Main Index : Writings of Marie A. D'Amico, Esq.

CD-R: Desktop Piracy for 1996?

Newest CD Technology Can Be a Boon for Buccaneers

In 1989, Sony Corporation and Philips Electronics introduced Compact Disc-Recordable (CD-R) drives and media (CD-Rs). Single-speed CD-R drives cost at least $25,000 and the CD-Rs they gobbled like tokens in a video game arcade cost about $100. The premastering software applications which prepared data and recorded blank CD-Rs were buggy, high-priced, and had user interfaces so gauche they made UNIX seem user friendly. A desktop device for nerdy Steve Forbes perhaps, but hardly for John Q. Public.

In 1996, the CD-R world wears a friendlier face. Single-speed CD-R drives are defunct. Double-speed CD-R drives, bundled with accoutrements like accessories and premastering software, can burn blank CD-Rs in 38 minutes and are chump change at $1,195. Quad-speed CD-R drives, which burn blank CD-Rs in a zippy 18 minutes, can be bought for $1,895. A six-speed CD-R drive made by Kodak can crank out CD-Rs in almost 12 minutes but costs a colossal $19,000. Premastering software for as low as $175 is easy to use, intuitive, and works with Macintosh and IBM-compatible PCs. Blank CD-Rs can be found for $6.95 apiece. The CDs these CD-R drives produce can be used in any of the approximately 30 million CD-ROM-equipped PCs, 33 million audio CD players, and 6.3 million CD-equipped video game consoles already on the consumer market. It’s simple, cheap, and compatible with all CD-comers. This technology may be a consumer’s dream, but it could also become a content provider’s nightmare.

As Easy as 1, 2, 3?

Sony and Philips, the originators of CD players and CDs, in conjunction with the International Standards Organization (ISO) , set strict standards in the 1970s and 1980s for both the physical and logical architecture of audio CDs, CD-Is, and CD-ROMs. CD-R manufactures allege CD-R drives, combined with CD-mastering software, can produce perfect, digitally complete copies of factory-made, injection-molded CDs and CD-ROMs merely by writing the proper ISO file format onto the CD-R. Albhy Galuten, Vice President of Interactive Programming for MCA’s Music Entertainment Group , disagrees. "CD-R drives don’t produce perfect copies of audio CDs," he said. "There’s distortion, bad imaging, and a pasty sound," he said. Proving Microsoft’s longtime marketing motto, "mediocrity sells," though Galuten added, "while musicians would hear the difference, most people probably would not." The Jet Propulsion Laboratory (JPL) , in an independent analysis, determined the average error rate of the vast majority of CD-Rs produced by CD-R desktop drives was even less than the error rate for expensive, factory-pressed CD-ROMs. JPL found, however, CD-ROM drives themselves displayed a wide range of performance when attempting to actually read the CD-Rs.

To become the playthings of household pirates, burning CD-Rs needs to be as simple as duplicating diskettes. It’s not there quite yet. To burn a blank CD-R, a user needs a CD-R drive, blank CD-Rs, a PC with a SCSI controller board and a hard disk drive fast enough to maintain a continuous data transfer during the recording process. In addition, a user needs a source storage device, either a CD drive or a hard disk drive of about one gigabyte. Sound simple? Arcane traps abound which can make the completed disc useful as a coaster but not as a CD.

CD-R drives write at two, four, or six times the speed of playback, 150 KB/second. A PC using a double-speed CD-R must sustain a minimum 300 KB/second uninterrupted data transfer rate during the entire recording process or the CD-R turns into toast. In most computers, a hard disk drive becomes fragmented as it stores files and applications in noncontiguous areas of disk space. When creating a CD-R from a normal hard drive, disk fragmentation can slow the data transfer rate to less than the CD-R requires. Experts recommend, therefore, CD-R users purchase a separate, AV-certified one gigabyte hard disk drive to serve as the source storage device. In addition to often defragmenting this disk drive, users should disable all alarms, incoming faxes, network sharing, and reminders when this drive is attached to their PC. Thermal-calibration, or t-cal, which is performed periodically by most hard disk drives, must be turned off or the user must purchase a drive which only performs t-cal when it isn’t in use. CD-R users recommend the dedicated hard disk drive should not use any disk compression schemes which can cause problems.

Selecting a CD-R itself also isn’t as simple as buying a box of diskettes. CD-Rs are made using either a layer of the organic dye cyanine or pthalocyanine. The CD-R drive’s laser melts a pattern of pits and lands onto this dye layer to make the data. While all CD-Rs have projected lives of 100 years and JPL found all CD-Rs worked equally well in single and double-speed drives, they determined that pthalocyanine CD-Rs, patented by Mitsui Toatsu Chemicals, Inc., performed better than their cyanine sisters in quad and six-speed CD-R drives. Pthalocyanines currently constitute about 35% of all commercially shipped CD-Rs. Scott Bracken, Technical Sales & Support for the One-Off CD Shops International, Inc ., said, however, "cyanine CD-Rs are more tolerant of errors in the recording process and less likely to become useless paperweights." Regardless of type, JPL recommends users avoid sneezing on blank CD-Rs because colds and this media appear to be incompatible.

