Hollywood vs. the Internet: Why entertainment companies want to hack your computer.

IF YOU HAVE a fast computer and a fast Internet connection, you make Hollywood nervous. Movie and TV studios are worried not because of what you're doing now, but because of what you might do in the near future: grab digital content with your computer and rebroadcast it online.

Which is why the studios, along with other content providers, have begun a campaign to stop you from ever being able to do such a thing. As music software designer Selene Makarios puts it, this effort represents "little less than an attempt to outlaw general-purpose computers."

Maybe you loved Napster or maybe you hated it, but the right to start a Napster, or to infringe copyright and get away with it, is not what's at issue here. At some date in the near future, perhaps as early as 2010, people may no longer be able to do the kinds of things they routinely do with their digital tools today. They may no longer be able, for example to move music or video files easily from one of their computers to another, even if the other is a few feet away in the same house. Their music collections, reduced to MP3s, may be movable to a limited extent, unless their hardware doesn't allow it. The digital videos they shot in 1999 may be unplayable on their desktop and laptop computers.

Programmers trying to come up with, say, the next great version of the Linux operating system may find their development efforts put them at risk of civil and criminal penalties. Indeed, their sons and daughters in grade school computer classes may face similar risks if the broadest of the changes now being proposed-a ban on software, hardware, and any other digital-transmission technology that does not incorporate copyright protection-becomes law.

Whether this scenario comes to pass depends mainly on the outcome of an emerging struggle between the content industries and the information technology industries. The Content Faction includes copyright holders such as movie and TV studios, record companies, and book publishers. The Tech Faction includes computer makers, software companies, and manufacturers of related devices such as CD burners, MP3 players, and Internet routers. In this war over the future shape of digital technology, it's computer users who may suffer the collateral damage.

Digital television will be the first battleground. Unlike DVD movies, which are encrypted on the disk and decrypted every time they're played, digital broadcast television has to be unencrypted. For one thing, the Federal Communications Commission requires that broadcast television be sent "in the clear." (The rationale is that broadcasters are custodians of a public resource-the part of the electromagnetic spectrum used for television-and therefore have to make whatever they pump into that spectrum available to everyone.) Then, too, digital TV has to reach existing digital television sets, which cannot decode encrypted broadcasts.

The lack of encryption, coupled with digital TV's high quality poses a problem for copyright holders. If a home viewer can find a way to copy the content of a digital broadcast, he or she can reproduce it digitally over the Internet (or elsewhere), and everybody can get that high-quality digital content for free. This possibility worries the movie and TV studios, which repackage old television shows for sale to individuals as DVDs or videotapes and sell cable channels and broadcast stations the right to air reruns. Who is going to buy DVDs or tapes of TV shows or movies they can get for free online through peer-to-peer file sharing? And if everybody is trading high-quality digital copies of Buffy the Vampire Slayer or Law & Order over the Internet, who's going to watch the reruns on, respectively, Fox's F/X network or the Arts & Entertainment channel? What advertisers are going to sponsor those shows when their complete runs are available online to viewers, commercial-free, through some successor to Napster or Gnutella?

The Content Faction has a plan to prevent this situation from developing-a plan Hollywood's copyright holders hope will work for music and every other kind of content. The first part of the plan involves incorporating a "watermark" into digital TV signals. Invisible to viewers, the watermark would contain information telling home entertainment systems whether to allow copying and, if so, how much. But the watermark won't work without home entertainment equipment that is designed to understand the information and limit copying accordingly. Such a system has not been developed yet, but in theory it could apply to all digital media.

There are some problems with this scheme. If Princeton computer scientist Edward Felten is right, a watermark that's invisible to the audience yet easily detected by machines will be relatively easy to remove. To put it simply, if you can't see it, you won't miss it when it's gone. Which is why the components of new home entertainment systems probably would have to be designed not to play unwatermarked content. Otherwise, all you've done is develop an incentive for both inquisitive hackers and copyright "pirates" to find a way to strip out the watermarks. But if the new entertainment systems won't play content without watermarks, they won't work with old digital videos or MP3s.

The implications of a watermark system extend beyond the standard components of today's home entertainment systems: VCRs, CD and DVD players, TV and radio receivers, amplifiers, and speakers. What tech industry pundits call "convergence" means that one other component is increasingly likely to be part of home entertainment setups: the personal computer. Says Emery Simon, special counsel to the Business Software Alliance (an anti-piracy trade group), "That's the multipurpose device that has them terrified, that will result in leaking [copyrighted content] all over the world."

