Broadcast Flag Burning

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Edward Fritts, president of the National Association ofBroadcasters, probably intended to sound ominous when he remarkedon the recent court ruling striking down the FCC's"broadcast flag" regulations, designed to prevent unauthorizedcopying of digital TV transmissions. The broadcast flag, he said,"preserves the uniquely American system of free, local television.Without a broadcast flag, consumers may lose access to the verybest programming offered on local television. This remedy isdesigned to protect against unauthorized, indiscriminateredistribution of programming over the Internet."

Not the uniquely American system of free, local television! It'shard to read his warning with a straight face. The broadcastindustry is facing a grave threat to its business model, but it hasnothing to do with piracy. Rather, the broadcast TV industry facesstiff competition from pay TV services that offer more features andmore channels at affordable prices. Broadcasters would do well tostop obsessing over exaggerated piracy threats and focus on luringback customers who have fled to those services. In the meantime,Congress and the courts should resist industry pressures to givethe FCC the power to dictate how consumer electronics products aredesigned. Doing so would do little to protect intellectualproperty, but much to stifle innovation in the consumer electronicsindustry.

The days when the "big three" networks dominated the Americancultural scene are long gone. Today, more than 80 percent ofAmerican households subscribe to cable or satellite services.Verizon has begun rolling out a fiber-optic service it calls Fios,which will compete head-to-head with cable and satellite in the paytelevision marketplace, as well as offering telephony and broadbandInternet. Millions more subscribe to Netflix and other mail-ordervideo rental services.

Cable and satellite companies have spent the last decade rollingout an impressive variety of new features and services to augmenttheir basic television service. They have offered new premiumchannels with popular and award-winning programs, digital cable,video-on-demand services, and TiVo-like personal videorecorders.

In this increasingly competitive environment, you might expectthe broadcasting industry would do everything they can to improvethe experience of their customers and persuade them not to flee topay services. You would be wrong. Instead, they have lobbied theFCC to mandate that all consumer digital video equipmentmanufactured after July 1, 2005 recognize and enforce the so-called"broadcast flag." It specifies how recorded content may be copiedand redistributed, in some cases preventing consumers from doingthings they have grown accustomed to doing with traditionalVCRs.

Broadcasters, and the Hollywood studios that provide them withmuch of their content, fret that without such a flag, consumerswould be able to make perfect digital copies of transmitted contentand redistribute it over the Internet. That fear is almostcertainly overblown. After all, most popular movies are alreadyavailable on peer-to-peer networks, yet they do not appear to havehad a serious impact on sales. Higher-quality pirated versionsmight prove more popular, but they seem unlikely to put asignificant dent in industry profits.

More to the point, copy-protection schemes like the "broadcastflag" never withstand close scrutiny. Tools to break the ContentScrambling System (which is designed to prevent copying of DVDs)are widely available on the Internet, as are tools to circumventthe copy protection scheme of the iTunes Music Store. The"broadcast flag" scheme will prove no different; hackers willquickly find weaknesses in the scheme and post circumvention toolson the Internet for anyone to use.

Crucially, it only takes one person to strip a video file of itsbroadcast flag and upload it to a peer-to-peer network. So even ifsuch tools do not achieve wide distribution, the "broadcast flag"scheme will still do little to prevent piracy.

But it is far from harmless. Had the FCC's order been allowed tostand, it would have set the precedent that the FCC has the powerto regulate all aspects of television design that are eventangentially related to radio communication. And because any devicethat could potentially handle digital TV content would need toobserve the copy-protection rules, the mandate would inevitablybleed into the design of consumer video products that don't havetelevision receivers at all.

The broadcast flag controversy is ultimately part of a wider battle over the future of digital media. Contentindustries seek to place technological shackles on digital mediaconsumers that tell them when and how they may view, duplicate, andshare copyrighted content. Such controls are unprecedented in theanalog world, in which users had a relatively free hand-in fact, ifnot in law-to make copies of copyrighted materials for personaluse.

Indeed, we have had this debate before. In 1982, Jack Valenti,president of the Motion Picture Association of America, testifiedbefore Congress that the recently-developed VCR "is to the Americanfilm producer and the American public as the Boston strangler is tothe woman home alone." Valenti warned that Hollywood would bedevastated if Congress did not crack down on home taping of moviebroadcasts. Needless to say, nothing of the sort occurred. Congressdeclined to limit the functionality of VCRs. Yet today, movieproducers make billions of dollars from home video sales andrentals, and plenty of people still go to see movies in thetheater.

Industry rhetoric aside, there is no reason to think thatdigital television will be any different. Yes, some people willrecord home movies and share them on the Internet, just as somepeople made illegal home video libraries in the 1980s. But theeffect on content industry profits will be small, and in any event,the broadcast flag would have been unlikely to make adifference.

The DC Circuit Court of Appeals had the good sense to reject theFCC's mandate on the grounds that the agency had exceeded itsauthority. But the battle is far from over. Supporters have vowedto take the matter to Congress, seeking a change in law that wouldgive the FCC the authority it needed to enforce the rule.

With luck, members of Congress will understand that the"uniquely American system" is not free local television, as Mr.Fritts would have it, but free markets. There is nothing Americanabout giving government bureaucrats the power to mandate the designof consumer electronics equipment. They might also want to suggestto Mr. Fritts that the businesses he represents would be moresuccessful in the marketplace if they didn't spend so much time inWashington lobbying for restrictions on their customers'freedom.