Microsoft

Is he being unfair if he sets his ReplayTV to record an episode of “The West Wing,” one of his favorite shows, so he can watch it later? Is Newmark “stealing” from David Letterman — “my TV pal” — if he sets his Replay to skip the ads on “The Late Show”? And are artists really going hungry, and is Newmark really killing an industry, if, once in a while, he transfers some of the shows he records on his ReplayTV to his notebook computer, so he can watch TV while he’s traveling?

It didn’t take Newmark long to conclude that much of what he does with his TV is fair — his actions are, he thinks, “fair use” exceptions to copyright laws and therefore legal. He insists that he’s being equitable, not seeking to hurt artists just so he can have things his way. “When I record programs,” he says, “I’m thinking about two things. First, I want studios to make a living at this. I have friends who are artists, writers and filmmakers, and I don’t want them to get screwed. I try to be a good guy whenever I can. I use common sense.”

And that’s precisely why he joined four other ReplayTV owners in a suit against more than two dozen TV and movie companies. Newmark wants a judge to declare, as clearly as possible, that as long as you’re using common sense, there’s nothing wrong with using a PVR. (In August, Newmark’s case was “consolidated” with a suit the media companies filed against ReplayTV maker Sonicblue; that case, which is in the pretrial phase, is slowly grinding through federal court.)

During his musings on the ethics of television, though, there was one thing that Newmark decided not to do with his ReplayTV, even though, technically, there’s nothing stopping him. His ReplayTV is the only stand-alone PVR on the market that can transfer shows over the Internet, but “I just don’t think that’s fair,” Newmark says. Sending a program recorded on one device — whether a network show broadcast for free, or, more troubling for studios, a premium show like “The Sopranos” — to another device, in much the same way that people routinely do with music these days, “just feels wrong.”

Right now, Newmark’s objection is almost moot. Entertainment lawyers have suggested that ReplayTV’s Send Show feature will be the ruin of the networks, but according to people familiar with the system, only a relative handful of ReplayTV owners ever send shows, because it’s a hassle to do so. It takes tech savvy to hook up a ReplayTV to a home network, and — in contrast to the glory days of Napster — it takes time and effort to find people to trade with.

But thanks to Microsoft, the TV-show trade may now be poised to explode. In October, the company unveiled Windows XP Media Center Edition, a new version of its Windows operating system that is installed in only a handful of “media” PCs being manufactured by a half-dozen computer makers. XP Media Center is billed as an all-in-one home entertainment system. The PCs come with CD and DVD writers and lots of disk space and processor power, and the operating system has a large-format interface and remote control functionality to control all media applications. The system also has PVR capabilities; just as with TiVo and ReplayTV, users can select a lineup of television shows to record and watch later.

There’s one big difference between the Windows PVR and stand-alone devices like ReplayTV: On a PC, you can do a lot more of the things Hollywood hates. Microsoft’s PVR software records TV shows into a format that will soon be playable virtually anywhere. The company’s new desktop Windows Media Player will be able to play all Media Center’s TV files, and Microsoft says it will make available the codes to let other companies’ players — such as RealNetworks’, for example — play the shows as well. Recorded TV shows may also be stored on DVDs and played back on any consumer DVD player. Media Center owners will thus be able to send shows to people who don’t have Media Center PCs, using either physical media or the Internet — a prospect that’s got to have the Hollywood executives seeing red.

Microsoft has inserted some content-protection methods into the Media Center, but very few — or, perhaps, none — of today’s TV shows are broadcast in such a way as to render them protected. This means that at least for the foreseeable future, everything consumers record on XP Media Center will be tradable. Since it takes at least 600 MBs of hard drive space to store a half-hour show, it’s unlikely the trade will be as widespread as that of MP3s. But many analysts have noted that college students, who sparked the music trade, are a major target audience for Microsoft’s Media Center PCs. College kids have time on their hands, broadband connectivity at their fingertips, and an abiding, cult interest in certain TV shows — “The Simpsons,” “Buffy the Vampire Slayer,” “Seinfeld” — that borders on the obsessive. And if their willingness to trade music is an indication, the students may not share Newmark’s ethical unease with swapping TV shows — indeed, trading TV, which is supposed to be free, would seem easier to justify. All of which add up to this: The possible “Napsterization” of TV is at hand.