This prospect is what Disney CEO Michael Eisner had in mind when, in a 2000 speech to Congress, he warned of "the perilous irony of the digital age." Eisner's view of the problem is shared by virtually everybody in the movie industry: "Just as computers make it possible to create remarkably pristine images, they also make it possible to make remarkably pristine copies."

Because computers are potentially very efficient copying machines, and because the Internet is potentially a very efficient distribution mechanism, the Content Faction has set out to restructure the digital world. It wants to change not just the Internet but every computer and digital tool, online or off, that might be used to make unauthorized copies. It wants all such technologies to incorporate "digital rights management" (DRM)-features that prevent copyright infringement.

At stake in this campaign, according to Eisner, is "the future of the American entertainment industry, the future of American consumers, the future of America's balance of international trade." Lobbyists at News Corporation, Vivendi Universal S.A., and pretty much every other company whose chief product is content agree with Eisner, the Content Faction's acknowledged leader, about the magnitude of the issue (although foreign-based companies such as Bertelsmann A.G. are understandably less concerned about the U.S. balance of trade). All of them tend to talk about the problems posed by computers, digital technology, and the Internet in apocalyptic terms.

The companies whose bailiwick is computers, digital technology, and the Internet tend to take a different view. Of course, Tech Faction members, which include Microsoft, IBM, Hewlett-Packard, Cisco Systems, and Adobe, also value copyright. (Adobe, for instance, last year instigated the prosecution of a Russian computer programmer who cracked the company's encryption-based e-book security scheme.) And many of them-especially those who have been developing their own DRM technologies-want to see a world in which copyrighted works are reasonably well-protected. Yet if you ask them what they think of the Content Faction's agenda for the digital world, you invariably get something similar to the position expressed by Emery Simon of the Business Software Alliance (BSA), a group that includes the Tech Faction's major players: "We are strongly antipiracy, but we think mandating these protections is an abysmally stupid idea."

The two factions' agreement about the importance of protecting copyrighted works online makes them uncomfortable to be on opposite sides now. The Tech Faction and the Content Faction both supported the Digital Millennium Copyright Act (DMCA) of 1998, and both like it pretty much as it is. The DMCA prohibits the creation, dissemination, and use of tools that circumvent DRM technologies.

Where the two factions differ is on the issue of whether the DMCA is enough. The BSA's Simon views the DMCA as a well-crafted piece of legislation but thinks efforts to build DRM into every digital device are overreaching. And in taped remarks at a December business technology conference in Washington, D.C., Intel CEO Craig Barrett spoke out against a bill proposed (but not yet formally introduced) by Sen. Ernest "Fritz" Hollings (D-S.C.) that would mandate a national copyright protection standard. The Content Faction says it needs such a standard to survive.

A few companies are so big and diverse that they don't fall easily into either faction. Take AOL Time Warner. The movie studios and other content producers under its umbrella tend to favor efforts that lock down cyberspace, but AOL itself, along with some of the company's cable subsidiaries, tends to resist any effort to mandate universal DRM. "We like the DMCA," says Jill Lesser, AOL Time Warner's senior vice president for domestic public policy. "There isn't from our perspective a need for additional remedies." AOL's reluctance to embrace the Hollings legislation explains why the Motion Picture Association of America, of which AOL Time Warner is a prominent member, remains officially neutral on the bill.

But Lesser needs only to take a breath before she adds that something like the Hollings bill, at least with regard to digital TV, may be a good idea. Industry progress toward an agreement for copyright protection in digital television hasn't proceeded as quickly as the content companies would like. "Maybe a mandate is the way to get there more quickly," she says.

Napster is the specter that's haunting the Content Faction. Although the free version of Napster has been essentially wiped out by music-company litigation (a new version of the file sharing system is being developed by Bertelsmann A.G.), the Napster phenomenon still casts a long shadow. One technologist for News Corporation who is working on a watermark-based DRM scheme says he thinks Napster signals the end of the music industry. He argues that since record companies generally have most of their catalogs available on unprotected CDS, which can be "ripped" and duplicated with CD burners or distributed over the Internet as MP3 files, music lovers already have gotten out of the habit of paying for records, which means an end to big profits and thus an end to big record companies. "Within five years," he says, "the music industry will be a cottage industry."

Matthew Gerson, vice president for public policy at Vivendi

Universal, which produces and sells both music (Universal Music Group) and movies (Universal Studios), is quick to dispute such predictions. "We know that if we build a safe, consumer-friendly site that has all the bells and whistles and features that music fans want, it will flourish," he says. "My hunch is that fans will have no trouble paying for the music that they love and compensating the artists who bring it to them--established stars as well as the new voices the labels introduce year after year."

