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RULE MAKER PORTFOLIO
Son of DIVX: DVD Copy Control

By Rob Landley (TMF Oak)

GAITHERSBURG, MD (January 27, 2000) -- Every once in a while, a Fool just has to sit back and go, "Wow, that's really dumb." I shouldn't be surprised when dumb things come out of Hollywood. Robert Heinlein once wrote a morality tale about how an overly militaristic society can be a bad thing, and based on that, Hollywood came out with the campy action movie Starship Troopers (i.e., "Bevery Hills 90210 goes to war").

But then the DVD Copy Control Authority (a name straight out of a James Bond movie if you ask me) attempted to sue the ENTIRE INTERNET. It's like a class action lawsuit in reverse. Even for Hollywood, this has to set some kind of record for sheer bulk corporate idiocy. The mind boggles.

I've written in the past about how the Internet is commoditizing information and forcing information providers into a service role. And, I've mentioned how the currently dominant players in the act of being displaced are kind of unhappy about it. Personally, I'm waiting for a subscription service that lets me view 20-year-old episodes of Dr. Who (or the Dilbert episode I missed last week) through the Internet for maybe 25 cents per half hour, or even better, for a flat monthly fee. That would eliminate piracy by making it no longer worth the effort. Access to a huge library of video is a service I'd certainly be willing to pay for, and keeping video on my hard drive or passing it along to friends would then be a complete waste of my time even if it was as easy as breathing.

But attempting to use laws to prevent the natural commoditization of previously proprietary products and the resulting transition to a service-based industry... It's like prohibition in the 1920s. That's not going to work. It's not even a holding action, it's just... dumb.

A while back, I wrote about a bad idea called DIVX, which could best be described as "profoundly stupid." I was then asked by UberFool David Gardner to gloat in a follow-up article when DIVX was pulled from the market. In both cases, the general thrust was, "The DIVX creators have declared war on their own customers! The DVD people could never even aspire to this level of profound stupidity!"

Putting the two together, it honestly never occurred to me that the DVD camp would make a concerted effort to prove me wrong by fighting the natural trends within their own industry so vehemently. A little background:

DVD disks are encrypted with something called the Content Scrambling System (CSS). The DVD player decrypts the data on the fly as it's reading the disk. People who want to make a DVD player have to get an expensive license to this secret encryption algorithm from the DVD Copy Control Authority (hereforth, simply "Copy Control"). Each applicant gets their own secret key with which to unscramble the DVD so it can be played. And if one of those keys were to fall into the "wrong hands," then future DVD disks could be made so that key wouldn't work on them anymore.

When DVD players started appearing in computers, no company was willing to spend thousands of dollars to get a license to write a DVD player for Linux. So the Linux people wrote their own CSS descrambling program (deCSS), and posted the source code on the Internet. They reverse engineered the encryption algorithm, and then spent the rest of the afternoon finding (and posting) every possible decryption key that would play existing DVD disks.

Copy Control freaked and called for their lawyers. They sent "cease and desist" letters to everyone they could find who had the source code on their websites, or who provided links to those websites, or who provided links to people who linked to... I don't know if Yahoo! (Nasdaq: YHOO) got a letter on general principles or not.

When the majority of the Internet failed to pay any attention whatsoever, Copy Control started suing people. Lots of people. Hundreds of people. They even arrested the 16-year-old Norwegian programmer who had originally posted the code, on the grounds that since he was one of the few people who had taken the code down in response to the original letter from the lawyers, he was obviously easily intimidated and they had to take their frustrations out on SOMEBODY. (How they got the Norwegian government to go along with this, I have no idea.)

All the while, the DVD Copy Control people have been screaming "piracy!" But the Linux deCSS program is not a case of piracy at all. Fact is, you don't need to decrypt DVD disks to copy them. The DVD disk is supposed to contain encrypted data in order for a standard DVD player to play it. A DVD player can't tell a verbatim copy of the encrypted information from the original. Pirated DVDs have been coming out of Hong Kong for a year, long before the deCSS program was written.

Ignoring this first point, pirating DVDs is uneconomic anyway. Blank home-burnable DVD disks cost $50 apiece, whereas a brand new mass-produced DVD costs in the $20-$30 range at retail. In a few years, Blockbuster Video will probably start selling "previously viewed" DVDs for about $10 each, the same way they unload their old videotapes. DVD piracy with a home DVD burner simply doesn't make economic sense, and the home-burnable DVDs have an extra precaution: The track where the encryption keys go is pre-burned with zeroes.

From another viewpoint, copying a DVD that you own is perfectly legal. Giving that copy to somebody else would be illegal, but making a backup copy for your own use wouldn't. Owners of software are allowed to make a backup copy for archival purposes. Owners of CDs are allowed to copy them to audiotape to play them in the car. This is well-established case law.

Let me repeat all this: The deCSS program is neither designed nor necessary for copying DVD movies, which isn't economically feasible anyway and not technically possible with the partially prewritten blank disks being sold today. In any case, a tool to copy DVDs would be legal for personal use.

