Final AACS Adopter License Could Be A Year Off, MPAA CTO Says

Hunt’s calendar puts a final AACS adopter agreement on a slower track than AACS LA licensing authority representatives did in Feb. They said then the interim license would have a brief span, given arrival of a final adopter pact “in the next few months or so” (CED Feb 22 p1). Like the AACS LA, Hunt termed the interim license important because it assures progress on commercialization of the initial AACS-protected hardware and content, including HD DVD movie titles to accompany launch of the first Toshiba HD DVD players March 28. In an interview at IRMA, Hunt told us AACS LA members aim to finish the final pact as soon as possible out of eagerness to nail down crucial AACS elements - - managed copy, but also watermark detection and a “Digital-Only Token” -- in time to appear in the interim license.

Among interim license provisions: The controversial “Image Constraint Token” (ICT). The ICT, which is optional, is a bit that a content owner may set for HD programming sent over unprotected analog connections. An activated ICT would allow an image that at 960x540 is almost twice current DVDs’ highest resolution but 1/2 a full HD picture’s resolution. Content owners “are very concerned about the exposure of their high- definition content through the analog hole,” Hunt told the conference. The ICT is meant to “encourage consumers to really use the protected digital interconnects,” Hunt said. When a content owner does trigger the function, “the image data will be constrained,” making image quality “somewhat softer” than full HD, he said. He emphasized repeatedly that “each content owner will make their own decision on using it or not using it.” But AACS LA has said studios that play the ICT card are required by the AACS license to disclose that to the public on warning labels on the discs.

Disney, Fox, Paramount and Sony have announced they won’t use the ICT, at least in their first slates of next- generation movie titles. All but Paramount exclusively support Blu-ray. Paramount supports both Blu-ray and HD DVD. Lionsgate, Universal and Warner have been silent on ICT and haven’t responded to our requests for comment. Lionsgate supports only Blu-ray and Universal only HD DVD. Warner backs both.

At ITA, Hunt told us he believes the 4 studios that have decided not to use the ICT on their first titles don’t want to “alienate” early adopters. He said he counts himself among those early adopters. Hunt emphasized that studios declining the ICT option are doing so only for now. He predicted shifts in that posture if a market for low-priced HD recorders develops, creating a greater piracy threat than now. Early adopters will be among the first to gobble up Blu-ray and HD DVD players and movies, but they're also the likeliest to own older DTV sets with analog connections, Hunt said. It’s those situations for which ICT was devised -- but it’s on those sets that it’s tougher to distinguish full HD from ICT-triggered 960x540, Hunt said. Don Eklund, Sony Pictures Home Entertainment (SPHE) senior vp- advanced technology, recently told us much the same (CED March 1 p1). “But it really doesn’t matter,” Eklund told us of the reasons SPHE became the first to repudiate use of ICT in its first Blu-ray titles. “The perception is that we're withholding something from consumers, and we're sensitive to that fact.” Eklund indicated SPHE may never use ICT if HD encoders don’t become prevalent in the market.

As for the Digital-Only Token, it would require the player to turn off all analog video outputs, “so that there’s no possibility of exploiting the analog hole for this content,” Hunt said. “There will be very specific and defined terms” in the final license governing “when and how a content owner would be able to use that.” He said it’s likely to see use “only in those cases where a content owner wants to pursue a new business model.” He cited the example of a studio wanting to release an AACS-protected disc “in the same window as during the theatrical release.” It’s a way of “expanding the market” by making discs available “in an earlier window,” but with some assurance for the studio of protection against the analog hole threat, Hunt said.

Plugging the analog hole is among the content industry’s biggest 2006 challenges, Hunt said. The vulnerability “really undermines the cross-industry work to establish a digital rights management framework,” he said. MPAA-pushed analog hole legislation would assure that content protection rights “are managed equivalently, whether you go through the digital connection or the analog connection,” he said.

Fixing the flaws in DVD’s CSS content protection is another key challenge, Hunt said: “Content owners do not want to walk away from DVD. CSS made sense 10 years ago. Today it doesn’t make sense.” Besides adding managed copy functionality to the DVD format, “we need to fix CSS. It’s broken,” Hunt said. There’s work going on “in this area,” he said, but he gave no specifics.

Another task for 2006 is creating DRM interoperability in portable devices, he said. The 30-company Coral consortium, formed in 2004 and of which MPAA is a member, recently released preliminary specs on “a framework for interoperability” setting up Coral as a “managed trust” to administer to the various DRMs, he said. A “licensing mechanism” soon will proposed, he said: “Coral is one of the groups that’s going to lead. There’s a lot of work to be done, but it’s critical.”

As an additional challenge for this year, “we have to find a solution to camcorder piracy and illegal peer-to-peer downloading,” Hunt said, calling it “such a critical problem” the 6 major studios last year formed the MovieLabs consortium, he said. He described MovieLabs as a nonprofit corporation separate from the MPAA. The search for a MovieLabs CEO “is well under way,” he said. The organization is being established to seek proposals in very “targeted research areas,” he said, including: (1) Technologies such as “jamming,” that would “proactively stop” camcorder piracy in theaters. (2) Filtering tools, to thwart P2P movie piracy. (3) Networking management tools for helping universities and corporations thwart illegal downloading on their premises.

