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High-tech Hollywood

December 31, 2005

HOLLYWOOD CONTINUED ITS love-hate relationship with new technology in 2005. The industry made a few breakthroughs that will benefit entertainment's producers and consumers alike -- while still seeming to take one step backward for every step ahead.

One of the most promising children of the marriage between Hollywood and Silicon Valley was the deal between Apple Computer and a handful of TV executives to let Apple sell downloadable versions of their shows for the iPod. It was a small step in the grand scheme of things but a breakthrough nonetheless: It showed the networks' willingness to experiment with new business models even if they conflict with the desires of affiliates and syndicators.

Meanwhile, Apple's iTunes Music Store continued to dominate the market for downloadable songs, which grew about 150% in 2005. That growth helped ease the industry's pain from yet another drop in CD sales. Yet revenues were comparatively small, showing that masses of consumers had yet to be persuaded to pay for music or video online.

One significant hurdle is the lack of standards for downloadable songs and videos. Apple uses a unique approach to guarding against piracy that it won't license to any other company or online service. People who download songs from competing stores or services, such as Yahoo, Napster or RealNetworks' Rhapsody, may not be able to load them onto an iPod.

The record companies in particular have beseeched Apple and other tech companies to come up with a standard, to no avail. The compatibility problems prevent the industry from offering music online in as simple a package as a compact disc, confusing customers and deterring growth.

Another problem for the industry is figuring out how to lure back the millions of people around the world who continue to download songs, movies and TV shows illegally through file-sharing programs such as BitTorrent and eDonkey. The entertainment industry won a critical legal battle in June when the U.S. Supreme Court ruled that file-sharing companies could be held liable if they actively promoted piracy. That is prompting a host of file-sharing firms to switch from free downloads to subscription services, but it won't necessarily convert their users.

Although the industry moved cautiously on some new technologies, it enthusiastically embraced several controversial anti-piracy tools. These included techniques to identify Internet accounts being used to share copyrighted songs and films -- knowledge that the labels and studios have used to file thousands of copyright-infringement lawsuits against alleged file sharers, with no end in sight.

We'll soon see whether the entertainment and tech industries can learn from the successes and failures of 2005. Early next year, a high-definition version of the DVD is expected to hit the market. The change will give Hollywood the chance to offer movie fans more value by allowing them to copy films onto home computers and portable players. But such benefits could be offset by the looming battle between two formats for the high-definition discs.

Naturally, the formats are incompatible.

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