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See as background: http://www.politechbot.com/p-03909.html http://www.mccullagh.org/image/d30-25/peter-chernin-1.html http://www.mccullagh.org/image/d30-25/peter-chernin-2.html --- From: "Lane, Rick" <RLane@newscorp.com> To: <firstname.lastname@example.org> Subject: Peter Chernin Speech at Comdex on Digital Piracy Date: Thu, 21 Nov 2002 15:17:16 -0500 I thought this might be of interest to the subscribers of politech. There are two key themes of the speech: (1) The need for partnership/cooperation between the media and technology companies to solve the piracy issue. (2) That by working together the media/tech industries will help ensure emerging technologies (e.g, broadband) reach their full potential. --- [I've converted the file from MSWD to text and attached it below. --Declan] The Problem with Stealing Comdex Fall 2002 Keynote Tuesday, November 19, 2002 Peter Chernin Thank you very much, Fred, and thanks for inviting me. I'm glad to have the opportunity to speak here at Comdex although I have to admit I'm a little nervous as well. To stand up and represent the media industry before the biggest technology crowd in the world, while it's certainly a great honor, is also the kind of death-defying stunt that's featured in Jackass: The Movie. While I feel privileged to be the first media executive to take this stage, I can't help wondering whether there might have been media executives in previous years who didn't quite make it as far as the stage. But in reality I'm a lot less intimidated than excited at the opportunity to forge greater understanding between media providers and the technology community. Undoubtedly there is a real communication gap between our industries a gap that at times looks impassable. There are people in the media business who think Comdex is a cold medicine, and who are looking forward to closer relationships with technology companies about as much as Thanksgiving turkeys are looking forward to next week. There are people in technology businesses who think the global media industry consists of four or five overpaid CEOs, a thousand overrated celebrities, and one guy to hold the camera. But there are many more people of greater intelligence and longer vision who see that both of our industries are dynamic, diverse and deeply interdependent. Certainly we have more common ground than contentious issues between us. We are both in the business of creating and distributing original digital products. We are both working to market our programs worldwide. We both seek to provide consumers with digital entertainment whether it's computer games on an X-Box or X-Men on DVD, whether on web sites or in e-books, on IPods or ITV. Our industries already inspire and rely on each other in all kinds of ways and all kinds of businesses. I'm here to suggest that, beginning today, we turn that relationship into a partnership. I propose that we do so in order to combat the rash of stealing that currently and seriously threatens us both. Because of all the things that unify technology and media companies, we have nothing more urgently in common than the escalating theft of our products. The piracy of software is responsible for annual global revenue losses of more than $4 billion. The piracy of computer games cheats the gaming industry out of more than a billion dollars a year. And the piracy of songs has left the music industry fighting for its digital life, thanks to a pillaging that reached levels of more than a billion songs a month. Now the motion picture business is facing the same threat as hundreds of thousands of movies are digitally hijacked every day. The unauthorized downloading and illegal redistribution of copyrighted content has become a looting epidemic. And the rapid spread of this digital robbery is not only damaging; it's wrong. It's wrong because it's a crime. Copyrights are protected by the U.S. Constitution and guarded by the laws of virtually every developed country in the world. The outright stealing of creative products is no more legal through your computer than it is with your bare hands. It's wrong because it debilitates legitimate businesses. When illegal versions of Windows XP are made internationally available two months before its launch; when $50 computer games can be bought on the Asian black market for the equivalent of 75 cents; and when motion picture files are stolen and shared online as soon as the movies hit theaters and often before then legal digital trade simply doesn't stand a chance. But more than anything else, digital copyright theft is wrong because it's destroying the ability of the technology industry to evolve. Without basic protections for digital content, and without some control over the casual crime that now rules the Web, the emergence of the next generation of digital businesses will be crippled as the promise of our Digital Revolution dissolves into petty theft. It is this danger, and this challenge, that has brought me to Comdex. I've come to call for a partnership of content and technology providers in order to create explosive long-term businesses in place of unrewarding theft. The value of such a partnership is frankly beyond question; the only question is why it hasn't happened before now. How has it taken years of robbery in broad daylight and annual copyright losses of around $8 billion to bring the interests of media and technology companies together in the same room? How can the daily theft of hundreds of thousands of creative products be wholly ignored and even technologically enabled while the theft of even one product in the undigital world is publicly condemned? If hundreds of thousands of dresses were stolen from a Wal-Mart, the police would mount a task force that would make Winona Ryder quake in her boots. If hundreds of thousands of books were stolen from libraries in a single day, school and library officials would immediately institute a security system that would make casino security at the Belagio look lame. And if hundreds of thousands of movies were shoplifted from video stores instead of web sites, no one would be defending the shoplifters with claims