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This article by Douglas Dixon was published in U.S. 1 Newspaper on June 9, 1999.
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Paving the Way To Pay for Digital Content
In the glorious digital future, all content will be
just data — digital bits that can be saved to disk, shared across
a network, or transported over the Internet. The digital future is
both exciting and confusing to industry and users alike, but to content
developers it is outright frightening.
Hollywood feared television because it brought content directly to
your home. Hollywood and the broadcasters feared the VCR, because
it let you control what you saw and when you viewed it. Even worse,
VCRs let you copy content. But videotape is analog, so it’s clumsy
to copy. You have to play through a whole tape in order to copy it,
so bootleggers need to set up warehouses with banks of VCRs all wired
together in order to mass-produce copies. Distributing and selling
bootlegged tapes is also clumsy, requiring trucking around boxes of
tapes, which serve as physical, tangible evidence of a crime.
With digital content, all these physical impediments to mass copying
disappear. Making a copy is as simple as a click of the mouse, and
the copy is free. Distribution is even more frightening; one hacker
can post a copy on the Web, and thousands or even millions of people
can immediately download it.
A fast-growing company with a Princeton-based research and development
arm, Wave Systems Corp., has developed an approach to providing protected
delivery of digital content, which can be controlled at the user’s
end to permit renting or purchasing material on demand. Wave Systems
was founded in 1988 by Peter Sprague, longtime chairman of National
Semiconductor Corp. He conceived and patented the idea to "introduce
new business models which allow producers and users of electronic
information to securely distribute and purchase digital content."
However, mass distribution of content in digital formats has only
recently become feasible through the development of the Internet,
the availability of powerful home computers, and advances in video
and audio compression.
Wave’s corporate office is in Lee, Massachusetts, but its engineering
offices have been at Research Park for seven years; the original technology
developers came out of Siemens. Thomas Butt is Wave’s vice president
of product development and head of the Princeton office, which has
a systems engineering group, a testing group, two software groups,
and one hardware group.
Butt joined Wave in 1996, when the company was reorganized "to
focus on consumer entertainment and education as the first big product."
The original concept "was an idea way ahead of its time,"
says Butt. "With the convergence of computers, television, and
telephone, technology is key to making a business model around convergence
work." The new focus was on "client-side metering of information
and transactions, which is different from the previous niche opportunities."
Wave is delivering secure transactions to end-users, through its EMBASSY
E-commerce system, by building an inexpensive, proprietary hardware
device into PCs. Its security protocol initially can be built in PC
add-in boards, and then perhaps embedded in keyboards, and eventually
be embedded in PC motherboards. Wave hopes to develop a critical mass
of PCs with its metering hardware, through relationships with PC board
developers, peripheral manufacturers, and PC manufacturers. The hardware
can be included in add-in boards, on the motherboard, or even in the
While these hardware enhancements may add a few dollars to the cost
of a PC, the bet is that consumers will snap them up as eagerly as
they did the cable industry’s set-top boxes for their televisions.
Wave is also actively developing partnerships with content providers
and hardware and software security technology companies. The first
peripheral integrating Wave’s technology is expected to be Hauppauge
Digital’s WinTV tuner board, which is scheduled to ship by the end
of the second quarter of 1999. The Wave system also incorporates other
security technologies, including Hewlett-Packard’s VerSecure "trusted
client" system, among others.
Beyond the Internet, the advent of digital television (DTV) also offers
another path to deliver digital content to end-users. Digital television
promises better pictures, higher quality sound, and, of course, high-definition
large screen television. But even more, digital television offers
the possibility of broadcasting a mix of video, audio, and arbitrary
digital data, all compressed onto a single channel.
One solution to the problem of allowing digital distribution of content,
while protecting its use (and getting paid for it) was announced at
the National Association of Broadcasters (NAB) show in Las Vegas in
April by Wave Systems and Sarnoff Corp. They announced the planned
formation of a company that will provide secure data broadcast for
digital television terrestrial broadcasting to the PC. This permits
broadcast delivery of any kind of digital content to the consumer’s
PC, including computer games, music, data, and even Internet service.
This new company, inTelecast, will provide content services, the network
infrastructure, and the business model to deploy the services. It
will provide plug-in servers to DTV broadcasters for transmission
of digital content, and receivers and client software for PCs that
permit user purchase of products and services through the system.
