Firing a digital broadside at Chinese media pirates

Ronald Stein’s shiny silver discs don’t look revolutionary, but if he and his crew are successful, the technology embedded in them will become a powerful weapon in China’s battle against piracy.

Stein’s family-owned media company, Crest Digital, has linked up with Philips, the European electronics giant, to develop traceable authentic content technology, which they call TRAC. Hollywood-based Crest Digital also has teamed with the leading film company in China to bring the system there, the world’s largest producer of both legitimate and pirated CDs and DVDs.

Is TRAC foolproof? Hardly, Stein said, given bootleggers’ commitment and cunning.

“Not to say they won’t try” to break the code, he said. “But we’ve made it difficult for them.”

China’s pirates are a huge headache for Hollywood studios and U.S. technology companies, which say they lose hundreds of millions of dollars in potential revenue to copied goods sold in China or exported to other countries. This year, the U.S. filed a World Trade Organization complaint accusing China of failing to adequately protect intellectual property from theft.

Beijing itself would like to crack down, Stein said, because it recognizes it can’t build a world-class entertainment industry unless it can protect content creators. Chinese filmmakers, who are starting to receive world acclaim for their movies, have the same interest.

Enter TRAC discs, which Crest Digital and its joint venture partner, China Film Group, will make at a plant that will have an initial annual manufacturing capacity of 100 million DVDs and CDs. The plant, slated to open this year, will be in China Film’s digital production complex, an 800-acre entertainment center being built about 28 miles from downtown Beijing. Eric Loong, Crest Digital’s chief operating officer, said China Film was investing $500 million into the “Hollywood-style” complex, which will house film and animation studios, a school, theaters and hotels.

Crest Digital executives declined to say how much the privately held company was investing in the China venture or to reveal any other financial information.

With TRAC, a visible stamp, or “watermark,” is put on the information side of a CD or DVD and invisible “data channels” are embedded into it. Law enforcement officials can access the data to determine whether the disc is legitimate. And decryption keys or other anti-piracy utensils can be applied during the process so filmmakers, music companies or computer firms can produce secure “gold masters” that can be unlocked only by someone with a decryption key. The masters can be controlled with smart cards and will contain information that tracks the product through the supply chain.

Mike McGuire, an analyst with Gartner Dataquest Research, said that nobody in the anti-piracy arena “believes technology is the ultimate solution.” But, he said, “the preproduction or pre-release cycle is the most vulnerable place where a lot of movie content does make it onto the Web.”

Stein, Crest Digital’s president, said China Film was eager to work with the company. “They’re very excited about opening up opportunities in China and making themselves more of a player.”

In fact, China Film is already doing deals: It’s a partner in Walt Disney Co.’s first Chinese co-production, an animated movie called “The Magic Gourd” that will be released this summer.

Crest Digital’s first contact with China’s film industry was in the 1970s, when a group of executives visited the company’s Hollywood facility to learn more about the Western filmmaking business. Back then, the company’s main business was processing film.

Over the next few decades, Crest Digital expanded to the in-flight and cable television markets, moving from film to video and eventually digital. It also provided the first DVD replication services in Hollywood in 1998 and opened a DVD and CD manufacturing facility in Anaheim in 2004.

One of the company’s goals was to find ways to stay in front of the rapidly evolving entertainment industry, Stein said. “We were always a technology chaser.”

In 2004, Stein began looking for a way to get into China, where many customers had moved their production. That was when he reconnected with executives from China Film Group.

“It was like meeting old friends,” he said.

Crest Digital and its Chinese partner have signed letters of intent with 50 Chinese companies interested in the TRAC system, said John Walker, Crest’s spokesman.

China Film is eager to get Crest’s help in upgrading its technology and marketing the Chinese film industry to Western companies, Walker said. China Film is seeking distribution for 3,000 to 4,000 films in its library. One area of potential growth is providing digital content for cellphones, Stein said.

One of Crest’s areas of specialty is editing films for television or foreign markets that have restricted material containing violence, sex or political content. That meant cropping out scenes of Jennifer Anniston and Vince Vaughn kissing in the film “The Break-Up” for some markets in the Middle East. Shots of a helicopter accident were edited out of the Kevin Costner film “The Guardian” for a version destined for in-flight service on airplanes.

Those editing capabilities will be valuable in China, where the Communist government still maintains tight restrictions on political content and sexuality in the media.