[FYI] (Fwd) FC: Valenti to Congress: "350,000 movies pirated online

["Axel H Horns" <horns@ipjur.com>]

------- Forwarded message follows -------
Date sent:      	Tue, 23 Apr 2002 21:05:56 -0400
From:           	Declan McCullagh <declan@well.com>
To:             	politech@politechbot.com
Subject:        	FC: Valenti to Congress: "350,000 movies pirated online every day!"
Send reply to:  	declan@well.com

MPAA sent along two Microsoft Word files, which I posted. If you
(sensibly) prefer HTML, that version is up on their site.

Press release:
http://www.politechbot.com/docs/valenti.movies.release.042302.doc
http://www.mpaa.org/jack/2002/2002_04_23a.htm

Jack Valenti's testimony itself (included below in text form):
http://www.politechbot.com/docs/valenti.movies.testimony.042302.doc
http://www.mpaa.org/jack/2002/2002_04_23b.htm

-Declan

---

   A CLEAR PRESENT AND FUTURE DANGER: The potential undoing of
   Americas greatest export trade prize An Accounting of Movie
   Thievery in the Analog and Digital Format, in the U.S. and Around
   the World, Offered to the House Appropriations Committee,
   Subcommittee on Commerce, Justice, State, the Judiciary, and
   Related Agencies, by Jack Valenti, Chairman & Chief Executive
   Officer, THE MOTION PICTURE ASSOCIATION, in Ashburn, Virginia

   This text of my testimony is titled "A Present and Future Danger,
   the potential undoing of Americas greatest export trade prize." And
   for good reason. Which is why it is entirely suitable and necessary
   that the Appropriations Committee illuminate and seriously examine
   the impact of any erosion of the worth of the Copyright Industries
   (consisting of movies, TV programs, home videos, books, music,
   video games and computer software) on the economy of this country.

               The Economic Worth of the Copyright Industries

   The facts are these: The Copyright Industries are responsible for
   some five percent of the GDP of the nation. They gather in more
   international revenues than automobiles and auto parts, more than
   aircraft, more than agriculture. They are creating NEW jobs at
   three times the rate of the rest of the economy. The movie industry
   alone has a Surplus balance of trade with every single country in
   the world. No other American enterprise can make that statement.
   And all this at a time when the U.S. is bleeding from some $400
   Billion in Deficit balance of trade.

                      The Peril Now and in the Future

   Brooding over the global reach of the American movie and its
   persistent success in attracting consumers of every creed, culture
   and country is thievery, the theft of our movies in both the analog
   and digital formats.

   Let me explain. Videocassettes, the kind we all use and enjoy, are
   in the analog format. Worldwide, the U.S. movie industry suffers
   revenue losses of more than $3 billion annually through the theft
   of videocassettes. That is a most conservative estimate. We are
   everyday vigilant in combating this analog thievery because, like
   virtue, we are everyday besieged. We are trying to restrain this
   pilfering so that its growth does not continue to rise to
   intolerable levels.

   But it is digital piracy that gives movie producers multiple Maalox
   moments. It is digital thievery, which can disfigure and shred the
   future of American films. What we must understand is that digital
   is to analog as lightning is to the lightning bug. In analog, the
   pirate must be provisioned with equipment, dozens, even hundreds of
   slave-video recorders, because after repeated copying in analog on
   one machine, the finished product becomes increasingly
   un-watchable. Not so in digital format. The 1,000th digital copy is
   as pure and pristine as the original. The copy never wears out. It
   is that durability which provides the DVD (Digital Versatile Disc)
   with its grandest asset and at the same time provokes such anxiety
   within the movie industry because copying retains its high
   resolution.

   Then there is the mysterious magic of being able, with a simple
   click of a mouse, to send a full-length movie hurtling with the
   speed of light (186,000 miles per second) to any part of this
   wracked and weary old planet. It is that uncomprehending fact of
   digital life that disturbs the sleep of the entire U.S. film
   industry.

