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That's Showbiz

January 06, 2003

By Peter W. Huber

Most coding schemes get cracked sooner or later. When you're talking entertainment, they get cracked much sooner.

Can phone and cable companies save the music industry? Their wires are being used to steal a lot of copyrighted content, and the problem gets worse every time a household with a teenager on the premises signs up for a high-speed internet connection. A hot new disc used to sell well for weeks, but now sales tail off quickly. When Napster went offline, universities saw traffic volumes drop by a third or more on the high-speed pipes that connect their campuses to the web. But neo-Napsters have sprung up all over. The music business is less profitable than it used to be; the gangsta rappers are themselves getting mugged.

Encryption schemes can't solve the entertainment industry's problems. Most coding schemes get cracked sooner or later, and when you're talking entertainment, they get cracked much sooner. Music and movies have to be delivered to eyes and ears, after all, so a crude theft of the new Harry Potter movie can begin with a digital camera smuggled into a theater. A movie pirated that way looks awful, but it isn't hard to move the interception point a short distance back, into the wires of a digital projector or player. Nothing is going to stop the determined hacker from tapping the right wires to intercept the bits just before they come out onstage to perform.

So the entertainment industry has embraced a new approach in which telecom companies and hardware manufacturers would become liable for thefts that occur in transit. The copyright owners will embed a sophisticated digital version of the traditional © symbol inside sound and video tracks. Telecom and hardware companies will then be held liable for any copyright infringement facilitated by their equipment, unless they install software and hardware designed to recognize the embedded tags and block unauthorized transmission and replication.

But the idea that the equipment, cable and telecom companies can be enlisted to protect Eminem and Madonna is not going to fly. Nor should it. There are far more legitimate uses and users of digital hardware and internet links than there are nefarious ones. Forcing copyright-protection capabilities into the enormous infrastructure of digital hardware and data networks will cost a lot--and nobody can even begin to estimate if there will be commensurate benefits to copyright owners, much less to society at large. In these circumstances there just isn't any compelling case to require one industry to reconfigure its hardware and software, at its own expense, to save another industry's bacon.

Ironically, entertainment companies have spent much of the last 20 years demanding regulations that barred "common carriers" from playing any role whatsoever in the storage, processing or filtering of content that moved on their lines. This same crowd is now vigorously lobbying to make mandatory what would be illegal under the rules they backed a decade ago. But they aren't going to win this time around.

Though software companies lose a lot to piracy, too, they are in a much stronger position. Very little of Windows or Quicken ever has to come out into the open, to perform on a screen or speaker; almost all the real action happens deep inside the microprocessor. Software can thus be written to tie itself in much more tightly to a single physical platform. And when the platform is linked to the web, there can be (and already are) all sorts of schemes that require Windows, say, to call home to Redmond every now and then to verify that the code is still in good hands, to fix its own bugs and to install upgrades. There is much more to computer code than meets the eye or ear, and that makes a very big difference in the copyright wars.

Long-distance telephone companies saw their revenues collapse when new fiber-optic capacity, deployed to carry data traffic, suddenly made nonsense of the extravagant rates previously charged for voice calls. Linking hundreds of millions of digital machines, the data networks add several points of annual growth to economic productivity, enriching countless ordinary enterprises, small and large. Tupac and Puff Daddy were created largely by yesterday's communications networks, which transformed the few into megastars and the many into couch potatoes. In the new order there will be many more entertainers, and they'll earn much less.

Accustomed as it is to the old superstar system, the entertainment industry is livid about all this. It insists that supplies of high-quality violence and vulgarity will be curtailed when profits fall, and points out that the U.S. position in global trade will be harmed because it is such a big exporter of entertainment. All true. And investors should take heed: The outlook is gloomy for companies whose revenues depend strongly on entertainment copyrights.

Original Source:



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