Watermarks target pirates of the multiplexes


Preventing piracy: Hollywood's not worried about "Spider-Man," "Shrek" or "Pirates of the Caribbean," but those nasty pirates of the megaplexes are another matter.

The threat of video piracy that all distributors face in the Internet era is heightened when they're releasing new episodes from mega-franchises like the big three that are arriving in theaters this month. The ongoing potential for such films to be digitally pirated and sold on street corners around the world before they even open theatrically is a burden that all distributors must cope with. The degree of fear Hollywood feels in the face of relentless global piracy was evident last week, for example, at Sony's all-media screening in Westwood of "Spider-Man 3" at which all electronic devices -- even including basic cell phones without built-in cameras -- had to be checked in the lobby before people were admitted.

One company promoting a solution it says represents the best way to combat piracy without alienating the paying public is Connecticut-based USA Video Interactive Corp. (USVO), whose president and CEO Edwin Molina and business development head Patrick Gregston spoke to me recently about their SmartMarks digital watermarking system.

"Our answer to piracy is 'embed the proof to catch the crooks,'" Molina explained. "We emphasize enforcement as part of the overall effort for the industry because we see a great deal of emphasis on prevention. The planning and execution of digital rights management (DRM) over the last decade has not stemmed the growth of piracy. While efforts to make it do so are worthy, we believe the business will also be served by having an enforcement effort which is most easily built upon watermarking.

"Our SmartMark products are robust, lightweight and enable transactions by being simple to embed and invisible to the viewer. Trust is a major part of any transaction and the more trust (there is) the easier it is to do business. We see SmartMarks as way for content owners to add security while building trust with the source of its wealth."

"Specifically, what we offer is a watermarking of product," Gregston told me. "We like to make sure people understand that watermarking is part of an important strategy. The industry has been on a prevention strategy. Watermarking allows you to put indelible and invisible information that will (enable) you to trace any given product back to its original license and source and for the owner of that license to enforce it. That is a distinctly different approach than digital rights management or the use of watermarking to attempt to filter or stop play or any of these other technologically complex approaches and strategies. We like to say that what we're doing is enabling transactions by establishing a path for enforcement of the rights of a copyright holder and making it easy for people to obtain content (and) use it in the way they're used to.

"We operate in what we call a 'presumed innocent environment.' We presume the customers are trustworthy and deserve to have our content. We're happy that they give the copyright owners money and we provide a method by which people who don't want to participate in that generally accepted term of exchange can be prosecuted. Watermarks are, in fact, a level of proof that have been supported by a court for the prosecution of violations of copyright license."

Asked how USVO's presumed innocent approach differs from other approaches, Gregston said, "A person we won't name at the MPAA said, 'We want to keep honest people honest.' Now if I say, 'We want to keep honest people honest' and (someone is) an honest man, he's offended. The fundamental problem is that our industry has taken an approach that essentially says, 'Customer, we don't trust you.' The customers know this intuitively whether they actually think it through or not. It bothers them when they have a new complexity in their devices.

"It bothers them when they can't figure out why something doesn't behave like they're used to or expected (or) when they move, say, a DVD from one place to another -- from, for instance, one region to another or one device to another. These are all ways in which we inhibit the good relationship with our customers, the people who give us money. The challenge of the digitally connected world is that we make perfectly good copies available to everybody and that same technology enables them to steal it pretty effortlessly."

How is Hollywood using watermarking at this point? "Well, currently we're watermarking deliveries to specific markets," Gregston replied. "If you're a distributor and you sell your product, a particular movie, to a broadcaster in a nation (abroad) there's been a history of that broadcaster slipping it out the side door to his neighbor in the nation next door and you're not getting any fees for that. So we're being able to mark that piece and say, 'This is licensed only for airing in Thailand.' That means that you can scan and see that the Thailand version is being played in Indonesia and go bust the guy, one, in Thailand and, two, in Indonesia for stealing your property.

"More commonly what we're seeing is more of a cat-and-mouse game where they're attempting to figure out exactly where the leaks are in their distribution system that are feeding what I'll call 'enterprise pirates,' people who are actually stealing to be in business. There are certain parts of the world where watermarking has been used to identify what feature film markets have people who are systematically taking prints, telecining them and having those be sources of DVDs that then come back for the world market before the DVD window has actually happened.

