Nov. 22, 2001

Last September a complete digital copy of "Stars Wars Episode 1: The Phantom Menace," the most recent "Star Wars" movie, appeared on the Internet. Within days, word of the copy, which was created by someone known only as the Phantom Editor, was all over the electronic ether. By October, a few seconds' search on file-sharing networks like KaZaA and BearShare sufficed to turn up more than a thousand copies of the film, all presumably available for download.

George Lucas was said not to be amused. What drew his ire was not merely that the Phantom Editor had jumped the gun on Lucasfilm by releasing the whole picture weeks before the long-planned, carefully-controlled DVD version arrived in Blockbuster stores. The real offense was that, as the name suggests, the Editor had re-edited the movie, snipping out twenty minutes of footage that many "Star Wars" fans regarded as annoying or superfluous. Doubtless adding to his ire, some film critics described what the Editor called "Star Wars Episode 1.1" as better -- tighter, cleaner, with less sophomoric humor -- than Lucas's original.

Lucas was, in a way, a perfect target. The Phantom Editor had apparently used new, cheap computing power to assemble an alternative, professional-quality movie -- exactly the same kind of new, cheap computing power that had allowed Lucas to make the original film, with its digitally created characters and special effects. Indeed, Lucas has long -- and presciently -- argued that cinema will eventually go totally digital. Hollywood, that is, will eventually shoot, edit, distribute, and project movies entirely with computers.

The digital revolution will profit studios in many ways, Lucas and other Hollywood visionaries believe. Computers can replace expensive sets, equipment, and even actors with cheap pixils. Movie files on hard drives can be edited, copied, and stored at a fraction of the cost of bulky, scratch-prone film. And digital movies can be distributed directly to consumers over the Internet and, eventually, by satellites. Viewers will have instant access at any time to any movie they want -- and Hollywood will be able to bypass theater owners, Blockbuster, HBO, and every other middleman who now has a finger in the celluloid pie. Cheaper and better in every aspect, the new technology, Lucas has long maintained, will empower a new generation of cinematic artists and entertainers.

What Lucas seems not to have perceived is that the new technology would also empower the audience -- including his own fans. It's no secret that many of the most passionate "Star Wars" devotees -- the kind of people who think nothing of wearing Darth Vader masks in public -- were disappointed by "The Phantom Menace." The loudest complaints concerned Jar-Jar Binks, a loquacious, computer-generated alien who was widely deemed the most tiresome entity ever to appear on a movie screen. Another source of fan wrath was the young Darth's exclamations of "yahoo!" and "whoopee!," which were deemed too inane for a future Dark Lord. The Phantom Editor neatly trimmed the roles of both the gibbering alien and the annoying kid. To keep the file size manageable, the film has been reduced to a 2-1/4" x 5" frame onscreen; except for that (granted, a big exception), average viewers would have had no way to tell, from technical quality alone, that they were watching a kind of home movie. And more versions are on the way -- already someone has re-edited the re-edited version, dubbing in entirely new dialogue for the despised Jar-Jar Binks.

In the past, disgruntled film buffs might have been able to obtain and cut up movie prints -- an unlikely scenario, true, though not impossible. But they would have had no way to share their work with a wide audience. And apparently this was initially the case with "Star Wars 1.1." The Editor released it on videotape sometime last spring. Fans who obtained copies made more and gave them out at fan and comics conventions. A group calling itself "The Phantom Edit Fan Network" organized mass distributions, handing out dozens of copies a day. More copies were surreptitiously sold on eBay. But these events were always on a small scale. Then someone converted the videotape into two 100-megabyte computer files in September and placed the Phantom Editor's work on the Internet. That was when, a rueful Lucasfilm representative admitted, "The thing took on a life of its own."

Today the Internet offers a plethora of cheap, fast distribution methods: file-sharing services; Web, FTP, and Hotline sites; Usenet; instant-messaging or IRC chat sessions; and even e-mail (although Internet service providers often set limits on the size of files that can be transmitted by e-mail). "Star Wars Episode 1.1" seems to have quickly appeared on all of them, along with such favorite Net fare as "The Matrix," "Pulp Fiction," bootleg Japanese animated movies, and a clip from French television of Britney Spears falling out of her dress. How many full-length films are available this way? Cyrill Glockner, Microsoft's European business manager for digital media, estimated in October that the number was around 600,000. A more accurate answer might be that no one knows, but the number is growing every day.