But maintaining that model, in which big music companies play an important filtering role for audiences, depends both on large streams of revenue and on control of copyrighted works. The Internet and digital technology could change all that, cutting off the revenue stream by moving music consumers to a world in which trading music online for free is the norm. (Some recording artists, including Don Henley and Courtney Love, might welcome the change. They question whether the music companies truly serve artists' interests as well as they serve their own corporate interests.) At the same time, a technical/legal scheme that perfects control of digital content creates new revenue opportunities: The music companies, for example, could "rent" or "license" music to us in a protected format rather than sell copies outright.

The Hollings legislation, dubbed the Security Systems Standards and Certification Act, is designed to help content companies turn the potential peril of digital technology into profits. In the drafts available last fall, the bill would make it a civil offense for anyone to develop a new computer or operating system (or any other digital tool that makes copies) that does not incorporate a federally approved security standard preventing unlicensed copying. The bill would set up a scheme under which private companies met and approved the security standard. It would require that the standard be adopted within 18 months; if that deadline passed without agreement on a standard, the government would step in and impose one. In at least one version, the bill would also make it a felony to remove the watermark from copyrighted content or to connect a computer that sidesteps DRM technology to the Internet.

The Hollings bill applies to any digital technology, not just TV. It's clear why the bill's supporters want its scope to be so broad: If the watermark scheme works for digital TV, creating a system for labeling copyrighted works and for designing consumer electronics to prevent unlicensed copying, it should be possible to make it work for the rest of the digital world, including the Internet.

According to Capitol Hill sources, the Hollings bill was inspired by Eisner's 2000 speech to Congress. The people who had a hand in drawing up the legislation do not describe it in terms of protecting embattled copyright interests. Instead, they say it's a proactive measure designed to promote both digital content and increased use of high-speed Internet services. They note that consumer adoption of broadband services (such as cable modems and DSL) has been slower than predicted. Consequently, the cable and phone companies have too small a consumer base to justify building out their broadband capacity very quickly or very far. But if Hollywood could be assured that its content would be protected on the broadband Internet, the theory goes, it would offer more compelling online content, which would inspire greater consumer demand for high-speed service.

This theory, which assumes that what people really want from the Internet is more TV and movies, is questionable, but it has a lot of currency in Washington. And as the debate over broadband deregulation shows, Congress wants to find a way to take credit for a quicker rollout of faster Internet service.

It was the Hollings bill that brought the war between the Content Faction and the Tech Faction out into the open. And in the near term it's the Hollings bill that is likely to be the flash point for the debate about copyright protection standards. A congressional hearing on Hollings' proposal was held in late February, but no bill has been formally introduced.

One way to understand the conflict between the Content Faction and the Tech Faction is to look at how they describe their customers. For the content industries, they're "consumers." By contrast, the information technology companies talk about "users."

If you see people as consumers, you control access to what you offer, and you do everything you can to prevent theft, for the same reason supermarkets have cameras by the door and bookstores have electronic theft detectors. Allowing people to take stuff for free is inconsistent with your business model.

But if you see people as users, you want to give them more features and power at cheaper prices. The impulse to empower users was at the heart of the microcomputer revolution: Steve Jobs and Steve Wozniak wanted to put computing power into ordinary people's hands, and that's why they founded Apple Computer. If this is your approach--enabling people to do new things-it's hard to adjust to the idea of building in limitations.

In a basic sense, moving bits around from hard drives to RAM to screen and back again, with 100 percent accuracy in copying, is simply what computers do. To the Tech Faction, building DRM into computers, limiting how they perform their basic functions, means turning them into special-purpose appliances, something like a toaster. This approach is anathema to the user empowerment philosophy that drove the PC revolution.

The Tech Faction believes people should be able to do whatever they want with their digital tools, except to the extent that copyrighted works are walled off by DRM. The Content Faction believes the digital world isn't safe unless every tool also functions as a copyright policeman.

At the heart of this argument are two questions: whether computer users can continue to enjoy the capabilities computers have had since their invention, and whether the content companies can survive in a world where users have those capabilities. What's been missing from the debate so far has been the users themselves, although some public interest groups are gearing up to tackle the issue. Users may well take the approach I would take: If computers and software start shipping in a hamstrung form, mandated by government, I'll quit buying new equipment. Why trade in last year's feature-rich laptop for a new one that, while faster, has fewer capabilities?

The Content Faction may be right that what people really want is compelling content over broadband. It may even be the case that, if they were asked, most people would be willing to trade the open, robust, relatively simple tools they now have for a more constrained digital world in which they have more content choices. But for now, nobody's asking ordinary people what they want.

Contributing Editor Mike Godwin ([e-mail]) is a policy fellow at the Center for Democracy and Technology.