Encryption Deal Threatens Taping

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Hollywood studios and digital-content developers saw a huge
barrier lifted last week, as five vendor companies agreed on a way to keep programming
secure from would-be digital pirates.

It is unclear how the deal will affect taping of home-video
and pay-per-view movies, but Hollywood executives are hoping that the technology finally
limits or puts a complete halt to the taping of PPV and premium movies.

Last week, five members of the ad hoc Copy Protection
Technical Working Group presented a proposal aimed at protecting digital video and audio
content riding on and between personal computers, high-definition TVs, set-tops, digital
VCRs and DVD (digital versatile disc) players. The companies included Hitachi Ltd., Intel
Corp., Matsushita Electric Corp. of America, Sony Electronics Corp. and Toshiba Corp.

Cable executives and studio executives applauded the
agreement.

'This is important to the industry, because we and the
digital-TV-set guys couldn't build secure connections between digital set-tops and
TVs until it got done,' said Jerry Bennington, senior vice president of Internet
technology for Cable Television Laboratories Inc.

'It will be a major wake-up call for the rest of the
industry,' said Holly Leff-Pressman, vice president of pay television for Universal
Pay TV. 'The studio feels very strongly about anti-copying technology.'

For years, Hollywood has been asking for anti-copying
technology in a digital environment, where the sound and picture quality is much better
than it is in the current analog-distributed product. Sources close to the situation said
Hollywood would push for very limited premium taping and no taping of PPV movies.

While most cable operators contacted did not know how the
deal would affect business, one who requested anonymity said any effort to limit taping
could hurt business, particularly from the PPV side.

'A lot of people I know like the option to tape the
movie both from PPV and premium,' he said. 'Without that option, I don't
know how many people might actually pay $4 for a movie.'

But one Hollywood executive said such technology could help
PPV to obtain better windows.

'One of the reasons why the studios have been able to
manipulate videos is because people have been able to make copies from PPV,' said the
executive. 'Anti-taping technology eliminates the excuse.'

At least one premium executive said limits on taping
premium movies shouldn't hurt the business.

'One of the advantages of a digital platform is that
you're giving the consumer whatever movie they're in the mood for, so
there's no reason to tape,' said John Sie, chairman and CEO of Encore Media
Group.

Representatives from Home Box Office and Showtime Networks
Inc. could not be reached for comment at press time.

Cable engineers have said that the jumper cable that
connects set-tops to TVs is looked upon as a security risk by studios, particularly in a
digital and HDTV environment.

That's because broadcasters' standard-definition
television and HDTV signals could be passed through cable's digital set-tops to a
digital decoder located inside the TV set.

In that case, the innocuous, 36-inch piece of connecting
cable becomes the equivalent of an open, cash-filled wallet -- pirates could connect a
'sniffer,' or interception device, and capture perfect copies of digital movies.

Bennington said the vendors, as part of the CPTWG, have
been working on a copy-protection scheme for over a year and, until now, the group was
down to two proposals -- one championed by Sony, and the other by Intel.

Bennington said the multivendor agreement applies to the
connectors on either end of cables carrying digital audio and video signals.

Bill Kircos, an Intel spokesman, said the consortium
expects products to be available for PCs first, in the second half of this year.

Bennington said the primary digital set-top players are
also aware of the CPTWG's work, and, 'We think that they can get products ready
in time.

'Now, the pressure's really on for the TV
manufacturers to produce the other side of the plug,' Bennington said. 'They
have longer production cycles than [set-top vendors] do -- they've got their
Christmas stuff in the works already.'

Notably, last week's agreement is just a paper nod,
and much work remains to be completed before the digital-security solution is finalized,
executives said.

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