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Retailers Press FCC on Digital Copy Protection

Barely a month into his new job, Federal Communications Commission chairman Michael Powell's inbox is already beginning to fill up with letters concerning a controversial cable copy-protection license.

Fearful that too many copy-protection measures-coupled with high costs and a lack of cable-operator subsidies-will hamper retailers' ability to sell OpenCable-based set-tops, the Consumer Electronics Retailers Coalition (CERC) explained its position in a letter it sent to the agency on Feb. 12.

CERC also said it objects to the current version of the license and that it believes the specification process is moving too slowly. Executives from Circuit City Stores Inc., RadioShack Corp., Sears, Roebuck & Co., the International Mass Retail Association and the National Retail Federation signed the letter.

CERC also put forth a claim that the license terms concerning copyright protection "should be subject to public scrutiny," a position also held by the Consumer Electronics Association. In a declaratory ruling last September, the FCC had stated its position in favor of including some copy protection in retail-ready cable boxes.

The cable industry has maintained the FCC made the right call.

The National Cable Television Association has argued that the FCC should allow MSOs, manufacturers and retailers to resolve commercial disputes privately. NCTA senior vice president for law and regulatory policy Daniel Brenner, responding to CERC's latest correspondence with the FCC, reiterated that stand in a letter to Powell dated Feb. 28.

CERC's letter was prompted by a Feb. 6 missive to Powell from Cable Television Laboratories Inc. CEO Richard Green. In that note, Green said the copy-protection provisions in the license are key to the cable industry's ability to remain competitive with direct-broadcast satellite.

Green argued that if OpenCable boxes were sold without proper copyright-protection measures, producers of top-tier, high-quality content-such as the Motion Picture Association of America (MPAA)-might not release material to cable during early windows in order to protect the content's residual value.

The CableLabs chief's letter also pointed to published reports that direct-broadcast satellite provider DirecTV Inc. has directed its box vendors to add copy-protection measures to its high definition-capable receivers, a decision that is not subject to FCC review.

A DirecTV spokeswoman confirmed the company uses a circuit called CMGS (Copy Generation Management Systems) in its HD boxes. When triggered, the circuit can cause the box to lower the resolution of HD programming.

The DirecTV spokeswoman said it is essential to include CMGS to ensure studios do not hold back content, a position shared by the cable industry.

EchoStar Communication Corp.'s HD DBS receivers reportedly do not yet support such techniques. EchoStar officials did not return phone calls by press time.

CableLabs filed its license, dubbed the POD Host Interface License Agreement (PHILA), with the FCC on Dec. 15, 2000. The PHILA license includes copyright provisions for on-board personal video recorders and the recording of high-definition programming.

By signing the license, both vendors that build OpenCable-compliant set-top boxes and retailers that sell them would gain access to a proprietary rescrambling technology called DFAST (Dynamic Feedback Arrangement Scrambling Technology). General Instrument Corp. (now part of Motorola Inc.) invented that technology and offered it to CableLabs on a royalty-free basis.

DFAST is expected to reside within point-of-deployment modules (PODs), which are credit card-sized devices that separate the conditional- access elements of an OpenCable box, an FCC requirement for all cable set-tops built after 2005. CableLabs has already approved PODs from Scientific-Atlanta Inc. and Motorola Broadband Communications Sector.

Without DFAST, it has been argued that pirates could obtain top-tier content in its pristine form and distribute it via the Internet almost instantaneously-a situation that frightens the MPAA and other content producers.

Retail and consumer-electronics organizations have vehemently opposed the addition of high copyright-protection levels to OpenCable boxes, believing that would make the equipment less attractive to consumers. They also fear that retailers will find it difficult to move product that shares similar attributes with the digital set-tops that operators lease to subscribers.

These groups have also argued that they need more leverage to help them break through S-A and Motorola Broadband's current hold on the cable set-top business.

Motorola Broadband already has plans to build retail set-tops that extend beyond OpenCable specifications. At the recent Consumer Electronics Show in Las Vegas, the company demonstrated POD-slotted boxes featuring DVD players and support home-theater components such as Dolby ProLogic and Dolby Digital. The company's high-end Digital Convergence Platform set-top, with a three-DVD disc carousel, is expected to carry a manufacturer's suggested list price of $849.

Pace Micro Technology-The Americas, meanwhile, hopes to draw consumer interest with a box that integrates Sega Corp.'s Dreamcast console-gaming platform.

On the issue of retail pricing, CERC argued that MSOs "have granted to themselves subsidies for distribution of digital navigation devices by 'pooling'consumer charges with those for obsolete analog devices." Without subsidies from cable operators, retailers believe they cannot turn a profit on cable set-top sales.

To that point, CERC asked if a retailer could theoretically "offer a cellular phone for $389 when the identical phone, and terms of service, are available from the service operator for $19.95?"

Countered Brenner, "While the answer is no, the solution to that problem does not lie in somehow raising the prices cable operators must charge consumers to provide a nice price umbrella for retailers."

Cable-operator pricing is also regulated by FCC rate rules, Brenner wrote.

"That would be like telling the commission to ask cable to raise its prices," said a source familiar with the situation.

In another objection to PHILA, CERC said OpenCable-compliant boxes "must automatically shut off or degrade an image in response to a particular copy control signal."

Brenner responded that CERC's assumption is incorrect, and that copy-protection options lie with the operator based on separate agreements made with content producers. OpenCable boxes by themselves "will not automatically affect images one way or another," he wrote.

It's expected that retail boxes including CableLabs' standardized middleware-the OpenCable Application Platform (OCAP)-will be able to control the output of an HD signal and handle any PVR copyrighting conditions set by movie studios and operators. The first OCAP draft specs were completed earlier this year and have been sent to a pool of about 400 vendors for comment.

Responses on the spec were due to CableLabs by last Friday (March 9), said senior vice president of communications Mike Schwartz.

OCAP implementations are expected to emerge in June at the National Show in Chicago.