"We're specifically involved right now with a studio that is going to use our technology to deliver on demand what we'll call 'fingerprint watermarks' -- in other words, individualized for every delivery -- into a particular marketing stream that has been a source of piracy. So everyone who receives samples of the product will have their name indelibly tied to the copy they get. If they, in fact, are a source of piracy it'll be traced back to them and their organization."

USVO's watermarking approach won't make people's names visible on the screen the way they are, for instance, on DVD screeners of films that are frequently sent to media people to view before doing interviews with filmmakers. Having looked at so many movies with my name burned into the center of the frame my eyes no longer even see those words or the accompanying "property of" message line.

"This is still being discussed (in terms of) how we'll be implementing this," Gregston said, "but it will be made plain to people that there is a record that you got this file and we know you got this file and it's something you can't wash out of this file. When you put a person's name on (the screen) it interrupts the viewing experience and we're not interested in disturbing this. The challenge is how do we make stuff safe without actually disturbing the product and the experience of enjoying it? Watermarking provides that opportunity. If a person knows (the watermark is there), hopefully that's more than enough. As I said, most people do not want to steal the stuff anyhow. Hopefully, that knowledge that there's a way to trace it back to them will discourage a further percentage of the people who have a dishonest intention."

As for which studio it is that USVO is working with, Gregston told me, "They've asked that we not disclose their name until they announce a rollout. They have their own promotional reasons apparently."

Security and anti-piracy concerns are also a factor during the awards season when distributors send screeners of their films to Academy voters, Hollywood Foreign Press Association members, media people, critics groups, guild members and other awards givers but don't want to risk having them pirated. "Our technology hasn't been used in that particular way," Gregston said, "but we're currently working with a vendor who has asked us to apply our technology specifically to the individual discs that are produced as part the distribution of production dailies that would be mirroring that (awards season concern). They went and investigated the technology that's being used by the (industry for awards screeners). The idea that you can put an individual fingerprint on specific DVDs is a pretty difficult work flow and cost problem."

During the awards season, he noted, studios have been happy to spend money on security coding for screeners "because it was a very visible area of concern. We're trying to figure out how to do that at a scale and economics that will suit the production companies and give them another level of security with their product. Their product at that point (during production) is very valuable. It hasn't been edited much less released so that's an encouraging sign that they're starting to value this. That's one of the challenges in this area.

"We have statistics and projections that say it's an $18 billion a year problem. That lack of sales cannot be attributed to any specific line or department necessarily and the costs that are involved in creating security are very difficult to tie directly to any return. So the industry has its work cut out for it in figuring out exactly where and how it wants to spend money to resolve this problem."

It's not clear at this early point exactly what kind of money it will take to resolve the problem. "In general, there's always a start-up (cost)," Gregston said, "because every single business unit has an application and, therefore, a customization. So there's a certain amount of, 'Let's figure out what's going to work for your particular piece of the business and how do we implement it? Is it something we implement in a work flow inside a service facility? Is it something we implement inside a server that's part of a network distribution scheme?'

"Each one of those varies greatly (in terms of cost). At the end of the day, the successful business model is, 'Can we tie it to something that's akin to the way you already do business?' It's one of the things I want to credit USVO and its management for doing and allowing me to do. We get to walk in and say, 'How are you doing business now? How can we create a business model that's sustainable and suits the way you do business so we can move forward into this more secure future?'"

Looking ahead, he added, "The great big beautiful tomorrow we look for is some sort of pennies on the delivery fee that will cover all the various patent holders and the operations required for us to do this and (create) the databases that are involved. Lots of information about every distributor's clients will be in the hands of that distributor as opposed to some third party like our company. So we have a lot of things (to do). We're very early in figuring out exactly what's going to make everybody happy and what's going to be sustainable not just for the distributors but for those of us who provide these services."

The greatest potential growth for USVO, Gregston said, is in "retail delivery. If we looked at the number of actual pieces of content -- movies rented on Friday night in the United States where people currently go down to Blockbuster or get it in the mail from Netflix -- and we say we're going to convert that (to make) every single one of those transactions be watermarked to that individual you're conservatively in the billion dollar a year market. Currently, what they say is that once they reach the DVD market or broadcast it on TV they just assume anybody can get it free.

