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News Corp's Peter Chernin: "The Problem with Stealing"

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From: "Lane, Rick" <RLane@newscorp.com>
To: <declan@well.com>
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.

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