Piracy is Booming Big Business

Content providers should take comfort neither in the small number of CD-R drives sold in 1995 and their installed base (195,000, and about 225,000, respectively) nor the current complexities of using CD-R technology. Mary Bourdon, senior industry analyst at Dataquest, Inc. , expects the price point of CD-R drives to drop to $500 in late 1996. At $500 or less, CD-R drives will be inexpensive enough to become built-in features of PCs. The CD-R premastering software will be cinchy enough for consumers to make cheap, CD and CD-ROM clones in the privacy of their own homes by year’s end. That’s good news for anyone who needs a cut-rate CD-method to archive, backup, or transfer large quantities of data, beta test or prototype music, sound, or multimedia applications, or make training or presentation materials available to a small group. That’s very bad news for the movie, music, and software industries for whom piracy is already a multi-billion dollar booming business.

Sidebar A lists recent losses suffered by these industries. Marisa Pickar, Media Representative for U.S. Anti-Piracy Operations for the Motion Picture Association of America (MPAA) , said while piracy in some countries decreased in 1995, in others it increased. The MPAA’s total, worldwide 1995 piracy numbers remain unchanged from 1994, even after extensive efforts. The Recording Industry Association of America (RIAA) reports an almost 50% decrease in counterfeit cassettes, the traditional format for illegal music, as a result of RIAA raids on illegal factories and RIAA-sponsored legislation making sound recording piracy a felony crime in 30 states. This decrease, unfortunately, is also tied to the nascent increase in digital music piracy as manufacturers cease making counterfeit cassettes and commence cranking out pirated CDs. Scott Blum, Executive Vice-President for Pinnacle Micro, Inc. , which produces 90% of all CD-R drives, said, "A CD-R now can be burned for half the cost of an audio CD, so a black or gray market exists." On the software side, piracy rates have decreased in some countries in the past year as a result of education and enforcement by the Software Publishers Association (SPA) . The SPA now estimates the U.S. business software piracy rate is 25%, a billion dollar loss, but down from 48% in 1989. The SPA, however, hasn’t begun to track piracy in the consumer software market, which they estimated at $1.3 billion in 1994. In the SPA’s 1995 Consumer Survey, 20% of the respondents admitted to openly copying software, a bad presage for publishers. Internationally, the software story is even less rosy.

In China, 98% of all business software is illegal; an average of only $1 is spent per PC on legal software. The Chinese government itself has been linked to large-scale manufacturers of pirated CDs and CD-ROMs which are used internally and also exported to other countries. Stephanie Mitchell, Asia-Pacific Legal Counsel in Beijing, China for Autodesk Inc. , said, "This is the infra-structure development hot zone of the world and yet software sales barely support opening country offices in some cases." In Russia, 95% of all business software is illegal and in Thailand, 92%. In these countries, the SPA said, "software piracy is at epidemic levels." And while software piracy losses in Western Europe have declined sharply in the past year, that drop is due largely to price decreases. In Italy, for example, despite educational and legislative reforms, the software piracy rate has increased from 66% to 68%.

Solutions, Anyone?

Movie, music, and software thievery is performed principally by large-scale entities with factories. David Leibowitz, Executive Vice-President and General Counsel for the RIAA, said, "In the past, we have been able to keep CD piracy to a minimum by restricting imports and through our CD Plant Education program in which we train plant personnel to be aware of suspicious manufacturing orders." CD-R drives now provide every PC owner the ability to buy CDs with their ubiquitous 30-day money back guarantees, make bootleg copies, return the CDs as defective, and sell, swap, or give the counterfeit CDs away as gifts. Leibowitz said, "CD-Rs pose a significant threat to our industry on the private copying side and the piracy side." A piracy solution must be devised and implemented now, before CD-R captures a consumer stranglehold.

Encryption is a software solution often proposed. Publishers can code CDs with unique encryption keys which prevent users from CD-duplication until they register the product and receive the key. History has demonstrated repeatedly, however, for every encryption algorithm invented, there’s a Kevin Mitnick-type hacker who breaks it. Rand Bleimeister, Senior Vice-President of Marketing and Sales for Virgin Interactive Entertainment agrees encryption is not a solution because users can get the key and simply pass it along to others. The Audio Home Recording Act (AHRA) of 1992 provides a potential hardware remedy. The AHRA requires manufacturers of digital audio tape (DAT) to insert Serial Copy Management Systems into DAT recorders which allow unlimited copying from the original source recording, but prevent the recorders from making second generation copies. The AHRA also requires DAT manufacturers to pay a percentage of their revenue from the devices and the media as royalties into a joint fund for artists, music publishers, and record companies. Payment into this fund absolves manufacturers and home consumers of DAT devices from copyright infringement liability. The AHRA currently doesn’t apply to multi-purpose machines such as CD-R drives, but even if it were extended, it isn’t sufficient. As the price of CD-R drives declines, manufacturers’ royalty payments become negligible and unlimited, first generation copies are still permissible. Leibowitz of the RIAA agrees an extension of the AHRA is not a solution but thinks some type of evidential tool could be placed in the CD-R drives to identify piratical activities. He admitted that these tools, whatever they might be, would likely still allow first generation copies of CDs to be made and would not be a complete solution.