of personal freedom or excuses for the harmless highjinks of the young. Yet somehow, digital content theft has been allowed to take place on a potentially devastating scale; not only that, it has been systematically encouraged by a generous supply of Internet services, products, and tools. The only explanation for this contradiction, and the only possible justification for this stealing, can be found in several serious misconceptions about the media industry that have kept it isolated and pirated until now. The three most inaccurate and most popular of these misconceptions I would call the Dinosaur Theory, the Big Bully Theory, and the time-honored theory of Screw the Suits. All these theories have been used not only to rationalize the stealing of digital content but most likely to accelerate it. For that reason, I'd like to take this opportunity to put them aside once and for all. The Dinosaur Theory proposes that media companies object to illegal downloading because we're simply and stubbornly anti-technology. Our opposition to piracy is nothing more than a distrust of innovation in general: the knee-jerk defensiveness of an ancient and dying breed. According to the Dinosaur Theory, we haven't developed a new business model to capitalize on the opportunities of the Internet because we are paralyzed with fear that modern technology might threaten our traditional profits. We are alarmed by digital theft basically because we're Luddites with no appreciation for the wonders of the modern age. If the Dinosaur Theory is to be believed, then media providers are digitally inadequate and irrelevant, and might as well be put out of our prehistoric misery one swipe of our content at a time. The truth, of course, is pretty exactly the opposite. Not only have creative content industries embraced and thrived on new technologies we have been central to their birth and their success throughout our history. It is the pioneering of special effects by filmmakers that has revolutionized computer graphics and audio-visual technologies. It's creative artists who launched and improved computer animation and who have turned it from kids' stuff into groundbreaking art for all ages. From our current development of digital television broadcasting to the growing potential of digital cinema, from the spectacular success of DVDs to our rollout of D-VHS and the spread of DVD-ROM drives in countries around the world, media has been a primary driver of technological progress; and we have no interest in opposing that progress starting now. In fact, it would be hard to find an industry that has proven more eager to expand and develop in order to capitalize on emerging technologies than the media business. 25 years ago, motion pictures were viewable in one way: by buying a ticket to sit in a theater. Today films can be watched in movie theaters, on laptops, on video, on DVD, on DVHS, on free-to-air TV, digital cable TV, and on Video on Demand and digital satellite television systems around the world. These myriad options are available at a variety of prices beginning with free and are continually tailored to the viewer's convenience. When it comes to the delivery of our content, we can be accused of being a lot of things relentless and promiscuous are two words that come to mind but by no stretch of the imagination are we anti-technology. In fact, I'd say the only economic and technological development we haven't embraced is the option of getting ripped off. And the reasons for that are pretty straightforward. No computer business would agree to sell its products at a department store that doesn't lock its doors at night and that allows customers to steal off the shelves all day. But that's exactly what media providers are being asked to do if we're expected to put our creative content online and on sale amid digital piracy. No software developer would deny the importance of patenting his work and of protecting those patents in order to earn a living. Yet media companies are somehow expected to ignore the stealing of our copyrighted work hundreds of thousands of times a day. We aren't dinosaurs, but we know a sure bet for extinction when we hear it. And the second most popular theory, the Big Bully Theory, is no more valuable or accurate. The Big Bully Theory holds that by opposing digital copyright theft, content providers are looking to roll back the rights and privileges that consumers have come to enjoy and to overturn the principles of fair use in favor of our own unfair agenda. We are accused of seeking to scale back the fundamental freedoms of digital technology: the ability to time-shift by saving content for later viewing, the ability to space-shift by transferring content between televisions and computers, and many other capabilities that digital products and applications make possible and likeable by so many people worldwide. The fact is that we have never had any such interest or agenda. Subscribers to the Big Bully Theory may be surprised, for example, to learn that we have no objection to anyone making copies of televised content, whether aired on free or pay TV, whether analog or digital, whether recorded on a PVR, a VCR, through TiVo, or with the help of any other device geared to the viewer's convenience. The trumpeters of the Big Bully Theory may also be startled to learn that we have absolutely no problem with viewers shifting our content from their television to their PC, from their living room to their bedroom and to their bathroom and back again as many times and ways as they'd like. What we are looking to accomplish is a balance between the viewer's right to take advantage of the unprecedented convenience of digital technology and the content creator's right not to be digitally looted. The danger of digital content-copying abilities is that they create a perfect product of their own with every recording: a digital master with no signs of wear, tear or previous ownership that can be shipped off to a dozen friends or marketed to a thousand strangers with the click of a mouse. We have zero objection to anyone's ability to duplicate, to record, to play back and to save any copyable content