   Movies have, until recently, been sheltered from the incessant
   pilfering visited on the music industry. Music on the Net has no
   graphics and can be brought down with normal computer modems since
   most songs are no more than three or four minutes. Not so with
   movies chock full of full-motion graphics. With a normal 56K
   computer modem, it could take between 12 to 24 hours to bring down
   a two-hour movie. Or to put it another way, one movie takes up the
   same space on a hard drive as do 150 or more songs. The buffer that
   has slowed a wide-spreading assault on movies in digital form is
   the languor with which American computer-homes have valued
   broadband access. With broadband access, a two-hour movie can be
   taken down, depending on the speed of the DSL line or cable modem,
   in 20 to 40 minutes. (But the next generation Internet will be able
   to download a two-hour movie in some 45 seconds!) Only some 9.5
   million American computer homes have current high-speed, large pipe
   connections to the Internet. But that interim distance will
   gradually evaporate as broadband grows, both in its speed-power and
   in the deployment of broadband to homes. Once that happens all
   barriers to high-speed takedowns of movies will collapse. The
   avalanche will have begun. It is the certainty of that scenario
   which concerns every movie maker and distributor in the land.

   We are also besieged by a relatively new threat called Optical Disc
   Piracy. This new thievery design first reared its fraudulent head
   in China with VCD (Video Compact Disc), a cousin to DVD though its
   quality is inferior to DVD but cheaper to reproduce on machines
   that are far less costly than those that play DVD only. China, in
   response to our entreaties, has cracked down on pirates, forcing
   them off-shore. The huge problem in China at this writing is the
   street vendor malady. We are working with the Chinese government to
   shrink this problem. Meanwhile, mostly in Asia organized thieves
   are busily involved in stealing our movies, reproducing them in
   high-quality digital format and distributing them everywhere. In
   2001, the MPAs Anti-Piracy forces conducted 74 raids against
   facilities in China, Hong Kong, Indonesia, Malaysia, the
   Philippines, Taiwan and Thailand, happily engaged in manufacturing
   illegal copies of both VCD and DVD. Happily, that is, until our
   Anti-Piracy people, along with local law enforcement officers,
   moved in for the raid. In some cases arrests were made and in some
   case equipment confiscated. But not in all, because of porous
   attention by authorities in some countries to really crack down
   hard on these pirates. It is an ongoing problem for us.

   More ominously, just recently, with the sturdy aid of the FBI, a
   factory was raided in New Jersey which was illegally reproducing
   DVDs. This was the first time we have located a U.S. site dealing
   in illegitimate DVDs. But it wont be the last.

   I report quite joyously that we are receiving first class
   assistance form the FBI, the U.S. Secret Service, the Department of
   Justice, U.S. Customs Service as well as local U.S. Attorneys
   offices. I will come back to this shortly as I know this is of keen
   interest to the Subcommittee.

    Comes Now the Internet, Future New Delivery System, but Now a
    Piracy
                                   Haven

   As I said just a few minutes ago, it is the Internet, that
   all-embracing technological marvel, which is putting to hazard our
   attempts to protect precious creative property. Viant, a
   Boston-based consulting firm, has estimated that some 350,000+
   movies are being downloaded from the Internet every day all of them
   illegal.

   We are deploying our defenses on three fronts.

                              The First Front

   Protecting copyright in the courts. We have to insist that
   copyright laws cannot be casually regarded, for if those laws are
   shrunk or loosened, the entire fabric of costly creative works is
   in deep trouble. We have moved swiftly and decisively against all
   those Web sites and other services that harbor and inspire the
   theft of movies. We brought one of the first cases under the
   Digital Millennium Copyright Act to halt the distribution of DVD
   hacking software on the Web. We took on sites like Scour, iCrave,
   RecordTV, all of which were either promoting the takedown of
   illegal movies or, as iCrave did, sucking up Canadian and U.S.
   television signals illegitimately and rebroadcasting them to the
   world via the iCrave Web site, along with their own advertisements.
   iCrave was promptly shut down by the courts, but its clones will
   not go away. Scour, and RecordTV are no longer functioning. But we
   are now in a new round of litigation with the likes of Morpheus,
   KaZaA and Grokster, all commonly described as next-generation
   Napster services.

