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Putting the 'vision' in Macrovision

CEO Bill Krepick gives forth

This year's horizons for Macrovision, the highly valued content protection company, include a system to defeat file-sharing, a new, more effective, CD copy protection system and a shot at an interoperable Digital Rights Management system of its own.

The first two of these systems are virtually ready to go and CEO Bill Krepick reckons they will catapult company revenues based on music protection from a few percentage points now, to a major new revenue stream for the company. The third system on DRM, he admits, might not be so straightforward.

The new CD system will be operational in weeks and will allow a set number of CD copies to be burned from a protected CD, but each copy will be content protected. At the moment any system that allows CD copies to be made doesn't also copy the protection system.

The new file sharing system has been in tests for months now and has just gone into Beta with a major music company, ready for general release probably later this year. It works by finding finger-printed copyright works and setting up decoys and creating denial of service requests (or something similar) to slow down delivery of illegally offered files.

The company is also trying to see if it can find a way of making Apple's Fairplay, Microsoft's Windows Media DRM and Sony's MagicGate DRM all interoperate.

All of this came out in an interview with Krepick this week, where we got to ask a question that we often get asked, which is what makes Macrovision worth so much.

Investors have asked us if the stock is too high to invest in further, or if there is any point in shorting it. Players that feel they have to license Macrovision technology ask if there is any alternative. Perhaps the interview provides some answers.

Krepick's comments show that the word Vision is very much alive in the company Macrovision.

Jazzed up

Krepick was mostly jazzed up about the closing of the Install-shield acquisition, which happened on Thursday. This will take the company to just 55 per cent of its revenues in copy protection and 45 per cent coming from enterprise software and its protection.

But we managed to get him to talk about the key building block behind Macrovision's business, which are the copy protection systems on Video DVDs and on music CDs, and in particular the way in which these systems eliminate the infamous "analogue hole."

The analogue hole is created when a DVD player converts a digital file to an analogue file to get it to play on an analogue TV. This is when a DVD file is most vulnerable to copying.

"Our biggest revenue stream is from DVD copy protection right now, we have about 60 per cent to 65 per cent of all DVDs protected using our technology. This figure rises and falls, it doesn't just go up. We don't know why. Studios make their own decisions about copy protection, certain titles get protected, others don't," said Krepick

But the copy protection is really a matter of co-operation rather than technology, because it is supported by the wording in the Digital Millennium Copyright Act.

"We have a couple of patents, where we placed a couple of bits in key places on the disk, When a VCR sees these bits coming out of a player it modifies the video signal. The signal can still be seen okay by a TV set, but it looks strange to a VCR. The companies that make VCRs are required by law to respect it. The devices have to have an automatic gain control circuit to work with this, but no special software or an operating system."

A DVD player senses the same kind of thing, as it converts an analogue signal coming in to it.

The wording of the law places the obligation on the consumer electronic device manufacturer, and the key wording is "If it is a widely available copy protection technology, equipment makers must respect the signal".

Royalty-free play

Krepick recalls: "What we did is went to each of the CE players during 1997 and 98 and said 'We won't charge you any royalties to implement this technology, and we just want you to ensure that there is a circuit that recognizes our copy protection signals. Instead we charge 4 to 5 cents per DVD.' The CE companies said they would support it.

"This is very specific to video signals though and the law doesn't apply in the same way to audio signals.

"For music we have implemented parts of Microsoft's DRM within our system. In audio you can't transform the file from digital to analog, because there are digital players and it would damage the music, so what we do right now is hide the table of contents from any PC the music is written to.

"Using Microsoft's DRM (data session toolkit) you can manage a data version of the music track which can be copied to a PC. The DRM encrypts it and then it needs the key to read the file each time it is played. When the file is shared across the Internet, any illegal recipients can't play the file because the key remains hidden on the original PC."

So how does its competitor SunnComm manage CD copy protection?

"SunnComm uses Red Book audio files and puts an active manager, a piece of software, on your PC. Now we all know that software doesn't load when you put a new CD in if you hold down the PC's shift key, so that's why this disables SunnComm protection. "We are both using Microsoft DRM now to create legitimate multiple CD burns from a protected file. The record company can pick a number of burns allowed and after that the original won't burn any more. But the problem is that these copies are not themselves protected by CD copy protection.

"Macrovision is weeks away from producing a new type of copy protection process whereby all the burned CDs will have the same copy protection as the original."

