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Could HDMI Piracy Sideline Premium VOD?

20 Sep, 2010 By: Erik Gruenwedel

Following news that Internet hackers have successfully cracked the High-bandwidth Digital Content Protection (HDCP) code, prospects for early-release premium video-on-demand (VOD) movies on cable and satellite television just took a hit, an analyst said.

The HDCP code is paramount to allowing copy-protected content such as Hollywood movies and TV shows to be delivered securely via HDMI cable to broadband devices such as Blu-ray Disc players, set-top boxes and related connected devices.

Intel Corp., which manufacturers the encryption software, last week told FoxNews.com that HDCP had indeed been compromised, which could allow knowledgeable pirates to siphon away new-release movies earmarked for transactional and premium VOD.

“It does appear to be a master key,” Intel spokesperson Tom Waldrop told FoxNews.com.

Richard Greenfield, analyst with BTIG Research in New York, said the breach would likely curtail ambitious (and controversial) efforts by some studios to release select movies within two months of their theatrical bow into homes at higher-margin (six times current VOD) pricing.

Most big box office movies currently enter the retail packaged-media and transactional VOD window four months after their theatrical releases.

“The threat of a digital hole could endanger the prospects of early-release VOD, and is likely to increase the drumbeat against this new release window from its main critics (exhibitors and DVD retailers),” Greenfield wrote in a Sept. 20 post.

The Intel spokesperson downplayed the significance of the break, saying steps to implement it into a chip for a media device would be too costly for most pirates.

“It would be a lot of work and a lot of expense to do that,” Waldrop said.

The concept of premium VOD, which Kevin Tsujihara, president of Warner Home Entertainment Group and staunch advocate of digital distribution, first stated in an interview with Home Media Magazine in 2006, was the catalyst behind the studios’ drive to release DVD movies day-and-date with cable VOD — a strategy now commonly accepted within the industry.

Premium VOD, however, has encountered stiff resistance from theater owners already fearful of efforts by some studios to shorten the theatrical window, and national retailers such as Walmart, which heretofore have dominated packaged-media sellthrough. In addition, media companies have also resisted implementing premium VOD until the Federal Communications Commission (FCC) closed the so-called “analog hole,” which it did so in May.

The FCC ruled that studios could prohibit the use of “selectable output controls,” which embed video with copy protection data that prevents it from being recorded by digital video recorders (DVRs), or degrades the picture if it's viewed via an analog output. Indeed, copy protection used in digital media doesn't carry over when the video is converted for analog consumption.

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