So why is Copy Control so completely frantic to put the genie back into the bottle? Well, two reasons. First, remember that the DVD decryption takes place in PLAYERS, not in copying disks. The Linux people made their own DVD PLAYER. The DVD encryption gave Copy Control a monopoly on DVD players until somebody made a DVD player without them, and they're mad. They made a lot of money licensing their secret recipe to DVD player makers. Now, nobody needs them anymore.

The second reason is that the people pitching the DVD format to the movie industry said that the encryption protects against copying. That this wasn't technically true means that some serious posterior covering is taking place about now. The DVD Copy Control Authority's battle over deCSS isn't just to prevent what it does do, but to distract from what it DOESN'T do.

Three separate lawsuits from Copy Control are now ongoing. (Each time they face a setback, they file a new lawsuit in another jurisdiction.) My favorite moment was when the defendants showed up in T-shirts bearing the deCSS source code, which Copy Control tried to enter into evidence (motion denied). The deCSS source code itself HAS been entered into the public record though, as "Hoy exhibit B," which is kind of strange if the point of the lawsuit was to suppress it. Larry, Moe, and Curly would be proud of the DVD Copy Control Authority's legal efforts thus far.

On the bright side, this case is likely to clear up a whole lot of legal issues by finally challenging them in court. Is it legal to link to other people's content on the Internet? Are shrink-wrap licenses legally enforceable? How about the contract-o-matic (Click "yes" to sign over your firstborn or this program will refuse to run)? Unfortunately for the existing publishing industry, on each one of those issues, they're on what appears to be the losing side, and clinging to the tatters of old laws to support the status quo against changes in technology and the marketplace.

The Scientologists tried to sue people who posted their religious doctrines on Usenet. The Recording Industry Association of America keeps suing random people trying to make portable MP3 players. Now the DVD people are explicitly suing the Internet at large, which makes about as much sense as trying to hold the Pacific Ocean legally responsible for Hurricane Andrew. Even if you win, what is it supposed to mean?

By the way, if you still don't think that this is nearly as stupid as the limited-play aspect of DIVX, don't worry, somebody's working on that one too:

DVDs that self-destruct.

One final note from the Fool Radio folks: On this week's Motley Fool Radio Show, we're holding our annual Super Bowl Special and we want to hear from you. When did you drop the ball? Did you bet the farm on a penny stock? Did you get carried away with that credit card? If you have a financial fumble you want to share with the world, our Fool Radio team wants to hear from you. And it won't be all financial fumbles on Fool Radio, so if you're not in the confessing mood but have an investing question or comment you'd like to share, we want to hear from you as well. If you're interested in participating on this week's show, please email radio@fool.com with your confession/question and please include a daytime phone number.

- Oak

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Rule Maker Portfolio

1/27/00 Closing Numbers
Ticker Company Dly Pr Chg Price
AXPAMER EXPRESS3/16$162.94
CSCOCISCO SYSTEMS-9/16$106.63
GPSGAP INC-1/8$45.00
INTCINTEL CORP5/8$98.13
KOCOCA-COLA CO-3 9/16$59.50
MSFTMICROSOFT CORP-5/8$98.75
PFEPFIZER, INC-3/8$34.50
SGPSCHERING-PLOUGH1/16$40.94
TROWT.ROWE PRICE ASSOC-2 3/4$39.25
YHOOYAHOO INC13/16$337.38

  Day Week Month Year
To Date
Since
2/2/98
Annualized
Rule Maker -.12% -2.75% -3.53% -3.53% 68.14% 29.92%
S&P 500 -.39% -2.97% -4.81% -4.81% 42.67% 19.61%
S&P 500(DA) -.39% -2.97% -4.81% -4.81% 44.44% 20.35%
S&P 500(DCA) n/a n/a n/a n/a 26.61% 12.62%
NASDAQ -.75% -4.62% -.73% -.73% 149.45% 58.49%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
6/23/9875CSCO32.865$106.63224.44%
2/17/9916YHOO126.309$337.38167.10%
2/3/9859MSFT49.352$98.75100.09%
5/1/9882GPS22.708$45.0098.17%
2/13/9865INTC53.762$98.1382.52%
5/26/9818AXP104.067$162.9456.57%
2/3/9866PFE27.433$34.5025.76%
2/3/9856TROW33.673$39.2516.56%
2/27/9827KO69.107$59.50-13.90%
8/21/9844SGP47.993$40.94-14.70%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
6/23/9875CSCO$2,464.86$7,996.88$5,532.02
2/17/9916YHOO$2,020.95$5,398.00$3,377.05
2/3/9859MSFT$2,911.79$5,826.25$2,914.46
2/13/9865INTC$3,494.54$6,378.13$2,883.59
5/1/9882GPS$1,862.06$3,690.00$1,827.94
5/26/9818AXP$1,873.20$2,932.88$1,059.68
2/3/9866PFE$1,810.58$2,277.00$466.43
2/3/9856TROW$1,885.70$2,198.00$312.30
2/27/9827KO$1,865.89$1,606.50($259.39)
8/21/9844SGP$2,111.70$1,801.25($310.45)
  Cash: $6,133.67  
  Total: $46,238.54  


Notes
The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it added $2,000 in August 1998 and February 1999. Beginning in July 1999, $500 in cash (which is soon invested in stocks) is added every month.





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