Legal solutions such as copyright laws aren’t currently effective against CD pirates because they aren’t enforced. China, Russia, and Thailand all have enacted copyright laws which protect computer programs as literary works, but the rules are flouted. The SPA says the copyright statutes must be supplemented with education, enforcement, and legislation which provides for strict penalties. In the U.S., where the piracy rate has been reduced almost by 50%, copyright infringers of digital media are increasingly receiving large fines, felony convictions, and jail time. Greg Goeckner, Special Counsel and Deputy Director of Worldwide Piracy for the MPAA, thinks a legislative solution of some sort may be the key. "We are working on a legislative solution, requested by Senators Hatch and Leahy, to the digital copying problem and we are engaged in discussion with the electronics industry on that issue," he said. Rich Taylor, Director of Public Affairs for the MPAA, said this proposal would be presented to Congress by year end 1996. To back up this legislation, the SPA recommends trade sanctions against countries like China who are not demonstrating improvement. Albhy Galuten of MCA smilingly suggested a swap. "If we just said stop doing this or we’ll stop giving you Baywatch [the world’s most popular television show], we could solve this problem," he said.

Keeping Up with the Bootleggers

CD-R is the hottest new CD technology. But as Blum said, "Compact-Disc Erasable (CD-E) drives will be on the commercial marketplace by the end of 1996 at $100 more than CD-R drives, although the CD-Es will cost five times as much as CD-Rs." Eventually, he said, "CD-E will replace CD-R and after that, DVD will replace CD-E as part of the typical evolutionary environment." If industry groups propose a solution to CD-R piracy to Congress in late 1996, an election year, by the time snail-speed Congress enacts legislation, CD-R will be obsolete. The digital industries must consider piracy not in the microform of CD-R, CD-E, or DVD, but in the macroform of future technologies or they’ll always be dancing two steps behind the bootleggers.

Sidebar A: Top 10 List of Pirateers

Movie Industry Losses in 1995

Worldwide Total: $2,222.65

1 Losses result from illegal duplication of videos and unauthorized reception and retransmission of television broadcasts and satellite signals.

Source: MPA

Music Industry Losses

Worldwide Total $8,075.10

2 Source: SPA. SPA’s loss methodology is based upon comparing the number of PCs sold annually (based upon data supplied by the International Data Corporation) and the number of applications sold. The SPA then compares the average number of applications used on a PC with the number of applications purchased to determine the number pirated.

Sidebar B: Contact Information

Autodesk Far East Ltd., Unit 414-416, 4/F HK Ind. Tech. Center, 72 Tat Chee Avenue, Kowloon Tong, Hong Kong, Phone: (011) 852-2824-2338, Fax: (011) 852-2824-3228

Dataquest, Inc., 251 River Oaks Parkway, San Jose, CA 95134, Phone: (408) 468-8000, Fax: (408) 954-1780

International Federation of Phonographic Industries (ifpi), 54 Regent Street, London, England, Phone: (011) 44 171 434-3521, Fax: (011) 44 171 439-9166

Jet Propulsion Laboratory , 4800 Oak Grove Drive, Pasadena, CA 91109, Phone: (818) 354-4321, Fax: (818) 354-3437

MCA Music Publishing, Inc. , 70 Universal City Plaza, Universal City, CA 91608, Phone: (818) 777-4000, Albhy Galuten, Vice President of Interactive Programming for MCA’s Music Entertainment Group, albhy@mca.com.

Motion Picture Association of America (MPAA) , 15503 Ventura Boulevard, Encino, CA 91436, Phone: (818) 995-6600, Fax: (818) 382-1785, Marisa Pickar, Media Representative for U.S. Anti-Piracy Operations, mpickar@mpaa.org, Gregory Goeckner, Special Counsel and Deputy Director of Worldwide Piracy, Rich Taylor, Director of Public Affairs

One-Off CD Shops International, Inc ., 4910 Amelia Earhart Drive, Salt Lake City, UT 84116, Phone: (800) 340-1633 or (801) 531-7585, Fax: (801) 531-0740, Scott Bracken, Technical Sales & Support

Pinnacle Micro, Inc. , 19 Technology Drive, Irvine, CA 92718, Phone: (800) 553-7070, Scott Blum, Executive Vice-President

Recording Industry Association of America (RIAA) , 1020 19th Street NW Suite 200, Washington, D.C., 20036, Phone: (202) 775-0101, Fax: (202) 775-7253, David Leibowitz, Executive Vice-President and General Counsel

Software Publishers Association (SPA) , 1730 M Street NW, Suite 700, Washington, D.C., Phone: (800) 388-7478 or (202) 452-1600, Fax: (202) 223-8756

Virgin Interactive Entertainment , 18061 Fitch Avenue, Irvine, CA 92714, Phone: (714) 833-8710, Fax: (714) 833-8717, Rand Bleimeister, Senior Vice-President of Marketing and Sales

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