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A hoped-for Blu-ray/HD DVD merger never materialized, but “the market will force the formats together,” said Jim Taylor, senior vp-gen. mgr. of the Sonic Solutions Advanced Technology Group. He expects droves of CE firms to release dual-format players next year, and “that may be the end of the format war.” As the industry saw with DVD-R and DVD+R, “the playback devices merged, and we ended up with both formats,” Taylor said. “It looks as if both formats are here to stay. People have talked about how this could be a disastrous launch -- consumers are confused, nobody’s going to buy anything.” He conceded: “We may have a very troubled launch when we first begin… Once we get past the initial confusion and people start coming up with creative solutions, we will see a very successful next-generation optical media format. It will ultimately succeed.” Admitting he hedged his bets on DVD’s potential when that format debuted, Taylor said: “I'm actually a lot more optimistic this time that these new formats will succeed and they'll be a great opportunity for us, but I don’t think it’s going to be very easy skating to begin with.”

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With next-generation formats poised to enter the market, debates such as which platform is more cost-effective to make are last year’s news, said Pioneer Senior Vp Andy Parsons. He spoke for the Blu-ray Disc Assn. in the first of 2 back- to-back presentations on Blu-ray and HD DVD as they near launch. Both sides’ dog & pony shows -- such as those purporting to show the benefits of multilayer disc structures -- were “all very, very important stuff, and essential toward getting this product on the market,” Parsons said. “There’s just one problem: Consumers don’t care about any of this stuff. What they care about are much more practical and meaningful things to them on a day-to-day basis.” Consumers tend to want to know whether there will be a steady supply of favorite movies available in a format, he said. A “fairly substantial content gap” has emerged in Blu- ray’s favor, Parsons said He said he analyzed CES press releases on new titles in each format. They showed 44 titles announced by studios supporting HD DVD and 108 by those backing Blu-ray, he said. Of those, 19 titles are unique to HD DVD, and 83 unique to Blu-ray, Parsons said: “This is what the consumer’s going to be seeing at retail. This is starting to get very real now. If I have favorite movies that are in the studios supporting Blu-ray only, that sort of makes my decision for me.”

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What matters most “is what really does show up on the store shelf,” said Mark Waring, dir. of the Sanyo Technology Center in San Jose, who as a delegate of the HD DVD Promotion Group followed Parsons to the podium. Blu-ray and HD DVD partisans “may compare press releases” and argue over how many movie titles have been committed for release this year in each format,” he said, in obvious rebuttal to Parsons. “The studios will follow the dollars, and that means they'll follow the players that are actually on the shelf and selling to consumers who are going to be demanding those movies be available. I don’t think any studio will want to walk away from that type of consumer pull, which should be the point that drives either of these formats.” Toshiba is “ready to walk the walk” March 28 by introducing HD DVD players for public sale for the first time, including an entry-level player whose $499 price “surprised a lot of people” with its mainstream appeal, Waring said. The hardware launch will be supported by key Warner titles, he said. Saying he’s not aware of any studio committing exclusively to one format over the other, Waring said: “Time will only tell, and the market will show, where the titles actually do migrate to.”

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Theatrical camcorder piracy is going very professional, with people who “are going in there for pay” dominating the activity, said Richard Atkinson, Disney vp-antipiracy strategy & operations. Seldom do professionals use handheld camcorders any more, he said: “All the camera stuff is wired right into the jacket, so even if you were watching at the front door, you probably would never see this guy coming in with a camera. Even if you have night vision, you'd have a hard time finding him in the theater because he’s shooting right out of his sleeve.” Once content is “ripped,” it’s distributed over 2 main channels -- online piracy and “more conventional” replication of counterfeit physical media, he said. Physical distribution of counterfeit movies typically is the province of organized crime, Atkinson said: “A lot of the guys who used to do drugs are moving into DVD. It’s a lot more profitable and a lot less risky.” As for online piracy, Disney found 6,782,968 people downloaded at least one full-length copy of The Incredibles from outlaw P2P networks, Atkinson said. Award screeners were a big source of the illegal Incredibles downloads, with 2,928,266 copies tracked to that source, he said. Last year, “every single screener from every single studio was compromised, and we only send them to people in the industry,” he said. “So while everybody in the industry is all upset about [piracy], at the same time, it’s people in the industry who are causing the problem.” The good news for Disney is that it didn’t have a single screener compromised this year because it tried new measures on the 5 screeners it distributed, he said. They included using Cinea-encoded movies matched to specially encoded “groups” of Cinea-capable DVD players, he said. Disney also was “especially overt” on the packaging it used this year, including red warning labels on the outside boxes and a “Dear Colleague” caution at the opening of the film to accompany the standard FBI warning, he said.

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Unauthorized P2P downloads of business software is a “significant issue,” but doesn’t amount to a “large commercial loss for Microsoft,” said Donal Keating, of Microsoft’s European Operations Center in Dublin. Of illegal P2P trafficking in Windows XP, for example, “when you do the analysis of how much piracy is out there, you can’t convert 100% of that into sales,” Keating said: “Very often, people have 3 to 4 copies of an operating system just to see how it works -- the tech-geek kind of guy. The cheap knock-offs? When you go buy for $2 a copy of software that costs $500, you're not being fooled. Are you a genuine customer? Would you ever buy the genuine product? Probably not.” Rather, the high-quality counterfeit “is the holy grail of the job I do,” he said. “When shown to Microsoft’s own employees, they can’t distinguish whether it’s genuine or counterfeit.” Microsoft’s enforcement policy “is to go after the moneymakers,” Keating said: “Last year, in Germany, we took down a guy who had made 220 million, not just through counterfeiting but also from tampering with genuine product.” He bought educational versions of PC software that sold for much lower price points and retooled them for resale as the full-priced versions, Keating said: “This guy became one of our largest customers in Germany. We didn’t go after him with the criminal police in Germany. We alerted the tax authorities, because a pissed-off tax official is a really angry animal.”