Studios Move to Foil Thieves

In a move that could lead to changes in the way Americans watch television, five major Hollywood studios have agreed on an anti-piracy technology designed to protect digital movies and other forms of video entertainment from theft.

The move could speed the replacement of old analog TVs and cable set-top boxes and bring VCRs with new devices that can unscramble, record and store encrypted digital programming.

Hollywood has long feared that digital technology--which allows much sharper images and clearer sound on home television sets--would enable consumers to make perfect copies of video entertainment and distribute it around the globe via the Internet.

The studios that reached the accord late Friday--Universal Studios, MGM, Walt Disney Co., Paramount Studios and 20th Century Fox--are hoping the new encryption will foil would-be pirates.

The challenge for the studios now is to persuade the companies behind the anti-piracy technology--Hitachi Ltd., Toshiba Corp., Sony Corp., Intel Corp. and Matsushita Electric Industrial Co., owner of Panasonic--to extend it to meet the studios’ demand.

The two other major studios--Sony Pictures Entertainment Inc. and Warner Bros.--agreed last week to a less far-reaching version of the technology, called Digital Transmission Content Protection, or DTCP.

“I think this is a very favorable development,” said Richard E. Wiley, a prominent Washington communications lawyer who headed a government advisory group that developed a digital TV transmission standard. Wiley added that he was encouraged that Hollywood wanted to join with government “to get the digital TV ball rolling.”

“There’s no turning back the clock--digital is here,” said Christopher J. Cookson, chief technology officer of Warner Bros. “And for content providers, the creation of secure entertainment networks is the key to delivery of high-value motion-picture content to the home.”

With an agreement on anti-piracy technology, Hollywood would be able to more securely offer the super-sharp images and compact disc-quality sound of digital productions directly to consumers. Films would be cheaper to distribute electronically than physically shipping them. Digital technology also would allow the industry to make interactive programming and offer products in several languages, as some DVDs already do.

The nation’s 1,678 TV stations are forecast to spend more than $1.5 billion converting to digital technology.

Encryption technology backed by the studios uses mathematical algorithms to create electronic locks and keys to scramble and unscramble digital data.

Negotiations about licenses to the technology dragged on for more than a year because studios feared that the technology would not prevent the piracy of over-the-air broadcasts, which can be viewed by anyone. Although two of the studios were willing to address that issue through other means, the other five wanted to extend the DTCP technology to the over-the-air problem.

A breakthrough among four of the five studios recently was reached when Andrew G. Setos, executive vice president for technology at the Fox Entertainment Group, proposed fortifying the technology with digital “watermarks.”

Watermarks--hidden patterns of data inserted into a digital image--allow the studios to track their digital works through the airwaves or over wired communications networks. If the studios couldn’t stop the unauthorized copying, they could at least identify the perpetrators.

“You can’t underestimate the ingenuity” of those who try to break copy-protection codes, Setos said. “But we also don’t want to have a total retreat. You learn from these experiences.”

The companies behind the anti-piracy technology have resisted extending the technology to over-the-air broadcasts, arguing that they don’t have the right to do so under antitrust law. That resistance is likely to be a problem for the new watermarking proposal.

Michael B. Ayers, president of the group licensing the technology, said the consumer electronic companies still are evaluating the proposal. “The evolution to digital TV has been underway for a while . . . but what we are seeing now is studios coming together on the right framework for copy protection,” he said.

Hollywood’s embrace of a digital copy-protection standard would put more pressure on the nation’s broadcasters to complete their transition to digital TV transmission systems.

More than 200 of the nation’s 1,678 television stations already transmit digital TV signals at least part of the day, says the National Assn. of Broadcasters.

The embrace of digital copy protection represents a major financial gamble and technological leap of faith for the studios, which amassed $65 billion in global filmed-entertainment revenue last year, according to consulting firm PricewaterhouseCoopers, but suffered $2.5 billion in global piracy losses during the period.

Making Hollywood eager to take the risk is digital’s promise to slash distribution costs and enable studios to deliver movies electronically to markets in the most remote areas of the globe, said Josh Bernoff, a technology analyst at Forrester Research.

“Sure, they are concerned,” Bernoff said of the studios. “But in the end, the transition to digital technology is going to result in a lot more business for everyone.”