"Harry Potter" DVD protection goes poof

Like most other film studios, Warner Bros. includes anti-copying technology on DVDs to prevent digital-to-digital recording, for example, to a computer hard drive. This is considered a crucial defense against the looming "Napsterization" of Hollywood, as high-speed Internet connections and powerful video-compression technology increasingly make it possible for ordinary consumers to swap high-quality versions of feature-length movies online.

Most DVDs also include a separate encryption layer that interferes with recording to analog devices such as VCRs. Although typical DVD buyers are unlikely to make and redistribute videotape copies in large numbers, savvy computer users can easily create digital files from analog signals, opening the door to the file-swapping nemesis. As a result, the movie studios have been lobbying heavily to place restrictions on pending digital technology, such as high-definition TV sets, to hamper or even prevent analog recording, a move aimed at addressing what the industry has come to call the "analog hole."

In the past, Warner Bros. has used technology from Macrovision and others for analog encryption on DVDs, which produce videotape recordings with blocky, unrecognizable images or a blue screen. But the technology was apparently left off some copies of "Harry Potter and the Sorcerer's Stone," one of last year's top-grossing movies. The movie was released for retail sale on DVD and videotape May 28; it sold about 20 million copies in its first week, according to Warner Bros.

A Warner Bros. representative declined to comment when asked whether the company had dropped analog encryption from the "Harry Potter" release, saying only that it uses complete digital copy-protection features on all its DVDs.

"We have piracy deterrents on everything," the representative said.

But a random "Harry Potter" DVD purchased by CNET News.com at a San Francisco retail store last week produced a near-perfect videotape copy when connected from a standard DVD player to a standard VCR. Attempts to create a direct digital copy were unsuccessful, suggesting the disc was protected with a digital encryption layer. But it appeared to include no analog encryption.

Cutting costs
Although some studios may be willing to experiment with anti-piracy methods, it's unlikely that the "Harry Potter" release signals a softening in Hollywood's stance toward analog copying.

According to one industry analyst, the move may have been nothing more than a short-term effort to save some money at a difficult time for Warner Bros. parent AOL Time Warner, which has seen disappointing earnings on the heels of the merger that created the media giant last year. Macrovision charges about 5 cents for each disc created with its technology.

In a report that cited the "Harry Potter" DVD, Robertson Stephens analyst Sasa Zorovic said major studios are "cost-conscious in this environment, spending less even on protecting their property."

"We are concerned with AOL's non-protection of its DVD release of 'Harry Potter,'" Zorovic wrote in his report. "We believe this may be AOL's tactic to reduce its overall cost of copy-protection."

Others said Hollywood continues to spend heavily on lobbying efforts to bolster digital piracy laws, suggesting the industry has no intention of backing down on anti-copying measures. Still, there are signs that its emphasis has shifted in light of recent encryption breakdowns, such as a high-profile 1999 hack of CSS (Content Scrambling System), a digital scrambling technology that was an industry standard for DVDs.

Jon Peddie, analyst at Tiburon, Calif.-based Jon Peddie Research, said the studios for now are spending substantially larger amounts of money lobbying Congress for new copy-protection laws and regulations than they are spending to install copy controls at the content level.

"I am speculating that Hollywood's rational for dumping millions of dollars into lobbying and soft money to influence Congress is viewed as a one-time expense, as opposed to an ongoing expense of paying for the encryption license for each and every movie they make," Peddie said.

Politics vs. technology
The "Harry Potter" release comes as federal lawmakers place a magnifying glass over controversial proposals regarding anti-piracy technology, also known as digital rights management (DRM) technology.

The issue was pushed under a spotlight recently when Sen. Ernest "Fritz" Hollings, D-S.C., introduced a bill that would force computer and consumer-electronics companies to include anti-piracy technology in their digital devices, among other things.

The bill has sparked heated opposition from hardware makers. Two weeks ago, a group of tech executives urged legislators to avoid government regulations by defending anti-piracy technologies, saying they protect content while expanding consumer choice.

Still, electronics manufacturers continue to cooperate with movie studios to create copy controls aimed at thwarting online video piracy. Several groups are tackling the problem. The 4C Entity, a coalition that includes Intel, IBM, Toshiba and Panasonic, is working to create broad hardware specifications.

Meanwhile, a body known as the Video Watermarking Group--a coalition of consumer-electronics companies that includes Hitachi, Macrovision, NEC, Philips Electronics, Pioneer and Sony--is aiming to create a system that places a unique bit of code into a video file, making it difficult to copy or play without permission from copyright holders.

Moreover, a movie industry-backed consortium known as the DVD Copy Control Association (DVD-CCA) has been working to replace CSS--the cracked copy protection for DVDs--as it wages an all-out legal battle to ban distribution of code known as DeCSS, which was used to thwart the technology.

Zorovic said groups such as the DVD-CCA are also pushing for proposals for a technology that address the issue of the analog hole.

While digital locks prevent digital copying, many existing televisions, stereos and DVD players have the ability to transmit an analog signal to a computer that could record digitally copy-protected songs or movies as they play. The problem extends even to analog speakers attached to a PC, because outputs to such devices can readily be used to thwart the music industry's digital copy-protection technologies.

Tough times for DRM providers?
Even if Hollywood is not planning to pull back on copy protection, Zorovic predicts tough times ahead for companies that sell anti-piracy tools, such as Macrovision.

Zorovic said it is "crucial" for Macrovision to snatch up long-term contracts with Hollywood studios because "negotiations for more favorable terms for the studios may drive per-unit royalties down."

Macrovision Chief Executive Bill Krepick responded that the company is doing a robust business, despite Hollywood's financial troubles.

Still, there are signs that the industry is feeling its way when it comes to copy-protection technology.

"Our customers, namely the Hollywood studios, are under significant cost pressures," Krepick said. "I think it's fair to say that amongst the studios, there are differences of opinions in terms of how much copying actually goes on in the country. So...some studios will use copy-protection more than others."

Krepick added that Macrovision recently implemented a policy that requires studios using its technology for a particular movie to place it on every recording of that film released within a certain geographic area. Krepick called the policy a "sort of the truth in advertising."

He said it's up to its customers to choose to label discs as copy-protected. But Krepick noted that most studios decide not to put such labels in a DVD's packaging.

"There is the feeling if...there were two titles next to each other and somebody saw that logo in one and not the other, they might say 'I'll take the one that's not copy-protected so I can make copies,'" he said.

Evan Hansen and John Borland contributed to this report.