology to transitioning these companies to the new technology landscape.

The issue of security of content continues. There hasn’t been a day that I couldn’t post a pointer for you to go look at an article, a lawsuit, or some related revelation to the subject. There could be a hyperlink for every word in this paragraph without sending you to something redundant. It is that prevalent an issue.

The latest estimate is that the US economy loses $58 billion a year to various forms of copyright infringement. Understandable for the nation that has made thinking things up the source of its wealth growth. Extraction of natural materials and converting them to objects remains a significant part of the world economy, but the growth due to these activities is always based upon perceived limits to the desired material or object. While objects are what comes out of Silicon Valley, the ‘ion breadbasket’ of the information economy, most of them are about how to bring infinite information to you. The internet is built out of the products of Cisco, but why we value them, and thus Cisco, has more to do with the fact that these products connect us to each other, and make a level of exchange of ideas more facile and rapid.

As an example, look what happened Friday in the stock market. While a raw material (oil ) saw its highest price point in history, stocks of companies that profit by this lost ground in their share prices. In fact in the general sell that took place, every stock in the S&P 100 save one, was a loser. That remarkable company? Google. Google is fundamentally not a content company, but a channel for content. Isn’t it remarkable that a channel is resilient while oil services or energy related to oil isn’t? Google isn’t even the biggest channel. Just the one with the most potential.
On the information and content front, Google is currently a lightning rod for a number of reasons. First-It is essentially a new information channel selling viewers to advertisers. It has a huge audience because we need to find the bits that we want, out of an immense universe of possibilities. Second – It offers a more informed form of advertising. Because it knows what you are asking for, it can put an ad up that (in theory anyhow) addresses your stated interest. Third- It is a growing and distributed channel. Unlike every other way- newspapers, broadcasting, cable etc. – that an advertiser can reach you, Google is able to attract eyeballs for an infinite number of ‘programs’, very little of it that it creates or has any cost of providing. Even its element that most resembles television- YouTube- has no original programming.

Google has seized the first real estate in the advertising land of tomorrow, and it is the belief in the promise of tomorrow that drives its valuation, along with its tremendous profitability, actual cash flow etc. It isn’t the world’s largest channel, but equity buyers are pretty sure it will be.

Which is why it is the subject of Viacom’s billion dollar lawsuit. There are a lot of significant and complicated issues for society to sort out in this kind of action. Just what responsibility does a Google have regarding its pointing you to content (the search business) or being a bulletin board for others (the YouTube business)? Is linking to a site make a company responsible for whether or not someone can then do something illegal in their locality through that site? These issues are because technology will always lead the law.

Let me say that I don’t think we’ll ever see a judge weigh in on any of those issues. The Viacom lawsuit is to press Google to implement a level of content security that satisfies the comfort level of Viacom shareholders and leadership. Witness the weekend speech by Viacom’s Phillippe Dauman. As reported in PCWorld “Viacom’s Philippe Dauman said at the Web 2.0 Summit here that instead of a proprietary system to block content that may infringe on copyright, there needs to be an industry standard for that type of effort.” The Viacom call, for which the lawsuit is a lever, is for something bigger, broader and that has a standard. Much taller hurdles.

How does Dauman know that Google’s proposal falls short of his call? The obvious answer is that Google did the usual PR blitz (although Google also used its ‘official’ blog). It has shareholders to keep happy too, and no one likes their asset being sued for a billion bucks. Not so obvious is that the management of both companies are talking to each other, at least through their technical mavens who are the front line proxies who have to design and build a solution to not just the content protection problem, but also the foundation of what will amount to the ‘settlement’ that will end the lawsuit.

You may not have noticed that there have been several announcements recently about some entertainment companies making commitments to watermarking schemes. And if you did see, you would have noticed that these are deals between some large players and some larger players. What you can’t know is that the as yet unnamed partner of USVO is not among those having made announcements.

It would be normal of you to wonder “what does this mean to USVO?”. Well it means good news. Let me give you the reasons why-

1) The culture is beginning to shift towards enforcement. As any reader of this space would know, the industry has been heavily invested (although not financially) in prevention. These deals show that our recommended path of enforcement is starting to show up in the business. More watermarks out there will help bring forth enforcement stories and that is what will mark a tipping point in this trend.

2) The watermarking technologies announced are not simple and lightweight in comparison to SmartMarks. The HBO – Thomson announcement is really about a HD broadcast equipment purchase (originally announced August 6) that is going to include the elements to begin HBO watermarking certain products. The Dolby- Phillips announcement is about offering digital cinema watermarking as an option to its customers. What isn’t obvious from the announcement is that Dolby is a vendor to the companies that build digital cinema projectors, who are required by the DCI standards to have watermarking integrated into their products.

3) The names here are also revealing. Dolby bought and wholly owns Cinea, a watermarking company, yet is offering Phillips as their digital cinema product. Thomson is not even mentioning their own NextAmp division of watermarking products because they have reorganized and rebranded it. This announcement doesn’t use that new brand either.

4) Careful reading of the announcements show that these are plans being announced. The planning announcement that USVO and a major studio made was months ago. We have also made a delivery announcement.

So it is GREAT that the business is making announcements and deals about watermarking. There are other not public activities of both USVO and the competitors to indicate more watermarking is going to be implemented in the industry. Queries about various market niches like dailies and internal deliveries are heating up. None of these are huge retail delivery applications that will ultimately create profitability for vendors in the space, but do indicate that the concepts we have been articulating are sinking in.

It is GREAT that the other vendors are huge multi national companies that have spent eight figure numbers to be in this business.
It is GREAT that these plans are not in our core competency or strength of technology areas.

It is still a tough challenge, for the space and USVO. We have a lot to look forward to, both in terms of work and rewards.