Craig Newmark epitomizes the kind of person electronics industry marketers lovingly refer to as an “early adopter.” His modest apartment in the friendly San Francisco neighborhood of Cole Valley is decked with many of the gadgets that the industry is hoping most other people will think of buying in a few years’ time. In his living room, there’s a widescreen TV surrounded by a half-dozen silver audio and video devices, the most important of which are his two ReplayTV units. One is an older model he purchased a few years ago, when he first heard of PVRs; the second is a ReplayTV 4000, whose broadband connection and automatic commercial skip caused 28 media companies, including Viacom, Disney, AOL Time Warner and their subsidiaries, to file suit against Sonicblue last October. They charged Sonicblue with engaging in an “unlawful plan … to arm their customers with — and continuously assist them in using — unprecedented new tools for violating plaintiffs copyright interests.”

But Newmark didn’t buy the ReplayTV as part of a grand scheme to engage in unlawful conduct. He bought his first PVR because he liked the concept, he says, and when he tried it, he was instantly hooked. It’s a feeling that many PVR owners report; you don’t realize how under the thumb of network executives your life has been until you’ve been freed by a PVR, until you no longer need to live by a prepackaged schedule stuffed with stupid ads. “Now,” says Newmark, “I don’t watch more TV, but I can watch more of what I want more of the time.” Perhaps that feeling of liberation explains why it’s not uncommon to hear people say their PVR “changed their lives,” or to hear that TiVo has a Mac-like, cultish fan base. And it’s not hard to believe analysts, such as Ryan Jones of the Yankee Group, who predict that by 2007 there will be 19 million PVRs in use around the world.

Microsoft first got into the PVR business with UltimateTV, which is a stand-alone recorder bundled with some satellite TV receivers. But “consumers are increasingly using their PCs for the very purpose of digital media,” says Murari Narayan, the director of marketing for Microsoft’s Windows eHome division, the group that developed XP Media Center. “People are spending more time on their PCs than on any device in the home other than possibly the phone. And when you think of how much time they’re spending on it, you say, ‘Wouldn’t it be nice for them to also watch TV on this?’”

It is nice. In November, Microsoft sent me a review model of a Media Center PC. When I got the machine, I unplugged my TiVo and set up Media Center in its place; in the couple of weeks during which I tried it out, the Windows system worked rather well. The PVR lacks some of the features TiVo has — it does not, for example, suggest shows it thinks you’ll like — but its interface is every bit as intuitive as other systems’. Microsoft doesn’t charge a monthly service fee for channel guide data, as the stand-alone PVR companies do, but Media Center PCs, at between $1,000 and $3,000, depending on the model, are pricier overall.

The system does have one great advantage over stand-alone devices, however: It’s endlessly expandable. It’s possible to add space to TiVo, but the practice is complicated and not officially sanctioned. On the Media Center PC, “you start throwing a bunch of TV content on there, the hard disk will be full in no time, and you can easily add another external hard drive,” Narayan says. “That is where the flexibility of the PC is an asset for consumers when they do digital media.”

There are other reasons to like the flexibility of a PC. The first thing you notice when you start using the system is that all of your TV files are conveniently stored in a folder on your hard drive. It’s easy to share them — burn them on to a DVD, say, or transfer them to another machine on your home, office or dorm network. It’s also possible to share files with people you don’t know, which is something you can’t do with a ReplayTV: If you have a peer-to-peer file-sharing program installed on your Media Center, all you have to do is give the program access to your TV folder, and suddenly anyone using Kazaa or Gnutella has access to your entire week’s take of “Friends.”

Microsoft calculated, early in its development of XP Media Center, that the flexibility of a PC-based PVR, while good for consumers, would have put the company at odds with media firms. That’s why its initial plans for Media Center called for a very stringent TV-content protection system. “Any piece of TV content that came into the hard disk, we said that you could not play it back anywhere else,” says Narayan of the original plans. “You recorded a TV show and we protected it on the hard disk. You could burn a DVD [of the show], but only for playback on that PC.”

But when Microsoft released its plans for TV copy protection in September, the idea was roundly skewered. Industry observers made the obvious point that young people, who represented a natural market for computers that were good at doing music and movies, weren’t going to like having their computers tell them what they could and couldn’t do with programs they recorded. At the time, Microsoft defended its system, telling the tech media that it wanted to “balance” the relationships between “the consumer who wants the content and Hollywood, so they feel comfortable with that process and don’t clamp down and make that impossible.” But the company took the consumer and analyst feedback to heart, Narayan says, and decided to “accelerate” plans to allow media companies to decide which content they want to protect, taking the immediate burden off Microsoft.