   Put simply, whenever a new site appears whose prime allurement is
   the illicit availability of movies, illegitimately file-shared or
   readied for download, it is our intention to move with celerity to
   bring them to the courtroom. This includes, where appropriate,
   close coordination with and support for law enforcement agencies,
   like the Department of Justice, the FBI, the Customs Service, the
   Postal Service, the Secret Service, and others, in their efforts to
   provide criminal enforcement of the nations copyright laws.

   As a part of our copyright enforcement efforts, we are using
   Ranger, a sophisticated search engine, to track down movies
   illegitimately on the Web. Once Ranger sniffs out an illegal site,
   we send cease and desist letters to the Internet Service Provider
   whose customer is engaging in the infringing activity or, where
   possible, to the site itself. In 2001, we dispatched 54,000 such
   letters to 1,680 ISPs around the world.

   Keeping up with this sort of illegal activity is no easy task,
   particularly given the ascending growth of on-campus illegitimate
   downloads of brand-new movies. Students operating off their
   universitys broadband, high-speed, state-of-the-art computer
   networks have a merry old time uploading and bringing down movies,
   all without paying for them and all with fine fidelity to sight,
   sound and color. Were not talking about old, classic films. These
   are new films, many of which are still in theaters: Ice Age, The
   Rookie, Harry Potter, Lord of the Rings, Beautiful Mind, Panic
   Room, Monsters, Inc., We Were Soldiers, Snow Dogs, and the list
   goes drearily on.

   Just a few months ago we learned that one of Americas most
   prestigious and preeminent universities, vexed by the burden of
   heavy persistent student use of its computer system, actually set
   up a special server for Gnutella, a well known mightily used site
   for file-sharing (a discreet description of taking films which dont
   belong to you). This astonishing action was taken by this
   University to relieve the swollen student use of its computer
   system. I swiftly dispatched an unambiguous letter to the President
   of that University chiding him for "a disreputable plausibility"
   which collided with the moral compact that informs a stable, free,
   democratic society. The University, to its credit, immediately
   cancelled the server. But I must say that such good news is
   short-lived these days. I recently read that a closed peer-to-peer
   network of some 9,000 computers had been established on the
   high-speed local area network of another of our nations
   distinguished public universities. Similar systems are reportedly
   springing up on the university networks at public institutions
   around the country.

   And I do not mean to suggest that this problem is limited to
   universities. The recent search warrants executed by the Department
   of Justice and the Customs Service against the Drink-or-Die hacker
   group included not only individuals at universities, but also at
   well-known corporations. My music colleagues can tell you about a
   recent case involving a consulting firm that had set up a dedicated
   MP3 server for its employees to "share" music files. This problem
   does not appear to be getting any smaller.

   What makes this problem even more vexing and complex is its
   international dimension. Just a few months ago, in Taiwan a new Web
   site called Movies88.com came online, offering on-demand video
   streaming of brand new movies, all without permission of their
   owners, for a mere $1 per movie. All the while they steadfastly
   claimed that they were protected by the Taiwanese copyright laws.
   Fortunately, they were not, and with the cooperation of the
   Taiwanese government this site has now been shut down. But this
   case underscores the difficulty in enforcing copyright on global
   networks, like the Internet. The process is aptly compared to the
   game of "Whack-a-Mole" a site like Movies88.com will come down in
   one place, only to pop up somewhere else. Who is to say when a site
   like this reappears, it wont reappear in a country whose laws do
   not, in fact, protect copyright. This is why the work of the USTR,
   the State Department, and others in securing adequate minimum
   protections for copyright across the globe is so critical. This is
   no small problem, and no one-dimensional solution will address it.

                              The Second Front

   Promoting legitimate alternatives to digital thievery. Keep in mind
   that movie producers and distributors are filled with optimism over
   the prospect of the Internet as another new delivery system to
   dispatch their movies to consumers, at a fair and reasonable price
   (the defining of fair and reasonable to done by the consumer). And
   of course those very consumers are the ultimate beneficiaries of
   these new distribution channels, as they will enjoy more choices
   for accessing the movies they want in high-quality digital format.

