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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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DECEMBER 9, 2003
Why Hollywood Is Winning Its War Consumer electronics is now split into several factions, leaving it less able to battle the entertainment industry's protection demands In November, after a long, controversial battle, the Federal Communications Commission unveiled its proposal for the "broadcast flag," a technology that protects the high-resolution programs shown on digital TV from being shared on the Internet. The Motion Picture Association of America (MPAA) and big-name consumer-electronics outfits such as Sony (SNE ), Matsushita (MC ), Toshiba, and Hitachi hailed the FCC's move as a smart compromise between consumers' right to make copies of movies and TV programs for personal use and protecting content owners' intellectual property. Not everyone is satisfied, however. Philips (PHG ) warns that the broadcast flag could render obsolete the 74 million DVD players now in U.S. homes when it's implemented in 2005. Here's why: Say a few years from now you capture a TV program on your new DVD recorder -- the digital equivalent of today's VCR. The recorder, equipped with special software, will be able to read the flag's signals and save TV programs. But try putting that disk in the older DVD player in the bedroom, and it won't work because DVD players purchased before the advent of the flag won't be able to play the recorded copies. So unless you're content to only buy or rent DVDs, you'll eventually have to junk today's snazzy DVD player. NO NAPSTER 2. That's bound to make a lot of consumers angry, a big no-no in the ultracompetitive consumer-electronics market. "We're concerned because as an electronics maker we have a pact with the consumer that says old stuff and new stuff will work together," says Michael Epstein, manager of technology and standards at Philips. "A Hollywood solution like the broadcast flag creates problems for consumers even when they aren't doing anything wrong. It's a side effect that stops them from doing something they legally should be able to do." Worse, Epstein and others fear, such uneasy compromises could become increasingly common. The reason is that digital TVs, DVD recorders, and home-entertainment servers aren't simple playback devices but rather intelligent computers that can manipulate, store, and share digital bits. After watching the music industry's turmoil in the wake of Napster, Hollywood is taking no chances that it will star in Napster: The Sequel. So it has set its sights squarely on the consumer-electronics industry. Alongside its multimillion dollar federal-lobbying campaign, the MPAA has launched a full-frontal assault on state legislators. To date, 15 states have introduced bills to restrict features in new digital devices or to mandate copyright protection. The governors of Arkansas, Florida, and Virginia already have signed such bills into law. COMPETING AGENDAS. The intensity of Hollywood's battle may be new, but the war isn't. Consumer-electronics makers have always had an uneasy relationship with Hollywood. In the 1920s, vaudeville players sued Marconi for inventing the radio, claiming it undermined their live-performance business. Until the '50s, movie studios shunned the broadcast networks, fearing that TV would undercut cinema ticket sales. In the 1980s, Hollywood sued to stop Sony and others from selling VCRs. Through the years, consumer-electronics producers have fought -- and in most cases beat back -- the entertainment industry's instinct to block new technology. And no one has benefited more from the march of technology than Hollywood: VHS and DVD rentals now account for more than 40% of entertainment revenues. Fending off Tinseltown's latest assault will be tough, though, not least because the consumer-electronics industry is divided. Major players in the business are part of larger conglomerates with varied agendas and revenue streams. Thomson (TMS ), for example, owns Technicolor, a disk-replication business, and has invested heavily in developing digital-rights-management (DRM) software. Sony, through its movie studio and music label, has transformed itself into a content giant. Philips, by contrast, remains a technology company and earns an increasing portion of its revenues from patents and royalties.
BW MALL
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