Archive for October, 2008

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.