   For studios to resist or to turn away from that new Internet
   delivery system would be fiscal lunacy. Why? Because the
   movie-making cost has risen to nerve-shattering heights. In 2001,
   the total cost to the major studios of making and marketing their
   films was, on the average, some $79 million per film! Only two in
   ten movies ever retrieve its total investment from domestic U.S.
   theatrical exhibition. Each film must journey through various
   marketplace sequences airlines, home video, satellite delivery,
   premium and basic cable, over the air TV stations and
   internationally in order to break even or make a profit.

   As we speak, every one of the MPAA member companies is engaged in
   one or more of several ventures to make online digital
   video-on-demand a reality. They are moving forward with these
   ventures even in the absence of a proven market and even with
   broadband penetration at relatively low levels (and languishing in
   its growth by some accounts). Why? Two reasons. First, they are
   hopeful that these ventures will be met with the same excitement
   and consumer embrace that we have seen with the DVD, which has
   quickly become the fastest growing consumer electronics platform in
   history. Second, and even more importantly, they are moving forward
   in this direction because, as I have said before, I believe (and I
   pray we are right) that 99% of the American public are not hackers.
   Given the choice between a legal alternative for watching movies
   and stealing, I believe the vast majority will choose the
   legitimate alternative, but only if we do not allow lawlessness to
   become "mainstream".

                              The Third Front

   To use technology to apply the protective garments of content
   encryption, watermarking and other necessities for guarding the
   life of movies as they make their way through the digital
   distribution chain, and to ensure that piracy remains out of the
   mainstream and on the fringes.

   In testimony before the Judiciary and Commerce Committees I have
   outlined a number of specific goals relative to the development and
   adoption of technology standards by the Information Technology
   (IT), consumer electronics (CE) and copyright communities. These
   include the adoption of a "broadcast flag" to prevent unencrypted
   over-the-air digital television broadcasts from being redistributed
   on the Internet; adoption and implementation of technology to plug
   the "analog hole" whereby protected content is stripped of its
   protection through the digital to analog, or analog to digital,
   conversion process, and the adoption and implementation of
   technology to limit the rising tide of unauthorized peer-to-peer
   file distribution of copyrighted works, of which I have spoken. The
   attainment of these goals is key to the viability of a legitimate
   marketplace for the online digital distribution of motion pictures,
   and we look forward to continuing to work with the IT and CE
   industries, as well as your colleagues on the Judiciary and
   Commerce Committees, to achieve a successful outcome on this front.

      The Important Role of the CJS Subcommittee in the Future of the
                     Internet as a New Delivery System

   The question is thus raised, what is it that this Subcommittee can
   do to protect Americas greatest trade export and to further the
   development of a legitimate marketplace for online digital
   entertainment for the benefit of the consumer?

   The answer is this: Your work is key to both the first and second
   fronts in the defense of copyright which I just described. Your
   role in the first front the enforcement front should be clear to
   all. Copyright law is only as good as its enforcement, and Federal
   resources for criminal law enforcement, both inside the United
   States and working with their counterparts overseas, are an
   important part of the overall copyright enforcement landscape.
   Ensuring effective copyright enforcement, in turn, has a very
   important effect on our success on the second front in the defense
   of copyright providing viable alternatives to piracy. The reason is
   simple: No legitimate business can succeed in an environment of
   unbridled lawlessness. Just as Greshams Law teaches that cheap
   money drives out good money, pirated content drives out legitimate
   content, particularly where digital technology renders the two
   substantial equivalents. Which is why the biggest threat to viable
   alternatives to piracy is unchecked and rampant piracy itself.
   Federal law enforcement plays an important role in ensuring that
   such piracy does not invade the mainstream of our society and
   render moribund nascent and consumer-friendly alternatives to
   lawlessness.

