The activists' attempt to hijack the forum's agenda, which prompted government officials to summon building security, illustrates the frustration and high stakes involved in finding a political settlement to the digital copyright feud. Plugging the so-called "analog hole" has emerged as the latest Achilles' heel in this long-running debate.

Studios remain at odds with the PC and consumer electronics industries on the next steps, including the emerging problem of how to plug the hole created when unprotected analog trans-missions are intercepted and digitized. The worry is that the intercepted transmissions could be converted to high-quality digital copies. Studios want copy protection for analog content equivalent to that of digital media.

The heart of the issue is whether both sides can settle on "technologies that enable the rights of the viewer and those of the content provider to work together," said Nick Thexton, vice president of the NDS Group, a unit of News Corp. If not, Congress could step in to mandate a solution — intervention that Hollywood wants but consumer groups and the high-tech industry do not.

Many technology companies agree with Jonathan Taplin, chairman of Intertainer Inc., a Culver City, Calif., video services company. Speaking at the recent International Broadcasting Convention in Amsterdam, Taplin said, "Technology is not the problem. It's the content cartel."

Technology companies and consumer groups accuse Hollywood of running a de facto content monopoly, controlling films so tightly that piracy is often the only way to distribute them digitally. Studios "want to be able to control the food chain from beginning to end," said Taplin.

Technology companies also complain that Hollywood is placing the burden of protecting movies on them while trying to dictate product design.

As the meaning of "fair use" of copyrighted materials evolves and as home-networking technologies spread, content owners are seeking to reassert control over their property, whether it's redistributed, stored or played back over a home network or the Internet. They also want a mechanism that allows them to revoke previously granted rights, if necessary, throughout the entire distribution chain. Meanwhile, consumers "want to be able to extend the authorized domain," Thexton said.

Of flags and marks

A raft of technology proposals is being offered to address copy-protection issues. They range from the "broadcast flag" and watermarks to secure content processors and technologies based on smart cards. The techno-politico debate is now shifting to plugging the analog hole.

Studios have already convinced technology companies to integrate a copy-protection mechanism within digital interfaces such as IEEE 1394. Content owners also insisted that DVD disks and players include a technology called Content Scrambling Systems (CSS) as a part of the DVD format license. Studios, meanwhile, have successfully lobbied to insert broadcast flags into the digital-TV broadcast stream so viewers will know the extent to which a digital stream can be copied — if at all.

When a digital stream is converted into analog form, however, the broadcast flags disappear. Users then can redigitize the signal, with no flags, and send the copyrighted content over the Internet, content owners say. Hence, the analog-hole argument has reached the point where some content owners are advocating putting a watermark generator at the digital-to-analog converter so that any deleted digital flags can be reinserted. They also propose integrating watermark-detection technology with A/Ds.

Critics in the technology industry call the proposal myopic. Skip Pizzi, Microsoft Corp.'s manager for media standards and regulation, said plugging the analog hole "is just one aspect" of a much bigger copy-protection problem. "What the industry needs is a global content-protection architecture," he said.

Added Tim Schaaff, vice president of Apple Computer's interactive-media group, "Hollywood is now in a state of hysteria."

Valenti and his Hollywood clients are fighting back and pressing for legislation. "Copy protection should be applied to the easiest place to make an analog copy," said Jerry Pierce, senior vice president of technology at Universal Pictures. He declined to specify just where, saying "I'd rather discuss that with the computer industry."

Redistribution of movies over the Internet is one of Hollywood's biggest fears, as hackers employ new strategies to defeat copy-protection schemes. Rather than simply plugging the analog hole, both sides acknowledged the need to consider a comprehensive solution to copy protection. But mandating a specific technology would mean hackers could focus their considerable energies on a single defense. "We would make it easier to hack a single technology," said Andy Moss, Microsoft's director of technology policy.

Another approach is to make copying time-consuming, expensive and traceable. "We are looking for a solution to stop the inexpensive, low-tech, consumer hack," said NDS' Thexton.

NDS is currently working with a silicon vendor on a secure content processor to achieve "peer-to-peer security," said Jasjit Saini, vice president of consumer devices at NDS. A basic FPGA design is done, he said, and the processor could be ready in less than 18 months. The processor would be added as gates to a decoder chip, Saini said. The secure content processor is "not a replacement" for other copy-protection technologies already in use, Thexton said. "We see this as a superset. Our goal is to lift the whole game up."

End-to-end protection

Thomson Multimedia and Zenith, for their part, are working on a smart-card-based content-protection scheme. Rather than protecting only the link between digital devices, said Olivier Lafaye of Thomson Multimedia's research division, the SmartRight system would provide "end-to-end copy protection" within a home net. Once encrypted content reaches a digital set-top box, it would stay encrypted until it is rendered.

SmartRight would be designed to honor a local "entitlement-control message" — that is, the rules used to forbid copying or to allow one copy for personal use. The system allows content owners to charge consumers every time digital content is redistributed within the home or viewed multiple times in a certain number of days, Lafaye said. Proponents point out that the smart-card approach is based on removable security modules that could be replaced if hacked.

Not everyone buys into the idea, however. For an entire home network to work, each set-top, TV and digital video recorder made by different vendors would have to use the feature.

Nevertheless, SmartRight appears to be gaining traction in Hollywood. Brad Hunt, MPAA's senior vice president and chief technology officer, said studios would consider sharing the cost of smart cards.

Hollywood retains high hopes for watermarks not only to strengthen DVD's CSS, which has been hacked once, but also to plug the analog hole. But "watermarking is not a security system," said NDS' Thexton. It requires a huge processing capability on the receiver end, and the technology can only trace a theft but not prevent it, he said.

Microsoft's Pizzi said talks on upgrading CSS by incorporating watermarks onto DVD movies are now back to square one, because "proposed watermarks were pretty easy to defeat."

Meanwhile, congressional intervention looms if the two camps in the copyright wars can't reach a truce soon. Rep. Billy Tauzin, R-La., chairman of the House Commerce Committee, has threatened to impose a settlement if no deal exists by fall.

Tauzin's panel is preparing legislation to deal with copy-protection issues surrounding the transition to digital TV. A hearing on the draft legislation is scheduled for Wednesday (Sept. 25).