Hollywood, Tech Piracy Efforts May Curtail Choices

As the entertainment and technology industries publicly are locking horns over electronic piracy, they privately are moving closer to a consensus that consumer advocates fear may limit how people watch or listen to movies and music.

The fight focuses on how entertainment will be distributed in the future, particularly the digital transmission of movies and music to homes by broadcast and the Internet.

Studios and record labels want their products protected from the widespread thievery popularized by services such as Napster. Spurred by the threat of federal legislation, technology companies such as Microsoft Corp. and RealNetworks Inc. are scrambling to prove that their systems do more than the other fellow’s to keep content under lock and key.

Microsoft has been particularly aggressive, launching a number of efforts to satisfy entertainment moguls’ hunger for security in a digital age when content can be perfectly reproduced millions of times. Other companies are making similar efforts, chasing what they see as lucrative business at a time of flagging technology sales.

But Microsoft, which faces its own considerable battle against pirates, would give copyright owners unprecedented power.

“I was looking at their new innovation, and I was very much impressed,” Motion Picture Assn. of America President Jack Valenti said after a trip to Microsoft’s Redmond, Wash., headquarters. “Some of the plans they had certainly could include my [member] companies.”

Those plans center on three efforts, including Microsoft’s latest Media Player, to be unveiled Wednesday in Los Angeles by company founder Bill Gates.

* Media Player 9, like competing offerings from RealNetworks and Apple Computer Inc., is designed to make Internet video look more like a TV broadcast, with less delay and crisper quality.

Behind the scenes, it also will improve content owners’ ability to manage the rules they set for users, so that a song or clip can be downloaded but not copied, or can be made to disappear from a computer after a day or a week.

“Giving the content owners flexibility in how they assign rights and bring content to consumers has been a huge focus of ours,” said Will Poole, Microsoft corporate vice president for new media.

Movielink, the fledgling multi-studio effort to offer films online, is expected to use the Windows Media format, movie executives said, though it may also use software from RealNetworks.

Pressplay, one of the two major record label-owned music services, already uses Windows Media.

* Today, Hewlett-Packard Co. will announce a new type of home computer based on Microsoft’s Windows XP operating system and aimed at the living room, a top unclaimed prize for Microsoft.

At a cost of $1,500 to $2,000, the XP Media Center Edition allows viewers to surf the Web and watch cable or broadcast TV programming and record that material on a high-capacity hard drive or DVD--but not copy it, play it back on the bedroom television or e-mail it.

“In the abstract, that certainly works for us,” said Andy Setos, president of engineering for Fox Group.

“From a consumer perspective, it is obviously not optimal” to prevent TV shows from being played back on other DVD players or computers, said Mark Bony, product manager for HP’s Pavilion line of home PCs. But “this is a feature that Microsoft felt very strongly about.”

* Microsoft’s Palladium design initiative, begun with both content protection and security in mind, would bar computer users from doing some things in a walled-off part of their machines.

The multiyear Palladium plan knits hardware and software to create a virtual vault that would be protected from hackers. But a key attraction for Microsoft is that it would encourage consumer deals with trusted third parties--a bank, for example, or Blockbuster, which could lend a video over the Internet for a day on condition that it could check in the vault and delete unapproved content.

In process for years, Palladium gathered momentum recently in response to film industry feedback.

“Microsoft has finally admitted that what it really needs to do is Palladium,” Fox’s Setos said. The implication, he said, is that “everything before Palladium is really not as secure as they’d like, and we agree with them.”

A number of privacy and consumer activists are concerned. More ominous for some are things Microsoft hasn’t announced, such as changes in its small-type licensing agreements with those who downloaded a security patch for Media Player in the last month.

Those agreements give Microsoft the authority to disable bootlegged content or software Microsoft doesn’t like--such as a peer-to-peer file-swapping application or copying mechanism--on consumers’ machines.

That provision has made entertainment executives very happy, a Microsoft strategist said.

Virtually all of the proposals could be used to limit what consumers do, potentially eroding what generally has been considered the fair use of songs, television shows and movies.

No law or court ruling has required companies to make it easy--or even possible--for consumers to copy or customize copyrighted works for personal use. That means it’s up to tech companies to figure out how to help consumers do that.

