NEW YORK (CNN/Money) -
Some less-than-encouraging news is filtering in from the front lines of the copyright battle: A recent preliminary court decision and legislative proposal -- both at the behest of the motion picture industry and the television networks -- don't bode well for consumers. Unfortunately for the industries and their investors, it's also bad business.
On May 2, Charles Eick, a federal magistrate in Los Angeles, ruled that Sonicblue (SBLU: up $0.22 to $1.70, Research, Estimates), manufacturer of the Replay digital video recorder, had 60 days to devise software that would monitor every "click" of a user's remote and then feed that information back to the courts, where it will be used as evidence in a lawsuit that the major television networks are pressing against the company. If the judge's order goes through (it's currently under review by another judge), a unique numerical identifier will track every show a user watches, every commercial he skips, and every show he sends to friends over the Internet.
Such a system would "blatantly invade consumers' privacy," says Ken Potashner, CEO of Sonicblue. Potashner claims that his company has been very forthcoming with data, providing the networks with information showing that Replay users watch 30 percent more TV than non-Replay users and that, on average, users skip only half of the commercials they see. (Disney (DIS: up $0.94 to $23.83, Research, Estimates) spokeswoman Michelle Bergman says Replay's reaction is "a deliberate and completely misleading characterization of the court's order.")
For the record, the Replay device doesn't allow users to delete commercials. Rather, it uses technology to fast-forward through commercials on programs they've already recorded, much as people do today when they watch a program they taped earlier. Seems innocent enough, no?
Well, no, according to Jamie Kellner, CEO of Turner Broadcasting (part of AOL Time Warner (AOL: up $1.10 to $18.36, Research, Estimates), which also owns CNN/Money). In a recent interview with Cableworld magazine, Kellner maintained that TV viewers have a contract with the networks. "Your contract with the network...is, you're going to watch the spots." If you skip a commercial, he said, "you're stealing the programming." (Relax...Kellner added that the networks would make an exception for viewers who miss commercials because they need to use the loo.)
Even as the Replay case is drawing public headlines, a much more important decision is being shaped largely in silence. On May 17 the Broadcast Protection Discussion Group (BPDG) -- a consortium of media and technology firms -- will present to Congress its "consensus" technical specifications on how all of us consumers will be able to interact with digital TV in the years to come. Among the agenda items are consumer usage rules for digital television programs, recordable DVDs, and digital video recorders. While the BPDG has been meeting for months, members of the press have not been allowed to attend.
Two sources who attended the meetings -- and provided me with their notes -- don't paint a pretty picture of what happened behind closed doors at the late-April BPDG meetings in Los Angeles. In one exchange, in which consumers' fair-use rights were being discussed, Andy Setos, president of engineering at Fox Broadcasting, admitted that consumers' fair-use rights (granted by Congress in the 1992 Audio Home Recording Act) would be negatively affected by the group's proposal. "One thing is for sure," he reportedly said. "There are fair uses that this document precludes." (When asked to confirm these remarks, Setos insisted that he never made them.)
Also being discussed at the meetings is the issue of "broadcast flags" -- snippets of code that allow networks to track a program's usage -- which would be embedded in digital television programs, making the program cumbersome to view and use in ways that are not endorsed by the networks. (Remember, the networks were against the VCR when it debuted, using much of the same "industry-killing" rhetoric they're employing today.) The BPDG is also proposing that digital television content saved on a recordable DVD player be playable only on that same player. The 35 million or so DVD players (not recorders) in consumers' homes today would be forced into obsolescence.
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This explains why Lawrence J. Blanford, president and CEO of Philips (PHG: up $1.43 to $30.61, Research, Estimates) Consumer Electronics North America, testified before Congress last month that the BPDG plan "threatens the fair-use rights of the consumer and introduces unnecessary levels of complexity and cost in consumer devices." Philips continues to take part in the discussions, but the company has "lost all confidence" that the group will achieve consensus.
The very definition of the word "consensus" has others up in arms. Cory Doctorow, of the Electronic Frontier Foundation, believes that "there can be no 'consensus' until consumers and their representatives have had an opportunity to review and digest the proposal."
In theory, Congress serves as consumers' representatives, and it will have a chance to review the group's proposal later this month. (If you're interested in letting your representative know how you feel, visit DigitalConsumer.org for more information.) In the meantime, the media industry ought to realize that its efforts may have the opposite of their intended effect. As Sonicblue's Potashner explains, "When we got sued by the TV networks and movie studios in November, our sales exploded. In our call to Wall Street, we told them to up their numbers by 30 million."
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