- The Washington Times - Wednesday, June 5, 2002

While summer does not officially start until June 21, for Hollywood the summer blockbuster season got under way back on Friday, May 3, when "Spider-Man" swung into movie theaters. By spinning $114 million in revenues during its opening weekend, this fun good vs. evil superhero adventure shattered the box office record for a debut weekend, and subsequently set other new box office records.

Several months down the road, "Spider-Man" will be released on DVD, no doubt with all sorts of special features to entice fans. But what about "Spider-Man," along with other summer movies this year like "Star Wars Episode II: Attack of the Clones," "Men in Black 2F" and Steven Spielberg's "Minority Report," eventually being widely available for download on the Internet for a reasonable price via a speedy broadband connection? While such opportunities are inevitable, the timetable remains as unsure as Peter Parker's love life.

In late April, for example, Fox Entertainment Group announced that it was abandoning a movies-on-demand enterprise with the Walt Disney Co. at the Movies.com web site. Both studios said they were going to pursue "alternative strategies" for distributing films over the Internet and cable television lines.

Fox declared it made the decision "after considering the potential regulatory process and logistical issues and carefully examining technological and marketplace development." Partial translation: Serious and substantive concerns exist regarding digital piracy. That is, the threat of illegally copying and distributing "Spider-Man" and other films in this digital era loom quite large.

Obviously, the music industry has confronted the same problem with Napster, which enabled people to exchange digital files over the Internet free of charge. Napster has been offline since it lost its legal battle with the recording industry last year. However, numerous similar services have replaced Napster. The International Federation of the Phonographic Industry (IFPI), an industry trade group, recently noted that music sales around the world fell by 5 percent last year a drop of about $1.7 billion, which was the biggest fall-off since the mid-1980s. IFPI cited the economic slowdown, CD-burning and Internet song-sharing web sites as the causes.

On the digital movies front, I was spammed recently with an e-mail offering a guide for copying DVDs. The e-mail declared, "What the movie industry doesn't want you to know!" and urged, "Start building your movie collection today!" Apparently, many people indeed, tens of millions if you consider how many used Napster believe they have the right to copy and distribute digital copyrighted materials like music and movies via the Internet without permission and without compensation.

Of course, lots of people would like to purchase and download movies legally from the Internet. And moviemakers have every incentive to offer their films as digital downloads at lower prices, being able to cut out various distribution, production and packaging costs related to DVDs and VHS tapes. However, the threat of stealing copyrighted material looms as a formidable disincentive.

Court battles over digital piracy are occurring around the world. The New York Times reported on April 17 that "the music and movie industries are in federal district court in Los Angeles fighting three services Kazaa (whose software is now distributed by Sharman Networks), Grokster, and Morpheus, from StramCast Media that can be used to exchange not only music, but also films and other digital media." Thus far, the courts, at least in the United States, seem unified in trying to stop digital theft.

Meanwhile in Congress, Sen. Fritz Hollings has offered legislation the Consumer Broadband and Digital Television Promotion Act (S.2048) which basically would have the government impose digital security standards on computer and other high-tech manufacturers. Even for those deeply concerned about copyright infringement, the Hollings bill causes considerable unease. Government dictation of technology standards inevitably threatens innovation.

Fortunately, the private sector is not sitting still. For example, on developing a "broadcast flag" on digital broadcasts, to prevent unauthorized Internet redistribution, a coalition of electronics makers, entertainment groups and computer makers announced an agreement on protections late last month. In addition, considerably beefed-up encryption measures are being deployed to stop the illegal copying of CDs and DVDs.

The digital world is in the midst of an arms race. Similar to a classic battle between super-villains and superheroes on the silver screen, formidable brainpower is at work in an effort to engage in or aid outright theft, while those who produce content including music, movies, software, etc. are working to set up impervious defenses to protect their ownership rights.

The courts will referee much of the battle; the politicians probably will watch from the sidelines; and the players in the marketplace will wage the digital war sometimes working as allies and other times as combatants. Given the two extremes of government dictating technology or copyright anarchy whereby incentives for creating digital content are restrained, this is not a bad alternative. Hopefully in a short period, all the players involved will realize that stopping digital theft will result in new business models and expanded consumer choices, including the ability to download movies like "Spider-Man" via the Internet legally and cheaply.


Raymond J. Keating is chief economist for the Small Business Survival Committee and a columnist with Newsday.

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