whatsoever. But we'd be idiots not to be wary of the risks that come with that ability, and of the vulnerability of those of us supplying digitally unprotected films and shows. We'd also be idiots to want to overturn fair use; which is why, as media companies, we are its number-one defender in large part because we rely on it every day. Fair use is what allows us to quote movies in our film reviews and to show any footage on the news that we did not actually shoot ourselves. Far more important, fair use is crucial to the operations of academic institutions and libraries; as publishers ourselves, we are keenly aware of that need. We have no reason and no urge to attempt the legal overhaul of fair use; as a matter of fact, our fight is for fairness itself. Fairness means upholding the right of consumers to access media at their own discretion and without harming media providers in the process. It means protecting content against theft and illegal redistribution while protecting the thrilling digital advances and digital abilities to which we're accustomed. Content providers are not charities: we are pursuing viable and profitable businesses every bit as ambitiously as you are. But that ambition does not include the disempowering of consumers. In fact, our sinister agenda is the opposite. We're not in favor of rolling back the rights and abilities of our viewers; we're in favor of pushing them forward in order to increase the satisfaction of our customers and the success of our fast-expanding services. We're not against fair use; we're against the unfair practices of digital pirates. Because the only bullies, when it comes to digital copyright theft, are the stealers of content that's not their own. Of all the theories that may have defended and extended the spread of digital content theft, my personal favorite would have to be the theory of Screw the Suits. According to this theory, illegal downloads and illicit file-sharing are nothing more than rebellious slaps at the rich idiots in slick Hollywood offices who basically had it coming. Those corporate drones, after all, only care about the money, have earned enough of it not to worry, and have less appreciation for the artistic value of their companies' own content than the pirates who are bravely ripping them off. The truth, of course, is a little different than that. The creation of films is far more labor-intensive, more inclusive, more personal, more passionate and for that matter, more technologically artistic than most people know. The stealing of creative products through digital means is a blow to creativity, not to corporate might. In other words, there have just got to be better ways to Screw the Suits. Digital copyright theft is less immediately harmful to executives at the highest levels than it is to the countless people at the creative level who use their hands and minds to build motion pictures. These are the visionary filmmakers, the inspirational directors, the dedicated actors and the devoted staffs who are truly the heart of what we do. Therefore, I think it's only appropriate that I turn things over to them. [On-screen testimonials of filmmakers] The people we've just heard from are not just members of the motion picture industry. They are men and women who employ the most original impulses and the very latest digital technologies to entertain and enlighten the largest public possible. In this respect, I can think of no person in the entertainment industry who combines his passion for film with the groundbreaking power of digital technology more effectively, and more inspiringly, than George Lucas. Ladies and gentlemen, George Lucas. [In-person testimonial of George Lucas] Thank you very much, George. Hopefully we've all seen pretty clear evidence that the people hurt by digital content piracy are not a few rich corporate executives but many thousands of creatively and technologically gifted people. Hopefully you now recognize that media companies are not dinosaurs, and we are not looking to bully consumers out of their digital capabilities or fair use. But I didn't come here just to correct a few stereotypes, and I didn't come in a desperate appeal for your mercy. Instead, I have come to appeal to your common sense, your business sense, and your ambition. I'm here to propose that the single most powerful catalyst for explosive growth of the next generation of digital businesses is not piracy but partnership: the creative combination of media and technology companies that will drive the success of great digital businesses from here. The spectacular promise of digital products that the world comes to Comdex to celebrate and anticipate depends on the partnership of rich media and cutting-edge technology. It is this partnership, our partnership, that will propel extraordinary businesses and exceptional rewards for those of use who combine our strengths to create them. Turning rampant piracy into rewarding businesses may sound daunting, but it's been done before. And the result has been two of the fastest-growing and most admired businesses in the world. The cable and satellite television industry was basically stillborn in 1980, a victim of the kind of uncontrolled piracy that we face now. It was only once encryption was put in place in the mid-1980s that content providers felt confident contributing their best programming, technology providers dedicated themselves fully to maximizing those programs, and the cable and satellite TV industry took off. Today Wall Street analysts estimate that cable and satellite TV represent a $300 billion worldwide industry a figure that far exceeds the market value of the Internet, for example as subscribers continue to grow by more than 10 percent a year. The DVD industry also grew out of piracy. In 1996, DVD technology was invented and expected to thrive but its launch was halted by the reluctance of film studios to contribute their content until adequate protections were put in place. When they were, DVDs took off and haven't slowed since. Today DVDs are the single most successful consumer entertainment product of all time. Last year sales and rentals of DVDs exceeded $7 billion