Web pirates pillage Hollywood

Some 350,000 movies are being taken off the Internet every day – for free.

Fifteen-year-old Sherie Tree (not her real name) is "obsessed" with "Moulin Rouge." So when the Oscar-nominated movie turned up on the free file-sharing Internet service Morpheus, she downloaded it, using her high-speed DSL phone line.

Now she watches it – over and over again – on her computer. To this Los Angeles area teen, downloading a movie is simply using technology at hand to quickly enjoy something she's interested in – no different from turning on the TV or radio. But to the entertainment industry, she – and unknown thousands of computer-savvy people who do the same thing – is nothing short of a pirate, robbing the movies' "owners" of their rightful revenues.

"It's a huge problem," says Peter Chernin, president of News Corp. Ltd., the parent company of 20th Century Fox studio. "We have young people everywhere who think this 'file sharing,' as they call it, is just fine. Any college with a [high-speed] T1 line makes this possible; It's happening all over."

According to the Motion Picture Association of America (MPAA), the industry already loses more than $3 billion annually to the sale of illegally copied videotapes. Now, with an estimated 350,000 digital movie files being downloaded daily for free, and with that number expected to climb to a million by year's end, digital film piracy is Hollywood's next nightmare.

"If we don't think through how to protect digital entertainment material," says Richard Parsons, who'll take over as chairman of media conglomerate AOL Time Warner next month, "this entire business could be pirated away."

The film community watched closely as the music industry challenged and ultimately shut down Napster, the Internet music file-sharing site. "With Napster," says Fritz Attaway, executive vice-president of the MPAA, "we learned that we have seen our future, and it's terrifying."

Not only does the absence of a universally agreed-upon solution for digital piracy threaten the economic health of the movie industry, but worries about wholesale theft hamper the rollout of new digital technologies that consumers have long been promised, such as high-quality digital cinema in movie theaters and digital broadcasting for television.

Hollywood has marched on Washington, seeking relief. At the end of March, Sen. Ernest Hollings (D) of South Carolina introduced the Consumer Broadband and Digital Television Promotion Act, which demands new hardware and software, from TVs to CD players to computers, to block unauthorized copying of copyrighted works.

"We are taking a multipronged approach," News Corp.'s Mr. Chernin says, "with legal action and a legislative approach."

But more than Hollywood studios have something at stake in the debate over digital-video piracy. "Consumers, on a daily basis, are losing personal-use rights that they expect and cherish," says Joe Kraus, co-founder of DigitalConsumer.org, as well as the Internet business Excite.com. The Internet pioneer details the most recent rights that have been taken away by legislation, most recently by the 1998 Digital Millennium Copyright Act:

• The 1992 Audio Home Recording Act legalized the right to copy music for personal use, but the 1998 legislation makes it a crime to extract music from copy-protected CDs. Thus, you you cannot duplicate a CD to create an extra copy to, for example, use in your car.

• The Supreme Court has ruled it is legal to tape broadcast TV shows, but new HDTV standards will make it illegal to copy a digital broadcast without the permission of the TV station.

• It is now a crime to sell a DVD player that allows you to fast-forward through ads at the start of a DVD with content that companies have denoted "must-see."

"Historically, there has been a balance between the rights of copyright holders and citizens that has generally served us well for over 200 years," Mr. Kraus says. Copyright holders have the right to make a profit on their product, and consumers have the right, once they've purchased content, to use it in "noncommercial, flexible ways."

Kraus points out an important precedent that he says is being ignored in the current debate. The concept of copyright, he says, is relatively new and was hotly debated during the early days of the US Constitution.

"Thomas Jefferson realized that the foundation of innovation and progress in a democracy is a strong flourishing set of ideas," the consumer activist says. "No ideas are conceived in a vacuum."

Early patents were a solution devised to create an incentive for invention. But they created a monopoly for only a limited amount of time, Kraus says. "In exchange, the person has to give it back to the common. They don't get exclusive rights forever. "The reason copyright exists is not to protect artists but to benefit the citizenry."

Kraus adds: The danger here "is that in an effort to find a new business model, what the entertainment industry wants to do is eliminate the notion of personal-rights use and use technology to control content completely."

But the MPAA doesn't see the issue this way.

"This is the first I've ever heard that there's an inalienable right to fast-forward a film," says the MPAA's Attaway. "But this is a marketplace issue. Consumers will make their interests known, and studios will respond to those interests."

The technology companies that may be asked to create the new hardware and software solutions to piracy also would like to see the marketplace, not government, handle the problem. Technological invention is impossible to foresee, they argue, and specific legislation would impede the innovation that is the industry's lifeblood. This week computermaker Gateway Inc. came out against the Hollings legislation and in support of consumers' rights to download digital content. The company's website now offers free music for downloading, and all 277 Gateway stores will hold clinics this weekend on how to download digital files and "burn" CDs.

In Senate hearings last month, Intel Corp. vice president Leslie Vadasz went so far as to say "government intervention would create irreparable damage."

Beyond that, point out industry observers, Hollywood has a history of fighting new technologies (videotape, the VCR, the cassette tape, among others) that later have become lucrative sources of new revenues for it.

Some suggest that this institutional conservatism blinds Hollywood to solutions that are already available. The head of IBM's business development for digital-rights management in Europe reminded the Senate commission that the military has solved the problem of how to protect sensitive digital data.

This week, IBM introduced encryption software it says will solve the problem of illegal copying. Many observers say secure encryption software and hardware are available, but an inability to agree on standards has kept Hollywood from using them.

The culture of the entertainment industry must change from one of total control to adaptability, says Dave Cavena, who led IBM's digital-cinema division for 10 years and now is an independent consultant on digital-piracy issues.

"At some point, studios will have to find an economic model that will drive them toward same-day release [of movies] on all media: the Internet, cable [TV], theater" to reduce the incentive for pirates to steal the material before the studio can make it widely available.

A closer look at Sherie Tree, that Los Angeles teen, may provide an object lesson to the industry, Kraus says. Yes, she downloaded "Moulin Rouge" onto her computer. But she also put down $19 of her allowance money to buy the DVD when it finally became available. And she dragged friends and family to the multiplex on repeated trips to watch the film at $9 a sitting. Her original "free" download resulted in a considerable number of purchases.

"The fundamental question," Kraus says, "is do you treat all consumers like potential thieves, or treat them with dignity and give them their rights...?"

A consumer bill of rights

DigitalConsumer.org has proposed a "consumer technology bill of rights." The firm's co-founder, Joe Kraus, says the rights of consumers have been left out of the debate between Hollywood and Washington over music- and video-piracy issues. Consumer rights, the group says, should include:

• The right to "time shift" media (i.e., record a show to watch at a later date).

• The right to "space shift" media (i.e., copy a CD to a portable MP3 player).

• The right to make backup copies of media (i.e., music or video files) that have been purchased.

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