"If we don't even go beyond that marketplace and just stay this side of that particular window, at the pennies per delivery model you're in a several billion dollar market. That's the grail, if you will. We want to be able to say we're going to mark every delivery and every transaction and we want to charge people in the cents range for that, that's where we really want to go."

Meanwhile, Gregston continued, "what we have to do is go on a business unit by business unit (approach) and find a way to say, 'How can we bring you the added value of security within the business model you currently have? What can we do to help you create efficiency by either going to a file base or operating within your current cost structure?' And that's challenging. People will say to me, 'I love this idea. How will it impact my sales?' There's no way that I think they're ever going to say, 'I'm going to sell more DVDs or sell more of a particular product because it says on the outside this has been secured by using a presumed innocent approach or this is watermarked for your protection or for the security of the creative artists you admire.'

"Those are not things that are proven and we're not likely to see them proven. We're going to have to go through an evolution where the industry comes to understand that taking a presumed innocent approach and having a trusting attitude towards their customers is what's going to be best for business and engaging them and exploiting the technology as opposed to being afraid of the technology before we see maturity in this particular marketplace. That's our particular note, to say that we want to enable transactions and make you money."

"The idea is that this is to deter piracy," Molina emphasized. "This won't stop piracy, but this is (like) the security idea of having cameras in a bank or having dollar bills marked with numbers. The idea is that if someone gets caught there's evidence that you can actually convict a person (with) in court."

"It makes it easier to catch 'em and then do what you will with them," Gregston observed.

How would they handle the idea of watermarking rental DVDs so they can be traced back to individuals? "It's far easier to mark and deliver a file than it is to mark a physical product and deliver it on an individual basis," Gregston replied. "However, that's a possibility. We're getting to economies of scale and speed in actually burning a DVD (at a rental store). You can say, 'Okay, you want this movie? Swipe your credit card and within 25 seconds it'll stamp out that one and within the image it will say this went with this person.' The marking of the files and the burning of the discs takes real time, but to cue them up with a key in a particular file or disc and then assign that key to whoever does the transaction is not a big stretch."

What would happen to those rental DVDs when people returned them to the store? "It'll be interesting to see," Gregston said. "Do we throw it away? Do we cycle it back? Do we try and time stamp the transaction to make it traceable to you (and then to other people)? By the time we have that capability, I'm not sure the Blockbuster model's going to be the dominant model of rental. The ability to get a file to you and mean that you don't drive down to the store and do any of those other activities that currently are part of that particular marketplace is approaching rapidly.

"Whether you do it through an online IT based service or a video on demand cable based service, all of those companies are angling to be the people who sell you that file and, in some cases, they're going to give you the ability to buy it and make it into a DVD. It would be something that would be customized to you and if you use it then in the way that we are normally accustomed (to having it used) or you have it in your household or you make a copy to take to grandma's or have in the RV, doesn't really matter a whole lot. But if you are one of those people who go, 'Here. I'll give it to my buddy who happens to have the capability to make 10,000 copies, put them in good counterfeit sleeves and sell them on the street,' then it's going to be traced back to you."

"I used to hear that the number was $3.5 billion in lost revenue (because of piracy)," Molina pointed out, "and then last year it was published in the Washington Post that it was an $18 billion loss of revenue. The speed of travel with technology in delivering files is happening so fast that no one wants to be left behind. I think now because of the loss of revenue everybody's starting to think, 'Well, maybe watermarking is the way to go where we can deter piracy.' (The idea) that everybody's innocent gives everybody the opportunity to say, 'I'm going to steal this copy' or 'I'm not going to steal it' or 'I'm going to make lots of copies' or 'I'm not (copying it).'"

Asked to explain the difference between USVO's presumed innocent approach and the more conventional DRM approach that views consumers as likely pirates, Gregston explained, "Let's say you get transferred (from Los Angeles) to London. You go to London and you buy a PAL player because it's got to play on that different electricity and different video system there. All those DVDs you own aren't going to play in a different region of the world because of a restriction that's been created around this geography notion of security to protect the release of movies in different (parts of the world). Your inability to use the product you already bought and licensed has nothing to do with piracy, but it becomes a restriction on you, an honest person. So that's something that already exists.