worldwide more than doubling the revenues of the year before as the number of DVD players in this country grew past 26 million and the number of DVD-ROM drives worldwide climbed above 90 million. DVDs have exploded into a $15-billion business from a zero-dollar business before its digital content was protected. The promise of the Internet and digital commerce rests on our ability to earn the business of paying customers, not pirates. By working to do so, we have created a couple of multi-billion dollar businesses. Our job now is to do it again; only bigger. The digital technology community stands to benefit enormously from the growth of several key industries industries like broadband technology, the home networking industry, and Digital Rights Management and content protection itself. The growth of these businesses will be driven by the same steady supply of top-quality content that drove the growth of cable and satellite TV, that fueled the explosion of DVDs and that will only come as a result of digital content security. No technology has a greater power to revolutionize the worldwide communications industry than broadband. The widespread adoption of broadband is capable of fundamentally transforming our economy, education, health care, military and government as well as our basic quality of life. In the U.S., 20 million households may be broadband households by the end of next year. Economists estimate that the spread of broadband applications and services could increase the Gross Domestic Product of the United States by $500 billion annually. And those same economists suggest that broadband has the potential to explode the growth of digital commerce, interactive businesses, and rich digital content products of all kinds. But the potential boom of broadband is currently at risk of going flat just as it's getting started. According to a Presidential panel and the U.S. Department of Commerce, without an injection of the sort of rich content that gives subscribers the value-added service they demand, consumer uptake of broadband is likely to fall short of projections. The report of the U.S. Department of Commerce states: "Digital entertainment would be a major driver of accelerated consumer adoption of high-speed broadband connections if available online at reasonable costs and in formats consumers want." The power of content to fuel the uptake of digital services has been proven, for example, by Napster, which two years ago was responsible for an estimated 80 percent of all broadband traffic. It's hard to imagine that the sum-total of the promise of broadband technology is faster e-mails and quicker chats online. That's because the transfer of messages is nothing, when it comes to customer appeal, compared to the delivery of rich digital entertainment of a quality and at a pace and on a scale that have never been seen. Broadband will thrive on its ability to deliver videos and movies, shows and clips not to mention interactive, behind-the-scenes, and other new rich media options that have yet to be invented. All that's left is to protect that content in order to guarantee its steady supply. Without a reliable amount of secure and high-quality content, the revolutionary potential of broadband may unfortunately remain just that. In which case, broadband will lose its power to revitalize the earnings of companies and services like the ones gathered in this room. Most research firms predict that annual broadband Internet spending could reach around $10 billion worldwide. Just as important, with the rollout of broadband will come a much-needed sales increase in servers, semiconductors, routers and other larger telecommunications hardware; and the ramifications for smaller digital businesses continues from there. Software companies, e-commerce companies, compression specialists and connector manufacturers will all be injured by a downturn in the rate of broadband adoption: a risk that grows higher the longer we lack basic protections for content. The home networking industry is another industry in position for tremendous growth and potentially tremendous revenues for technology companies of all kinds. Home networking products like WiFi, BlueTooth, FireWire and Ethernet devices could grow from an installed base of 48 million devices in the U.S. today to several times that number. It doesn't take much imagination, when you consider that there are about a quarter-billion television sets in this country, to envision the kind of revenue potential that comes with incorporating the television into digital home networks at the rate that's possible over the next few years. Television set-top boxes and digital TVs with home network gateways have the potential to go from 5 million this year to many millions at a rapid pace and each of those millions of networks will generate further demand for greater technology. But this kind of multiplying opportunity, based on the sustained growth of the home networking industry, must be driven by the ability to shift high-quality content from the TV to the PC and to mobile devices throughout the home. That content will help drive the sale not only of more home networking devices but faster processors, larger storage, better audio applications, higher-quality monitors and other IT products to support the enhanced viewing experience that rich digital entertainment will create. Another big business opportunity is the growing demand for digital controls over piracy. Anti-piracy efforts are not a choke-hold on digital business; they are in themselves an extraordinary opportunity for building businesses and revenues. We have learned this at News Corporation through our ownership of NDS, one of the world's leading suppliers of content protection systems and encryption software for digital satellite TV. NDS serves more than 30 million paying customers around the world, generating revenues near $4 billion a year. Imagine the potential of the Internet to generate escalating revenues and opportunities considering that the Web's connections to customers are already in place. The market for DRM software has the potential quickly to exceed $4 billion, purely on the strength