Burning issue

What about online music services, such as Apple iTunes?

"The Fairplay DRM protection on iTunes also only allows you to burn a particular playlist a set number of times. But you can just reverse track one and two and then it's a new playlist.

"Also these CD burns carry no copy protection. We have to move to a system that makes each new copy just as protected as the original. The studios, once they get used to our new system, which will protect all copies, is likely to insist that Apple implements something similar.

"We have tried to talk to Apple, but they don't want to talk to us right now and we can't make them. Perhaps they will talk to us once they are made to implement this.

"So right now music copy protection is a small business for us, about 3 per cent or 4 per cent of our revenue, with about 270 million CDs out there with it on, all launched in Europe and Asia.

"BMG (Bertelsmann Music Group) have some unique requirements that means that they prefer the SunnComm Technology. We have always felt it was flawed although we could implement in just the same way, but again, we've mentioned the shift key.

"But with our new system we seen a very promising future for CD copy protection."

Interestingly though Krepick let slip that Microsoft doesn't charge anything for the use of its DRM on these CDs. "I figure they just want to get their DRM on as many things as possible," said Krepick and this is another 270 million copies.

On the thorny subject of fully interoperable DRM, Krepick is fairly cynical: "I don't think there will ever be a single universal DRM system. But sure, Macrovision is looking at that challenge. We figure we are seen as neutral, having dealt with the CE firms and with Microsoft and having all the major studios as customers.

"We have some patents here, and over the next year we will see an interference action resolved over just who owns what DRM patents .

"Intertrust brought the action to establish that it had prior claim over various DRM inventions, but it turns out that we filed a number of patents that are now pretty clearly seen as identical, just before them. Does that mean that Microsoft might go back and ask for some of the Intertrust licensing money back, the $440m that it paid earlier this year to put an end to the patent lawsuit with Intertrust?

"No I don't think that Microsoft will have to pay Intertrust back, but if they find that 25 per cent of that intellectual property actually belongs to us, Microsoft might find it has to license our technology too."

"But we have engineers right now trying to see how they can make Fairplay, Microsoft Windows Media DRM and Sony's MagicGate DRM all work together."

Downloaded future

But what if the future turns out to be an online future where DVDs are downloaded over the Internet?

Well, Macrovision has already worked its magic in the pay per view window for major film releases: "About 90 per cent of digital set tops will recognize another, similar signal, that we have set up inside pay per view films. In fact the Sky TV pay per view films shown in the UK are protected with it," says Krepick.

"We are also working with the VoD server guys with the same kind of technology and we are trying to extend this to hard disk based players like DVRs and portable media players. It requires that same walking of the tightrope between the consumer electronics companies and the content owners, and we are working hard to make that happen right now.

"But something we are very excited about is what we are doing in file sharing. We have built a system that is aimed at controlling the use of file sharing for downloading music, video and software.

"It doesn't require that the authors of Kazaa or Grokster supports us or co-operates with us, it doesn't use SpyWare in your PC or the tracking of downloaders back to their ISP or IP address either. We don't even have to have placed out content protection technology into the film the media is on in the first place.

"What we have done is try to make the experience of downloading less appealing. We have set up a series of servers all over the world, and they first establish, using our own fingerprinting technology, which files on offer belong to our clients. Then we track their demand and try to make the download experience as frustrating as possible."

Keeping mum

Krepick clearly didn't want to say too much about this new system pre-launch, but would talk about its effects: "There are often a 100 sources for the file you want and if it turns out that 90 of them are decoys set up by us, then getting hold of that file can be a pretty frustrating experience. And during the process the Macrovision system will direct the downloader to another, legal download copy of the same song, video or piece of software.

"We've had it in trials with a number of independent record labels, now it is moving to a trial at a major record label. We have just released it into beta now.

"We also tried the same set-up with some video files even though the software is optimized for music. It just worked with the video unchanged. Even where people have gone into theaters with camcorders and illegally filmed a motion picture, the fingerprinting has worked and we have been able to slow down the downloads.

"In fact we tried it on one picture launched in the last 30 days [Krepick wouldn't say which one] and we found that there are no copies of that film up on any of the major file sharing networks. Next we plan to apply this system to protecting software packages too."

© Copyright 2004 Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of events that have happened each week in the world of digital media. Faultline is where media meets technology. Subscription details here.

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