Technology

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.

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.

While USVO has targeted its SmartMarks technology at high value transactional marking, there are other uses for watermarks.

As reported by AP and commented upon by Michael Learmonth of Silicon Alley Insider,

NBC has taken an aggressive approach to making the Olympics available online, putting over 2200 hours of coverage online. Compare that with the 1400 hours available on the six NBC owned broadcast and cable channels.

In order to steer audiences to its highest revenue channels, NBC is strategically selecting the events and sports that it thinks will generate the largest audiences, and it is banning the use of any Olympic video online by other news organizations covering the events.

Even video from the US trials in swimming and track will have to be pulled before the Aug 7 start of the games.

And to make sure that they can enforce this, NBC will be watermarking the IOC feeds. This will let them distinguish the video that NBC has paid a fee to control from that captured and uploaded by fans.

NBC hasn’t announced any watermarking since it made a deal with Teletrax in 2003 to mark newscasts to monitor usage by local television stations and others. Teletrax monitors what passes through the air as part of its “broadcast verification and intelligence services”. Based in London, it is a subsidiary of MediaLink Worldwide. Phillips Electronics has a minority interest in Teletrax.

It isn’t clear from the announcements which company will be making the ‘take down’ calls to web sites with offending Olympic video.

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.

As we progress into fall, and the movie season of Halloween is supplanted by the prestige pictures hoping for Oscars as well as box office, the press is reporting an upsurge in prerelease piracy. This report suggests that the majors are “vigilant’ in their use of watermarks.

Well the industry is a long way from any comprehensive use of watermarks. It really doesn’t have an integrated strategy. On the one hand, through the MPAA, it seeks to get legislative favor for its authority to enforce its copyrights through looking through the computers of others, while it also seeks to have other industries capitalize complicated schemes to make it impossible for its customers to improperly make use of the content they are licensed to watch. It continually has problems with leaks in its marketing and post production matrices, yet has no standard methods of keeping track of the many copies of its products circulating there.

Google’s recent initiative to satisfy Viacom and others need to have their property protected on YouTube highlights one aspect of the challenge- volume. How much processing power will the filtering application require? Who is responsible for the costs of bringing all the copyrighted material into the system? Who will actually do the work? How will it be vetted?

AT&T, like many other telcos, is diving into content distribution using various IP technologies. It seems that the cable companies and the phone companies can only see growth in each other’s businesses. To get a leg up, AT&T has jumped into the filtering game too, and has demonstrated a technology that will watch what goes over its internet and phone lines. But as this report details, there are plenty of pitfalls in the game even if the technology works and the costs are not prohibitive.

And if you work your way to the bottom of the article, the real issue is getting the ‘free’ content out of ‘their’ pipes. In that almost all of the US suppliers of broadband services are, and really for nearly a decade have been, focused on managing a scarcity, as opposed to a cheap and plentiful supply, it isn’t surprising that the real business is making sure that anything going through that scarcity is producing revenue. That this also can be made a play to make friends out of the big players in the most profitable content is just gravy.

So once again, the focus is peripherally on theft, and theft of bandwidth first and content second. Much of this is done under the rationale of ‘big picture’ thinking, as if the fundamental business of the content industry, or the broadband industry for that matter, isn’t delivery of a high volume of quality product at a low cost to customers. Right now, and for some time to come, expect that the individual customer is just part of a demographic called ‘consumer’ who is suspect, not given any real diversity of choice, and is presumed to be willing to pay whatever price the big suppliers can extract.

Meanwhile, on another front, illustrating either that same lack of overall strategy or a willingness to try out different approaches, Warner Bros. and Paramount have formed a partnership to sell DVDs in that huge growth market China. What is really promising about this effort is that the announced retail price will be competitive with the pirated titles sold on the street there. For about $2US, Chinese will be able to buy a fully licensed, and one assumes featured DVD, legally. This technique, taking the margin away from the pirate, has been suggested for years.

Should this approach be deemed a success, expect other third world high volume piracy markets to be similarly engaged. Do not expect to see recent hits for sale at these prices at Blockbuster.

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.

It isn’t that there isn’t any news going on in the content distribution world. Today’s Google search on the word yields nearly 170 items over the last week. The lack of activity here is much more due to the worker bees of USVO being hard at implementation and sales.

The environment is shifting, however slowly and at a pace that seems glacial in today’s networked world, and even climate change is accelerating glacial processes. Over the next quarters, expect to see further evidence that the majors are not giving up DRM, but they are looking to find ways to implement multiple strategies, which include watermarks, like our SmartMark products.

We might be quiet here, but it is out of effort, not idleness.

Earlier this week the Wall Street Journal published “Policing Web Video With ‘Fingerprints”, which unfortunately has already gone behind their paywall. The article, as does most popular press right now, focused on the issues about copyrighted material on the viral video sites such as YouTube. You don’t have to read between the lines to see the issues in the content security area, as well as the challenges faced by USVO and other watermarking concerns.

First, is the use of the term ‘fingerprinting’. No authoritative body exists to standardize the vocabulary and use of terms in this area. Generally ‘fingerprinting’ is the use of watermarks in a manner that every individual copy has a unique watermark. This usage isn’t universal, and the WSJ writers didn’t bother to distinguish their use in this regard. If you apply the above, the article makes sense, but sometimes statements don’t.

