Digital Hollywood

BusinessWeek on Hollywood’s digital future:

Can Hollywood avoid getting Napsterized? Right now, the pirates are only nibbling at the $65 billion-a-year film and TV business. Downloading a movie is still a clunky affair that can take a few hours, and only 27% of the country’s 66 million online homes have the superfast broadband connections to do it.

Most of the piracy so far is through good old-fashioned counterfeiting. The ripping and burning of movies to DVDs is growing into a global underground industry that last year cost film studios an estimated $3 billion in lost DVD sales. It’s prodding the guys in Guccis into action: Security folks outfitted with night goggles routinely patrol press screenings, searching for illicit camcorders. Former FBI agents are leading raids of illegal DVD copying plants in Thailand and Malaysia. Industry lawyers are flooding court dockets with lawsuits against all manner of thieves (page 82).

But the digital threat is looming as ominously as the thick flock of crows gathered on the jungle gym in Alfred Hitchcock’s The Birds. Technology is coming on quickly that will make the prospect of copying movies and TV shows much more tantalizing — and far easier. Already, some 600,000 copies of films a day are being downloaded illegally, according to industry estimates, which could cost Hollywood hundreds of millions of dollars in lost video sales. A new crop of gizmos, from digital televisions to personal video recorders (PVRs), will soon make duplicating anything on the tube — from Fox (FOX ) Broadcasting Co.’s 24 to the latest Jennifer Lopez flick — a couch potato’s dream. And within three years, half the online population will have broadband, making it easier to pass programs captured in digital form around on the Net.

The living room is center stage for all this new digital entertainment. But will it be a war zone or a thriving marketplace shared by the creators of content and the makers of the cool machines that deliver it? That’s the urgent question facing studio execs. It’s not that they can’t envision a rosy scenario for convergence, where there’s money to be made at every turn — from movies on demand to Sex and the City fans streaming their favorite episodes on the PC to teens watching videos on handhelds. “We would certainly like to be able to make our content [increasingly] available in a digital world,” Comcast (CMCSK ) Corp. CEO Brian L. Roberts told the National Cable & Telecommunications Assn. convention in early June. “But we need to feel secure that we’re going to get paid for [it].”

The next few months will be crucial for the Hollywood gang, who are currently wrangling with cable operators, consumer-electronics makers, and the technology industry over protecting their digital gold. Each group has its own philosophies about how much protection — mandated and voluntary — the content needs. Historically, working hand in hand with disparate interests has been anathema to the moguls, a single-minded, ego-driven bunch for whom compromise doesn’t come easily.

Again compusory broadband licensing is mentioned – the wrod is getting around:

What if the pirates continue to run amok? More rigorous regimes for ensuring payment for copying would probably emerge. Among them might be compulsory licensing, in which a Net service provider or a file-sharing service would track downloads and charge a fee at the end of the month. Prices could be set by industry groups or even the government, and the studios would get some slice of the revenue. Hollywood doesn’t like this much, because it loses pricing control, but some tech groups back the idea. Another concept: a tax on blank DVDs, PCs, or PVRs. This would essentially be a piracy tax creating a huge pool of money earmarked for the studios. The tech companies see this as an unnecessarily blunt instrument that treats all users as pirates-in-waiting.