HOUSE AND SENATE REMAIN FOCUSED ON DIGITAL RIGHTS ISSUE

Disney CEO Michael Eisner and News Corp. Pres. Peter Chernin wrote Hollings March 14 disputing letter written after Hollings’ hearing 2 weeks ago by Intel Exec. Vp Leslie Vadasz. Vadasz had been put under heavy heat by Eisner, Chernin and Hollings at that hearing, with all 3 suggesting technological solution was easily at hand but IT industry didn’t want to pay for it. Vadasz disputed that in letter after hearing, and Intel CEO Craig Barrett repeated that at Judiciary Committee hearing March 14. But Eisner and Chernin said “we respectfully disagree” with notion that “there is no technology that can prevent the downloading and redistribution of movies that are posted ‘in-the-clear’ on Internet file-sharing sites.” By “in-the-clear,” Eisner and Chernin referred to movies and songs converted to digital form and posted online illegally to peer-to-peer networks. Vadasz and Barrett insist encryption technology exists that can block the illegal transfer of movies that Disney and News Corp. post online themselves, but only way to police “in-the- clear” files is to track every single bitstream on Internet and compare it with master database of every copyrighted work in existence. Leahy disagreed.

Eisner and Chernin told Hollings “we do not accept that in-the-clear pirate content can NEVER be protected against copying on the Internet, and that there is no watermark, chip device or screening system that will EVER effectively put an end to this problem. We have more faith in our high-tech brethren than that.” They suggested “consensus watermark” would cover in-the-clear digital content. Under that scenario all content would carry watermark that computers and other digital CE products would look for. Vadasz and Barrett have said that would prove to be problem if consumers wanted to send relatives home movie that wasn’t watermarked, and several Senate Judiciary Committee members said such approach could give consumers fewer fair-use rights with legally purchased content than they had with analog content.

Disney and News Corp. executives insisted “our companies do NOT seek to constrict fair use or lawful home taping of TV shows. Our only goal is to enlist the help of high-tech companies, and of our government, to create a reasonably secure environment for the distribution of movies and other creative content.” IT and CE industries insist they have been working on issue for 6 years but some studios seem to favor govt.-mandated solution over one reached through negotiation. In addition, DigitalConsumer.org founder Joseph Kraus testified that inserting consensus watermark scanning system in computers could interfere with “general use” nature of PCs -- namely, that they didn’t differentiate types of binary bitstreams and that nature allowed them to be versatile and adapt to new technologies and services. Still, Eisner and Chernin wrote that “our strategy must focus on the development of legislative and technological protections to enable devices to reject those pirate copies.”

All members of Congress involved in debate agree piracy must be eliminated as much as possible. Committees have seen dramatic demonstrations of piracy, with Eisner showing Commerce Committee pirated copy of Black Hawk Down and AOL Time Warner CEO-Designate Richard Parsons showing the Judiciary Committee a pirated copy of Lord of the Rings. Sen. Feinstein (D-Cal.) -- whose state includes many of studios, IT companies and CE manufacturers -- at Judiciary Committee hearing held up DVD of pirated copy of A Beautiful Mind. All of those movies still are in theaters and have yet to be released to public on DVD or VHS. At Judiciary hearing, Intertainer CEO Jonathan Taplin said only way those movies could have found their way onto Internet was if studio employee dubbed digital copy during postproduction. Eisner and Chernin acknowledged that did occur, but said in their letter to Hollings that “no matter how diligent the studios… protect content, pirate in-the-clear digital copies will continue to leak out to the Internet through a variety of channels, and that problem will only get worse as broadband proliferates.”

Broadband is primary reason debate is continuing even though Hollings has yet to introduce bill that Leahy has vowed won’t pass. Bush Administration and Congress are committed to broader broadband adoption, but Administration recently has made it clear it intends to focus on so-called “demand side” -- increasing availability of content online and thus making broadband appear more appealing to consumers and inducing providers to build out networks to meet that demand. Hollings and Leahy have said more legal content such as movies will spur broadband, but differ in their view of role of federal govt. in spurring that process.