A Microsoft lobbyist said without firm legal guidance on fair use, the decisions belong in the marketplace. “If consumers are demanding the right to make one copy, that’s going to be something you have to work out with your consumers,” she said.

Poole said the new entertainment arrangements will be good for consumers, whatever restrictions are attached.

“If we continue to do as good a job as we think we’re doing, consumers are going to get much more than they could get before,” he said, citing out-of-syndication television series and older recorded music as examples.

But it may not sit well with the audience, who ultimately will decide with their wallets where the balance lies between security and freedom.

The record companies have learned that too many restrictions make their services uncompetitive with pirated offerings. Their efforts to peddle downloadable music that can’t be copied or moved to portable devices have been a near-total failure. Consumers instead flock to unauthorized sites offering unfettered music for free.

Indeed, consumers may well reject the upcoming Microsoft entertainment offerings, preferring to stay with DVDs or pirated content until restrictions are eased. The longer it takes for entertainment and technology companies to come up with a formula that consumers embrace, the more difficult it may be to transform the Internet from a pirates’ haven into a legitimate distribution pipeline.

“I don’t think Microsoft wants a world where digital rights management technology controlled by Hollywood essentially rules the roost. But if they sense that’s the way the wind is blowing, of course they are going to be the No. 1 vendor,” said Joe Kraus, co-founder of the Web portal Excite and advocacy group DigitalConsumer.org

The biggest spur to the intensified negotiations between Hollywood and technology companies is legislation. For example, a bill by Sen. Ernest F. Hollings (D-S.C.) would require government-approved anti-piracy devices in computers and consumer electronics.

Another motivator is economics. Computer makers are mired in a slump, and many believe only high-quality media content will drive consumers to buy more machines and pay for broadband access to the Internet.

In its dealings with the entertainment industry, Microsoft in some respects is coming from behind.

Apple has focused more closely and for longer on media consumers and producers, and its tools are popular with entertainment companies.

Apple also has made friendly business-model overtures, making its iPod digital music player incapable of transferring songs from one computer to another.

But Apple has gotten “nothing concrete” in return, Chief Executive Steve Jobs said. Entertainment executives said Apple has been less accommodating than Microsoft and even schizophrenic, urging consumers in one ad to “rip, mix, burn” their own CDs, which is legal to do.

We’re trying to walk a middle path, helping copyright owners but allowing users the rights they are entitled to,” Jobs said.

RealNetworks also has been offering content companies greater flexibility, which is the main thing studios lately are seeking, said Brad Hefta-Gaub, a vice president for product development.

Although the original rights-management technologies were used mainly to give consumers a free sample for a limited time, he said, entertainment companies now want to use those technologies to create rental businesses, flat-rate subscription services and a variety of hybrids.

The studios also have been seeking better sound and picture quality from all three companies. Until the quality and convenience match what consumers get from TV, Setos said, there’s no point in offering movies over the Net.

Microsoft has been playing catch-up to Real in providing entertainment to accompany its media player.

When it unveils the latest version of Windows Media Player on Wednesday, Microsoft is expected to announce more music and video content deals.

Microsoft can offer more direct access to more computer users than Apple or Real, and its digital rights technology already has the benefit of $250 million worth of research and development.

Another factor in Microsoft’s favor is a shared attitude about piracy. Microsoft says 25% of its software used in the United States is unauthorized, and the proportion is vastly higher in other parts of the world.

“There is much more similarity between Microsoft and Hollywood than is generally recognized,” said Andy Bechtolscheim, a Cisco Systems Inc. vice president who has been promoting an open distribution format that would require device users to seek electronic permission from content owners for each viewing.

But even some of Microsoft’s closest allies in the computing world, top chip maker Intel Corp. and Cisco, the biggest manufacturer of specialized machines for routing Internet traffic, take issue with the unbridled nature of Microsoft’s Hollywood come-ons.

“I don’t think it’s a tenable position to say we’re just going to put technology out there and sure, it will step on consumer fair use,” said Don Whiteside, Intel vice president of legal and government affairs.

Cisco’s Bechtolscheim agreed. “Just because people have been able to play it however they want, doesn’t mean they will continue to be able to,” he said. “This ought to get people riled up.”