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

[Dave Farber <dave () farber net>]

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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