of high-quality content and the science of its protection. Broadcast flag technology; watermarking technologies; micropayment capabilities; and encryption software all represent substantial boons for technology companies and major industries in the making. As part of this growing trend, I am encouraged by Microsoft's efforts to take copyright protection into account in its new Windows XP Media Center Edition, and we look forward to working with Microsoft and its customers like Hewlitt Packard to improve that protection in future editions. Moreover, I have great faith in the ability of all kinds of DRM products and applications to bring together the interests of media and technology providers and to generate substantial and growing rewards for both. These are phenomenally promising new industries whose growth will be fueled by outstanding digital content, intelligent technology, and the wholehearted partnership between their creators. And there are a lot more where those came from. On Demand content services have the potential to expand to around 40 percent of high-speed Internet users generating nearly $2 billion in subscription and pay-per-view revenues over IP networks alone. The 10 million PDAs now capable of carrying news stories could grow to 20 million in the next five years. All kinds of next-generation digital business will succeed or fail on the quality of their secure content or as a result of their lack thereof. I propose we work together, starting now, to make them succeed. We stand today at a crossroads, faced at once with an unprecedented threat to our digital marketplace and with the unprecedented chance to make that marketplace a launching pad. Our choice is an urgent one: whether to come together for the sake of creating businesses or to stand apart and let businesses erode before our eyes. Because the stealing of digital content not only threatens to diminish our future but to erase the companies and services that have been created thus far. Already the recently bolstered security system that was designed to protect Microsoft's X-Box was cracked less than a month after the reconfigured consoles hit the market. Already DVD burners are being issued standard on laptops, raising the prospect that without the ability to protect our content, our successful DVD business will suffer renewed piracy and falling revenues. Thus far the creative geniuses behind games like Ultima and Sims Online have been effectively protected by the general good will of their peers; it is only a matter of time, however, until that good will is replaced by the kind of thoughtless hacking and hijacking that sooner or later targets creative digital ventures of every kind. We are living and working in a climactic moment in our digital history. We will look back at the end of 2002 and call it the starting line for some of our most successful businesses, innovations and ideas; or we will look back with the cynicism born of missed opportunities, and call it our peak. We have the chance to work together for astronomical growth and reward; or else we run the risk of watching digital piracy go from an unaddressed danger to an unstoppable drain on every digital business we know. Now is the time to forge a dynamic and durable partnership. Now is the time because the growth of the technology industry is seriously stalled, and because both our industries seriously need to be reenergized and directed toward incredible growth and ongoing gains. And now is the time because there have never been more favorable conditions for revolutionary digital business growth than there are right now. The adoption of broadband and the popularity of DSL are gaining mass-market appeal among the worldwide public and mandatory status among businesses large and small. Digital rights management services are being widely deployed under the expertise of companies like RealNetworks; and in the case of their SuperPass product and other secure media devices, with significant and growing success. And the improvement of compression and other enabling technologies as well as the flexible pricing and higher quality of the digital content they help deliver has dramatically and compellingly enriched the digital content viewing experience. As a result, it's increasingly easy to envision a world in which people flock to services that provide rich and secure digital content, and in which the partners in those services are rewarded amply for their teamwork. I have not come to Comdex with any illusions about the eradication of all digital stealing, or about the absolute perfection of any method we might use to prevent it. I have no interest in restricting digital advancements or the rights of the people they benefit on the contrary, I'm eager to do whatever we can to accelerate and improve digital progress. Media providers like me don't have all the answers, and we don't have any magical or technological proposals that will end all piracy for good. What we do have is a deep faith in the powers of digital technology and the intelligence of its creators and managers as well as the knowledge that without our collective will to do so, digital piracy will never be stopped. I have come to this vast showcase of the world's most advanced technologies to offer only the most old-fashioned of things and that's optimism. I have great confidence that the extraordinary skills of media and technology companies, when put together, can return dishonesty and piracy to the fringes of the vital creative business we share and restore to both our industries the explosive growth that is our within our reach. Thank you very much. ------------------------------------------------------------------------- POLITECH -- Declan McCullagh's politics and technology mailing list You may redistribute this message freely if you include this notice. To subscribe to Politech: http://www.politechbot.com/info/subscribe.html This message is archived at http://www.politechbot.com/ Declan McCullagh's photographs are at http://www.mccullagh.org/ ------------------------------------------------------------------------- Like Politech? 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