Second, the application of watermarking to filtering material is much more complicated than its application to enforcement. As an example, if USVO technology had been applied to the post production and marketing of Spiderman 3, one outcome of the story of the title already being on the streets of China would be fingering the person or office who’s copy of the show is the source used to create those illegal copies. Just one of those can be used to find that source. This is enforcement. BTW_ Sony is saying those Beijing DVDs are fakes.

Filtering, on the other hand, means reading each and every uploaded clip of a commercially released show, and checking the results against a database of every legally licensed copy delivered. For shows that have already been on television, or are in general circulation, that database, and the associated watermarks don’t exist.

Third- As the article points out, there is a desire for standards. Yet there must be multiple watermark technologies as diversity in this regard is the industry safeguard against a single hack unraveling the whole system.

Fourth- Filtering also means the assembly and management of several huge databases, which will by definition have a great deal of proprietary business information for a distribution company. In the WSJ article it is suggested that a single watermarking company will have and hold this information for all the distribution companies. This is not a position I would want to be in, for any and all attempts by one company to challenge another for customers in one of those databases would reflect on me, bringing my integrity into question in each case.

Fifth- Possibly most significant to the long-term implementation of this worthy technology to this vexing problem, is the issue of the business model. As the article describes, the company currently testing expects its fees for watermarking to add up to a million dollars annually. That won’t sustain the maintenance on the scale of databases discussed; much less provide an ROI on the original investment. The watermarking space has many players that have investments in the tens of millions of dollars that don’t yet have business models beyond ‘buy this box’ or ‘six figure license fees’ neither of which are showing any signs of being sustainable for either the technology companies, nor the content distributors.

Now with all that to chew on, you might wonder why USVO is in the watermarking space. It goes back to that supposed Spiderman 3 DVD in Beijing. We are focused on embedding the proof to catch the crooks. When a watermarking technology is used to bust that pirate, watermarking takes off. Eventually all deliveries of popular content will be marked. That’s billions of transactions. Even at pennies per, there is a pie to be shared that makes the effort and investment worthy of all those companies in the space.

While you can be excited about YouTube and however many copies of South Park are uploaded there, the real business value is in enforcing the licenses of the content owners, a title at a time, in one business unit at a time. Once enforcement stories are being told, once a marketing underling doesn’t just lose his or her job by slipping the nearly complete product out the side door to an enterprise scale pirate but avoid prosecution by testifying against that enterprise pirate, the landscape shifts. When the focus is on finding those that steal, and make money off the theft, the watermarking, or fingerprinting, business will provide the resource to develop standards, in the vocabulary, enforcement process, and business models.

We have been pounding the drum, putting out the rhythm of the song “Watermarking is the answer to piracy” for over two years now. In addition to the before noted rising tide of dissatisfaction with the DRM ‘presumed guilty’ approach, we are also now seeing and hearing others tapping their feet to this tune.

In this report by S&P Equity Research authors, posted by BusinessWeek.com the analysis of the NewsCorp/NBC Universal venture includes winners ( NewsCorp & Time Warners) losers (YouTube & ValueClick) and some general predictions. On page two find my favorite -

“In 2007, we expect potentially significant technology advances (with key milestones) related to the implementation of effective digital fingerprinting technology, potentially helping the likes of Newco, MySpace, and YouTube to prevent unauthorized use of copyrighted material “

That would be USA Video Interactive’s wheelhouse folks

Lots of people are, and have been weighing in on the content security issue, and they love to try to explain it with analogies - like the Senator from Alaska saying the internet was like “a lot of pipes”. Except they often don’t have it quite right.Cory Doctorow, who originates Boing Boing, yesterday posted and commented about the breaking of security on the new HD disc formats. Like many others, he sees this from the outside in- ‘tear down these walls Mr. Studio Head!’

He does have some points- “There is no future in which bits will get harder to copy. Instead of spending billions on technologies that attack paying customers, the studios should be confronting that reality and figuring out how to make a living in a world where copying will get easier and easier. They’re like blacksmiths meeting to figure out how to protect the horseshoe racket by sabotaging railroads.”

Some of the things wrong with this:

The analogy is a bit wack, in that the method of conveyance has never belonged to the studios. They got out of that business in the 50’s. It was just that the method of conveyance required getting in line and getting a ticket. Later you had to show up on time and sit through the commercials. Now you don’t. And your sly nephew or niece is likely to mash up last night’s episode into who knows what kind of inside jokes for their peers. This is no railroad coming through, but a wholesale erosion of established channels in general. Everything is a channel, and the climate is chilly for those in established content business. DRM was the coat they wanted to protect them, and it is getting ripped to shreds right now.

Studios didn’t have horses, or make horseshoes. In fact they didn’t even carry freight, because the content is not something you actually get to carry away (although you do get to in physical media, but that deserves another post altogether).

The other problem with Doctorow’s statement is that it isn’t the studios spending billions, but the CE industry passing on that cost to all consumers through restricted capability equipment. We are all paying for it as a group. Clever of those studio folk isn’t it?

I should also tell you that the studios have never been blacksmiths either. They employ artists and craftspeople and they work with financial institutions, but the studios are fundamentally middle men in very well crafted aggregation systems where skills are concentrated and risk costs spread. They finance and distribute the production of motion pictures which audiences experience. Some of those make money, eventually, but most don’t recoup their production and marketing expense.

Despite these errors, that sentence about bits getting easier to copy- that he is totally right about. And yes, the studios need to figure out how to make a living in the new easy copy world.