All of which is a dilemma for Hollywood. Every one of the good things that Lucas sees in digital technology may well come true, not least because Lucas is making them occur -- Episode 2 of "Star Wars," scheduled for release next spring, will be the first live-action feature film entirely shot and edited digitally. By the time Episode 2 hits the screens, in fact, the studios should have already launched their first forays into sending movies over the Internet: Movies.com (a partnership of Disney and Fox) and Moviefly.com (a joint venture of Sony, MGM, Paramount, Universal and Warner Brothers). The two consortia plan to offer feature films for downloading, as a kind of precursor to the anywhere-anytime access that digital pundits see in the future. (Dreamworks, the studio set up by Steven Spielberg, Jeffrey Katzenberg, and David Geffen, says it will do business with both.) To be sure, the first downloadable movies will hardly be exciting: small, blurry rectangles on computer screens. But by gradual steps, the studios say, their efforts will lead to a Lucas-style digital utopia -- digital movies on demand, accessible twenty-four hours a day from anywhere in the world.

Unfortunately for Hollywood, the worries about digital technology's dark side may come true, too. Most of the major studios belong to conglomerates that have their own record labels, with the exact configuration varying from media giant to media giant. Studio honchos thus have only to look down the hall to see people who have spent millions of dollars trying to prevent their customers from seizing control by distributing music on the Internet without permission. At least thus far, the labels have failed utterly. Last April, a court order effectively shut down Napster; within six months, according to the digital-media firm Webnoize, fans were using new file-swapping services to download even more files from different file-trading services -- 1.81 billion music files per month on the KaZaA, MusicCity and Grokster networks alone. Worse, from the labels' point of view, many of the new services were either based offshore, making them harder to sue, or configured to take advantage of legal quirks which made them possibly legal.

And the file-trading networks hardly exhaust the studios' fears. In November, Sonicblue, a small, feisty technology company, released the ReplayTV 4000, the first device that lets people digitally record broadcast television shows and movies and send them over the Internet, though for now the files can only be played on other ReplayTV 4000s. (TiVo, a startup that also makes digital TV recorders, announced the same month that its recorders would be available to all AT&T Broadband subscribers, but thus far it supposedly prevents people from e-mailing those recordings.) And companies like ShowShifter, SnapStream, and CyberLink are marketing software that lets PCs capture TV broadcasts; users can then freely dispatch the resulting files around the Net.

Partly because of the multiplying threats to their revenues, the studios are following the labels' path to the courtroom -- they joined up with the music companies to sue KaZaA, Grokster, and a third service called Morpheus in October. Perhaps the most important digital courtroom battle for Hollywood began two years ago, when the DVD Copy Control Association -- a trade organization that controls the licensing of the encryption technology on DVDs -- sued 21 people in several countries for posting on the Web a program that let people copy DVDs. (A note of explanation: DVDs have large encrypted files that can readily be copied in their entirety by any computer; the software, known as "DeCSS," let users illicitly decrypt the files, which could then be stored and disseminated in uncontrolled formats.) The DVD Copy Control Association has, for the most part, won decisively in court. But the DVD-cracking software was already released, which meant that it was all over the Net. It still is -- a recent Google search for DeCSS turned it up in less than a minute. Indeed, the Phantom Editor named the two files of Episode 1.1 in such a way that computer cognoscenti would recognize that they had been created with DeCSS.

In the most recent litigation, Disney (which owns ABC in addition to its eponymous movie studio), Viacom (owner of Paramount Pictures and CBS), General Electric (owner of NBC), and AOL Time Warner (owner of the Warner studio and various TV networks) sued ReplayTV maker Sonicblue in October and November. Sonicblue is familiar with litigation: the Recording Industry Association of America, the record labels' trade group, tried to stop it from releasing the Rio, the first-ever portable MP3 player, in 1998 (the labels lost). But this suit has a curious difference: Sonicblue bought ReplayTV earlier this year in a stock swap from its investors, which included Disney, Viacom, and General Electric. In consequence, the studios find themselves in the ludicrous position of suing a company that they partially own.

