FC: Valenti to Congress: "350,000 movies pirated online every day!"

From: Declan McCullagh (declanat_private)
Date: Tue Apr 23 2002 - 18:05:56 PDT

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    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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