Specifically, Microsoft now “respects” a protection scheme called CGMS-A, which is essentially a code that can be inserted into a television broadcast — much like closed captioning is now embedded — that explains how that content can be used. If copy protection is turned on in a TV show, the Windows PVR would play back the show only on the computer on which it was recorded. Otherwise, the show could be transferred to any other device.

But here’s the rub: “We haven’t seen any content that’s actually protected,” Narayan says. “There may be some instances where people protected maybe a particular pay-per-view show, but we haven’t seen it — though I would hardly say we’ve done any exhaustive research or testing.” The upshot for Microsoft, in choosing the CGMS-A, then, is that it gets to say Windows protects content without actually protecting much content.

Will media companies start protecting their content using CGMS-A? That’s hard to say. (All of the companies suing Sonicblue over its PVR features, as well as their lawyers and the Motion Picture Association of America, an industry trade group, either declined to comment or did not respond to inquires regarding PVRs.) At some point, they probably will have a protection system embedded into TV shows, industry experts say; the companies have, after all, leaned on the FCC to mandate that a “broadcast flag” similar to CGMS-A be mandated for digital television. (In August, the commission voted to explore ways of requiring digital TVs to respect such a flag.) But in the short term, at least, there’ll be nothing in any episode of “The Sopranos” telling your computer not to distribute the show — leading, one might guess, to a lucrative cottage industry in the sale of homemade DVD archives of the show.

So far, personal video recorders have been at the forefront of what has been called a “war” between Hollywood and the tech industry mostly because of the recorders’ most well-known feature: ad skipping. Some of the industry’s most vocal representatives, not to mention their lawyers, have likened skipping ads to “stealing.” The public, it appears, doesn’t buy into that idea. The industry has said much less about trading TV shows. The media firms’ suit against Sonicblue provides a clue as to what some executives think of swapping TV — they don’t like it — but can they do anything to convince consumers that there’s anything wrong with it? Because of the nature of TV, that too seems like a hard sell.

The war over PVRs hasn’t gone well for the media firms, at least in the public arena. The ridicule began last May, when, in a widely circulated interview with CableWorld magazine, Jamie Kellner, the CEO of Turner Broadcasting, called skipping ads “theft.” “Your contract with the network when you get the show is you’re going to watch the spots,” he said. “Otherwise you couldn’t get the show on an ad-supported basis. Any time you skip a commercial or watch the button you’re actually stealing the programming.”

Staci Kramer, the reporter, asked: “What if you have to go to the bathroom or get up to get a Coke?”

“I guess there’s a certain amount of tolerance for going to the bathroom,” Kellner responded. “But if you formalize it and you create a device that skips certain second increments, you’ve got that only for one reason, unless you go to the bathroom for 30 seconds. They’ve done that just to make it easy for someone to skip a commercial.”

In a subsequent interview with the New York Times, Kellner seemed unmoved by the criticism over his remarks: “The free television that we’ve all enjoyed for so many years is based on us watching these commercials,” he said. “There’s no Santa Claus. If you don’t watch the commercials, someone’s going to have to pay for television and it’s going to be you.”

Kellner’s argument has a rational basis: TV shows are underwritten by ads, and if everyone stops watching ads, networks will have to find another way to finance shows. But his comments seemed to be setting the TV business down the same sorry path the record business has traveled — accusing its audience of criminal conduct, accusing tech companies of enabling criminal conduct, and protesting any suggestions that media firms move to embrace, rather than resist, technology whose ubiquity is probably inevitable anyway. (When called for comment, an aide said that Kellner preferred not to talk to the media about PVRs anymore.)

Craig Newmark keeps his ReplayTV’s Commercial Advance feature turned on, and he doesn’t think there’s anything wrong with it. “The people in this country gave the networks radio spectrum,” he says, “and they were to do something for the public good. Unfortunately, a lot of them have forgotten that.” Newmark also doesn’t buy the idea that ad skipping will lead to the end of free television. He points out that many experts see ways for the industry to make more money from PVRs by offering additional services: through video-on-demand, for example, which lets people select shows and have them delivered to a PVR, or through pay-TV premium channels in which shows aren’t packed into standard 30- and 60-minute time slots. “I’m not an expert,” he says, “but even I can see multiple opportunities for media companies to do more with these, to better serve their customers.”