As these contretemps suggest, litigation is unlikely to be a successful long-term business strategy. Recognizing this, both the movie studios and the record labels have announced plans to launch services that will provide authorized access to their material online. (The music equivalents to Movie.com and Moviefly.com are Pressplay, formed by Sony and Universal, and MusicNet, a partnership of Warner, Bertelsmann, and EMI.) But the media conglomerates' efforts to maintain control may backfire -- Congress, the Department of Justice, and European trade regulators have already announced that they plan to investigate whether the new music ventures violate antitrust laws. Yet even if studio- and label-controlled consortia survive legal scrutiny, the illicit channels in many ways will still have the edge.

To begin with, millions of unprotected CDs and DVDs have already been released, all of which can be readily copied and posted onto the Internet. Working with companies like Microsoft and RealNetworks, the studios and labels have spent huge sums trying to come up with secure formats -- software locks, if you will -- so that movies and music cannot be played, copied, and distributed without the copyright owners' permission. The labels are experimenting with such formats today -- in November, Natalie Imbruglia's "White Lilies Island," released by Bertelsmann label BMG, became the first widely released CD with anti-copying technology. (It can be copied onto cassette tapes, but not transformed into computer files.) In every known copy-protection effort in the past, someone somewhere has figured out how to go around it and posted the method on the Internet, thus equipping millions of others to do the same. And, indeed, copies of Imbruglia's music are easily available online. Not only that, but the anti-copying technology is so buggy (in this initial version, anyway) that BMG has been forced to issue unprotected versions of "White Lilies Island" to purchasers who cannot make their CDs play properly.

The studios and labels -- "content owners," as they have come to be called -- hope to overcome that problem by making their offerings so easy and cheap that audiences will prefer to use them, rather than hunting for hackers' copies. There is clear merit to this argument. Even with a broadband connection to the Internet, downloading an unauthorized version of a movie from, say, KaZaA can take many hours. (A test copy of "Star Wars 1.1" took all night to dribble in.) Clearly, many Net users will not exert the time and effort to grab movies illicitly if they can quickly and simply download authorized copies. Alas, the people most likely to take the trouble to ferret out bootlegs may well be the people most likely to put up with the relatively unpleasant process of watching a movie on a computer screen -- the "lean-forward experience," as it has been called. In the future, Hollywood hopes to have cable-like, set-top boxes that let viewers transfer downloaded movies directly to their TV sets. But by the time that happens, piracy may be so ubiquitous -- and young viewers so conditioned to thinking of Internet movies as free -- that the audience may have no need or desire to pay.

Ultimately, content owners may be able to win the battle against unauthorized distribution by persuading or forcing Internet service providers to monitor users' accounts and block the use of networks like KaZaA or BearShare. But this would require, in effect, ISPs to spy on and harass their own customers -- a prospect that, unsurprisingly, ISPs thus far have resisted. Fans don't like copy-protection much, either -- already they are organizing against record labels' copy-protected CDs. Yet if content owners can't put a lid on customer behavior they may ultimately lose so much revenue as to imperil their ability to create new movies, television shows, and music.

In the past, many of the dilemmas posed by new technologies have ultimately been resolved to everyone's satisfaction. At the moment, George Lucas must be worried that copyright on the Internet will be an exception. Looking at the list of hundreds of copies of Episode 1.1 available at different Net services, it was hard not to wonder if the train had already passed through, and if anybody would be able to halt its progress.

		+ "Has Hollywood Met Its Napster?" (The Guardian, Oct. 29, 2001) + "Video-on-Demand, Hollywood Style" (Business Week Online, Aug. 21, 2001) + "Net-to-Set Convergence Is a Story Currently in Development" (Los Angeles Times, Sept. 13, 2001) + "Is Hollywood Net-Ready?" (InternetWeek, Aug. 23, 2001) + "Securing the Broadband Revolution" (Wired News, Aug. 22, 2001) + "Broadband's Coming Attractions" (Technology Review, June 2001)

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