"The people who just bought flat screens this Christmas season, which was a break-out season for flat screens, all have (HD connectors), which are essentially a DRM gate. Many people are discovering that those systems do not perform the way they're accustomed to, which is I hook up a wire, I throw my video in and it doesn't play in HD because for a variety of reasons the complex systems required to execute DRM have said that signal cannot pass."

DRM's future is something the entertainment industry is kicking around right now. "What we say," Gregston noted, "is that (DRM) is the equivalent of you walk into a supermarket and they pat you down. And we do that, by the way. We let people pay for their tickets and then we check 'em to see if they've got camcorders on them. That's not a good way to treat your customers. We want to encourage a way of thinking and an engagement of the people who give our industry money that we like them to give us. We want them to enjoy our product and we want them to actually have the freedom they've been used to with what I'll call the analog model. It was really great in the old days because you got your tape and you played it and if you tried to make copies it got ugly right away. It was just part of the technology.

"Well, now the technology means that you have a pristine copy. Did you really make a copy because you wanted to steal it? Probably not. You made a copy because you were protecting yourself in case that disc got scratched or you wanted to take it on a camping trip with you in your RV. Those are the things that most people do and those are the people who make our industry the money that it makes. The reason that the home video segment is the dominant piece of the overall pie we have to divide is because that's become a very popular way to enjoy our product."

Looking ahead, Molina told me, "I think that (when) we started it was very different for Hollywood, the content owners, to accept this type of technology because it doesn't stop piracy. And at this point because of the growth of piracy there's been this culture change that is now determining that a technology that will actually give you the ability to have the evidence to convict somebody is being accepted rapidly. I think it's going to be the way of the future for the content delivery market since it's growing so quickly."

"The reason the culture has changed," Gregston said, "is the desire for a magic technology to fight technology is pretty natural, We've now run a pretty good course and we've discovered that we're not preventing piracy. We, in fact, have created enmity among many of our customers. We are a voice to say not only do you (need to) reestablish rapport and trust with your customers, but we can establish a relationship that will allow you to actually increase your ability to take money from these people and fulfill their needs for entertainment.

"The notion of a digitally networked world means that every one of these distributorships can be in a positive constructive relationship with customers instead of consumers and you can know before you make a movie that there's an audience for that particular subject or title because you have direct connections to your audience. It means much more efficiencies of marketing and much better risk analysis when they go to (decide) 'what product shall we make?' That's the far off future and it means a really large set of things that are going to have to change in our businesses to reach that potential. Watermarking is one small piece of it that today provides an alternative to the difficult and not succeeding technologies that we've acquired so far."

Filmmaker flashbacks: From May 22, 1989's column: "The James Bond films may be expensive -- Michael Wilson, co-producer with Cubby Broccoli of the upcoming 'License to Kill,' puts its budget at $34 million to $35 million -- but they're movies where the dollars spent really show on the screen.

"Actually, 'Kill's' cost seems more reasonable, Wilson observes, 'considering that 'Moonraker' cost $33.5 million and was made exactly 10 years ago. We have tried to stay at this level. We've kept below those figures the whole time and this will be the first picture that exceeded them.

"The escalation of marketing costs is of great concern to Wilson: 'Historically, to market a (Bond) picture, total marketing costs (in the U.S. and abroad) would normally run half the cost of the negative. That was, let's say, 10 years ago. Then it started creeping up. We spent $20 million (in 1983 on 'Octopussy'). Then 'A View to a Kill' was $24 million (in 1985). The last film ('The Living Daylights') was $34 million (in 1987), more than the negative cost. So we went from half to two-thirds to over 100% of the negative cost with the negative cost staying about the same. And that's just been over a six or seven year period...'

"Is there a solution? 'Yeah,' replies Wilson. 'Don't take full-page ads. Don't go out and spend this money.' He points to full page ads last Sunday in key New York and Los Angeles papers for 'films that weren't opening for 10 or 15 days. You have to say to yourself, 'Why do we have to do that? Why does this industry have to do it?' It doesn't make sense for people on profit participation unless they're on a gross participation. It's a very, very crazy situation. We probably have oversold ourselves on the marketing of films and the style of doing it. It's a very destructive thing for our industry.'"

Martin Grove hosts movie coverage on the broadband television channel www.UpdateHollywood.com.