   We have worked closely with the Congress to ensure that our laws
   empower Federal law enforcement to protect copyright in the digital
   environment and to help preserve the vitality Americas creative
   industries. And we have worked closely with law enforcement in that
   process. As I mentioned, we are receiving first class assistance
   from the FBI, the U.S. Secret Service, the Department of Justice,
   the U.S. Customs Service, as well as local U.S. Attorneys offices.

   We have been pleased that the Administration has placed increasing
   priority on cybercrime enforcement, in particular, as copyright
   piracy is one of the most pervasive forms of cybercrime. In our
   view, greater attention by law enforcement to Internet cases is
   needed to ensure adequate copyright protections. The Department of
   Justice and Customs Service are to be applauded for their recent
   efforts in carrying out Operation Buccaneer a massive sting
   operation against the prominent Drink-or-Die hacker group, which
   spanned 6 countries and resulted in the execution of more than 70
   search warrants, including at the offices of major corporations and
   some of this nations most prestigious universities. All in all,
   more than 100 computers were seized with some 50 terabytes
   (trillions of bytes) of data. One system seized had more than 5,000
   movies on it. In fact, I understand a single defendant who pleaded
   guilty in February admitted to charges that involved uploading more
   than 15,000 movie, software, video game and music titles, causing
   damages conservatively estimated at more than 2.5 million dollars.
   I understand that a fourth guilty plea was entered just weeks ago,
   with more to come.

   Mr. Chairman, this is exactly the type of thing we should encourage
   our law enforcement agencies to do more of. It sends the clear
   deterrent message that theft is theft, whether conducted online or
   off. Your Committee plays a very important role in promoting this
   type of message through funding for cybercrime enforcement and
   through oversight of the various Federal law enforcement agencies.
   I hope Operation Buccaneer is just a start, and that we will see a
   continued increase in Federal online enforcement of intellectual
   property rights. I hope your Committee will encourage just such a
   result.

   We enthusiastically embrace the announcement last year by the
   Department of Justice of the establishment of 10 specialized
   Computer Hacking and Intellectual Property (CHIPs) units within
   individual U.S. Attorneys offices to focus on cybercrime
   prosecutions, including copyright and trademark violations. We
   believe the single biggest impact the Appropriations Committee can
   make on intellectual property and cybercrime enforcement is to
   ensure that adequate resources are available to these units to
   prosecute cases, as well as to the on-the-ground enforcement
   agencies to investigate and bring more cases to the U.S. Attorneys
   offices.

   Last year Congress approved a specific earmark of funds for
   cybercrime and intellectual property enforcement. This money has
   made possible the establishment of the CHIPs units and cases like
   the Drink-or-Die case. We would like to work with you again this
   year to provide a continuing earmark of funds for cybercrime
   enforcement, and to encourage full funding of existing CHIPs units
   and possible expansion to additional U.S. Attorneys offices.

   Fighting piracy outside the United States is also an extremely high
   priority. Although MPAA expends tremendous resources in operating
   anti-piracy programs in over 80 countries worldwide, we also rely
   on US Federal agencies to help us combat piracy outside the United
   States. The US Trade Representatives Office, the State Department,
   the US Copyright Office, the Commerce Department, the Patent and
   Trademark Office, Customs, Justice, the FBI -- all play critical
   roles. In helping to engage the cooperation of foreign governments,
   these agencies utilize all the skills and tools at their disposal
   from enforcing trade agreements, to diplomatic advocacy, to
   training and direct cooperation with foreign enforcement officials.
   These agencies are all that stand between us and anarchy in the
   international marketplace. Ensuring that these agencies also have
   the resources to continue to dedicate to the fight against
   intellectual property theft outside the United States is also a
   high priority.

   Mr. Chairman, I want to thank you for focusing this Subcommittees
   attention on such important maters, and I look forward to working
   with you in the coming months.

   I close this document with Mr. Churchills exhortation: "Truth is
   incontrovertible; panic may ignore it, malice may distort it,
   ignorance may deride it, but there it is."

   A singular truth exists in the movie industry: "If you cant protect
   what you own, you dont own anything."

###



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