But it’s hard to see how TV companies could do all of these things in an environment where trading is pervasive. Although some TV shows may seem as if they’re on all the time, TV shows make money, especially in syndication, because they’re (artificially) scarce resources. There are about 180 episodes of “Seinfeld” in existence, which is about 90 hours of programming. Many Americans have seen most of them, but many wouldn’t really mind seeing them one or two more times each. But very few companies have the rights to show these episodes. For media firms, this scarcity — demand greater than supply — represents a cash cow: Local affiliates and cable channels can play “Seinfeld” one or two or five times a day and still expect some people to tune in to see the shows, if only because folks can’t see them anywhere else.

Banking on this equation, in 1998, Turner Broadcasting purchased the cable rerun rights to “Seinfeld” for $180 million, which, at about a $1 million per episode, was a record syndication deal. The company, which also has rights to “Friends,” “Home Improvement” and “The Drew Carey Show,” was looking to put together a lineup of 1990s hits that it thought would remain popular well into the next decade.

But what if you’d recorded every episode of “Seinfeld” when it first aired? You could fit the whole series on a $100 hard drive. Or, what if, through your thousands of friends on Kazaa, you had access to every episode of the show? Would you ever need to turn on TBS to watch an episode of “Seinfeld” that someone else had chosen for you?

In their complaint against Sonicblue, several AOL Time Warner companies — including Turner — address this issue, saying that the ReplayTV illegally “creates libraries, indexed and stored on the device, containing up to 320 hours” of “unauthorized digital copies” of Turner’s works. Presumably, they’d have the same problem with other PVRs, including — or especially — the one from Microsoft. (Narayan, of Microsoft, declined to discuss whether media companies had expressed that sentiment in discussions with the company, but he noted several times that the firms are free to protect their content if they want to.)

All through November, while I was trying out Microsoft’s Media Center PC, I sent several messages to people who gather to discuss their ReplayTV devices on the message boards at PlanetReplay. Of the half-dozen people who were looking to trade shows with other people whom I contacted, all who responded said they saw nothing wrong with trading or archiving shows. “I don’t think I am stealing anything,” one person said, in a typical response. “I pay my cable company $35+ per month to watch TV. If it wasn’t for Replay I probably wouldn’t watch these shows at all.”

When asked about the ethics of trading shows, Chad Little, who runs PlanetReplay, wrote, in an e-mail, “Is trading ‘Sopranos’ to another HBO subscriber unethical? Is trading ‘Sopranos’ to a nonsubscriber unethical? Is trading ‘Friends’ to someone who gets NBC unethical?” His answer to these rhetorical questions was vague: “There hasn’t been a real ‘test’ of these ideas,” he wrote, though he said that most trading would be ethical, as one could liken it to “trading” VHS tapes.

Cindy Cohn, an attorney at the Electronic Frontier Foundation who is representing Newmark and others in their suit against the media companies, expressed a similar point of view. It’s not automatically illegal to trade shows, she says. “For ‘The Sopranos,’ sending it to 20 different people who didn’t pay for the shows, that would be hard to justify. But for our clients and a lot of the users of the ReplayTV, they send it from the one in the living room to the one in the bedroom.” Archiving shows, too, she says, can be a fair use of media. “And frankly we’ve heard some great stories about that,” she says. “One military guy who was called up to fight in the Afghan war, who came back months later and he was so happy: All of his shows were there for him. And gee, isn’t that what technology is supposed to do? I can’t believe this idea that we would deny people the opportunity to let their media fit their lives.”

But even if all of these devices could be used fairly and legally, I asked Cohn, couldn’t she see the media companies’ argument that PVRs, with their mix of ad skipping, trading and archiving capabilities, could make business very difficult for Hollywood?

“I guess I’d want to see some evidence of that,” she said. “They said that about the VCR and they were so brilliantly wrong. The entertainment companies screamed “the sky is falling” — and it wasn’t. They’re using these new technologies to grow businesses for them, like movie downloads — so they should get the benefits of these technologies, but not the downsides? I think history has shown that technology has always benefitted the entertainment companies.”