Telecasts Encoded : TV Piracy Has Firms Scrambling

More than 2 million fight fans paid to watch Marvelous Marvin Hagler score a technical knockout over Thomas Hearns in the third round of their recent middleweight championship fight, but only 15,000 of them were ringside at Caesars Palace in Las Vegas.

The rest were scattered around the country at 515 locations from Madison Square Garden in New York to Chasen’s Restaurant in Los Angeles, many paying $20 to $25 per ticket to watch a closed-circuit telecast. It was a telecommunications extravaganza that netted promoters an extra $40 million to $50 million in gross receipts.

In the past, thousands more watched similar events for free by stealing satellite signals with their own home satellite dishes or with sensitive antennas. Those who tried to watch the Hagler-Hearns fight, however, must have been sorely disappointed. The satellite transmissions, both picture and sound, were scrambled.

Form of Protection

“There’s never been a successful encrypted telecast anywhere near this magnitude,” said James H. Black of Videostar Connections Inc. in Atlanta, the company that handled the satellite portion of the event.

But there undoubtedly will be. From pay television programmers to banks to the federal government, organizations that transmit information of all kinds over the air or even across telephone lines are scrambling their messages to protect them.

With dozens of satellites orbiting 22,300 miles above the Earth, almost anyone with the satellite dish or a sensitive antenna can pull in television signals from dozens of channels carrying cable television shows and uncut news items transmitted by television networks to their affiliated stations.

Information Accessible

Businesses that transmit information electronically are no less vulnerable than television programmers. Computer hackers have shown that, with the right codes, they can gain access to information transferred between corporate computers via satellites or telephone lines.

“Information is now being viewed as a commodity with commercial value,” said Mircho A. Davidov, director of corporate research and development at Oak Industries Inc. in Rancho Bernardo, Calif., which produces encryption devices. “Security measures must be taken to protect it from theft.”

In the telephone market, the introduction of scanners that lock onto cellular car telephone channels allows interception of conversations. As a form of in-house communication, many companies beam video teleconferences by satellite to their branches around the country, and they want these corporate sessions to remain private. A growing number of banks have added encryption devices in recent years as an added safeguard for electronic funds transfers by satellite or telephone line. Some automatic teller systems also scramble their information to prevent its dissemination. “The larger the bank, the more likely it is to use encryption,” said Sheldon Golub of the American Bankers Assn.

Increasing Demands

William P. Osborne, vice president of advanced technology for Communications Satellite Corp., said increasing demands to encrypt commercial voice and data communications, especially financial data, “is going to drive the whole commercial telecommunications system to be an encrypted system.”

And in Washington, the National Security Agency recently chose American Telephone & Telegraph Co., RCA Corp. and Motorola Inc. to build a new generation of secure telephones that encode conversations and are understandable only to a listener with the proper decoder. The agency expects not only many government officials in sensitive positions, but also defense contractors and as many as a million other corporate executives, to use the new phones.

The roots of today’s encryption technology can be traced to World War II, when the military sent secret messages by using mechanical gadgets resembling typewriters that transformed ordinary English into code. Special manuals were used to decode the messages.

Technological advances have brought encryption a long way since then. Television broadcasters, for example, can scramble their signals into a meaningless jumble for anyone whose television set is not equipped with an electronic “key” to unscramble the signal.

‘Touching Our Lives’

“It’s a new era,” said David Kahn, author of “The Codebreakers” and a leading authority on cryptology. Kahn, now an editor at Newsday, believes that with increased use of computers and satellites, “encryption will be touching all our lives, but we won’t even know it.”

Experts say the new technology has been driven by a variety of factors, not least the fact that today’s 750,000 to 1 million “earth stations”--dishes that can pick up beams from satellites--are expected to increase to 4 million by 1990. The potential market for small rooftop dishes will grow as direct satellite-to-home broadcasting systems beam new, encoded pay TV services to subscribers who have the necessary decoders.

But those who own the dishes will also be able to use them to pick up other, unscrambled signals. This prospect has cable programmers and others on the defensive in their battle to keep their programs out of thousands of restaurants, bars, hotels and homes that pirate their signals without paying for them.

“I know of no other business that can’t stop shipment of its product if people don’t pay their bill,” said Edward D. Horowitz, senior vice president of technology and operations at Home Box Office, which offers movies and entertainment specials.

Experiment Begun

Last month, HBO and Cinemax, both of which are pay-television services owned by Time Inc., began an experiment to scramble their daytime West Coast satellite transmissions, and they are now running East Coast tests as well. The programmers eventually plan to scramble all signals to their combined 14 million households 24 hours a day.

Some competitors aren’t far behind. ESPN, the cable sports channel, plans to scramble transmissions later this year. The New York-based pay-TV channels Showtime and The Movie Channel are spending $5 million to $6 million to scramble signals nationwide later this year.

“The revenues lost to us and our authorized affiliates are immense and more than justify our investment in the product,” said Diane Silverberg, a spokeswoman for Showtime and The Movie Channel.

Under these channels’ plans, pay TV programmers will send scrambled signals to their cable affiliates, who will unscramble them for their subscribers. HBO and Cinemax, by contrast, say they are hoping to develop reasonably priced decoders for individual homes.

But the prospect of waiting for an adequate number of decoders has caused a storm of controversy among individuals who have their own earth stations. They complain that they are being ignored in favor of the cable companies and that cable operators will control access to scrambled signals.

Right of Access a Concern

“Our basic concern is right of access,” said Richard L. Brown, general counsel of the Society for Private and Commercial Earth Stations (SPACE). “If a signal is scrambled, then access to it should be provided at a reasonable price.”

Their arguments have won some friends on Capitol Hill, where legislation has been introduced to protect the rights of homeowners who own earth stations.

Rep. Judd Gregg (R-N.H.) has proposed a two-year moratorium on scrambling signals, to allow adequate time to market home decoders at reasonable prices. Rep. W.J. (Billy) Tauzin (D-La.) wants to allow the Federal Communications Commission to regulate charges to users of home earth stations, to guarantee that signals are available at reasonable rates.

“We don’t want to infringe the property rights of anyone, including program producers,” said Robert Barker, an aide to Gregg. “But we don’t want to convert a large segment of America into an underground society decoding these signals.”

Charles Ross, president of Birdview Satellite Communications Inc. of Overland Park, Kan., which manufactures earth stations, says people have a right to be able to pay for what they want to see.

“God didn’t allow us to learn this technology in order to turn it off,” he said.