At the user’s PC, the inTelecast software and hardware capture the
content for the user. If users decide to buy or rent the content,
they can then do so through Wave’s EMBASSY trusted-client system.
Sarnoff will provide the infrastructure design to provide both national
and local distribution of content. It will also provide the design
for the DTV receiver card for the PC. Wave will provide its EMBASSY
technology to handle the payment and secure transport of copyrighted
materials. A third company, the Switzerland-based Fantastic Corp.,
will work with inTelecast to provide broadcasters with the tools to
manage, package, and distribute digital content.
This kind of system is potentially very good news for the broadcast
industry. The FCC is requiring that all broadcasters provide digital
broadcasts by the year 2003, and the larger stations were scheduled
to go on the air this May. While the use of these airwaves is free
to the broadcasters, they will incur significant costs for converting
over to digital broadcast equipment, so the possibility of this kind
of significant new revenue stream is very exciting to them.
Current approaches to selling content depend on server-side authorization.
You can buy access to cable or satellite television channels by the
month or order specific movies or events. This typically requires
phoning in to the master server to perform the transaction, which
then communicates with your cable box to permit you to view the material.
The same approach is used by the Divx system for renting DVD video
Buying digital material over the Internet works the same way. Typically,
you enter your credit card number into a Web form, and send it to
a master server, which then permits you to download the product. This
same approach is used whether you are buying computer program, or
information, or a song. In another common approach, you download a
trial version of a program, which expires after a month or so unless
you buy a secret code number.
Once you have bought the material, however, the content provider still
has the risk that you will copy it and share it with others. This
has led to a variety of software and hardware-based copy protection
schemes. These require modifying the program to check whether it is
a legal copy. It can do this by having you enter a secret code which
has something to do with your system configuration, or by writing
secret files on your disk, or by checking to see if a special hardware
device — a so-called "dongle box" — attached to your
The problem with these approaches, whether for television or computers,
is that they are monolithic, all-or-nothing operations. Since they
are based on server-side authorization, you need to buy the whole
thing in one block, and your use is then tied to the specific client
system where you carried out the transaction. The problem for content
sellers, especially on such an open system as the PC platform, is
that the copy protection is ultimately software-based, leaving it
opened to attack by hackers. In fact, "broken" versions of
many commercial products are posted on "Warez" hacker sites
throughout the world.
The Wave approach addresses these problems with more powerful hardware
security, which permits smaller client-side transactions. The Wave
approach "provides the ability to do financial transactions in
conjunction with copyright protection, at the client,", says Butt.
"It is like a set-top box; you can buy the movie locally, and
the system will eventually bill you. However, it works with any form
of digital content." This means that it can protect not just computer
programs, but also access to data and other media like audio and video.
Wave believes that digital commerce of this type requires security
at the client. The Wave hardware goes beyond software-based protection,
and simple hardware dongles, to act more like a programmable smart
card. It can store value (a credit balance or payment due), has a
small processor to permit more secure transactions through hand-shaking
protocols, and even has a clock.
The Wave system also permits you to perform transactions without being
connected to a server. "You can download a movie to a PC, and
buy it and watch it on an airplane, without the need to be connected,"
says Butt. "It also supports micro-transactions, purchases with
a very low dollar amount, in a cost-effective way, down to hundreds
of a cent."
"Wave has been a great experience," says Butt, "very dynamic,
quick on the feet, and not an ounce of bureaucracy. We have hired
lots of people, 30 to 35, and are growing as fast as we can."
Butt, the son of an accountant and credit manager who
encouraged his interest in technology and engineering. High school
physics, Butt says, made him realize that physics was a "foundation
field" that helped foster "a clear, organized way of thinking.
Physics was hard, so it seemed that everything else would then be
easier." He received his BS in physics in 1981 from St. Joseph’s
University in Philadelphia.
Butt had graduated from college "without ever logging into a computer,"
but then immediately bought a Radio Shack PC and became interested
in programming. He studied electrical and computer engineering at
RPI, and transitioned into computer-related work on the job. "It
became fascinating to me." He then switched fields to work with
G.E. Aerospace on government and commercial satellites in Valley Forge,
and continued taking courses at Villanova. He finally moved up to
Princeton with Astro Space, and transitioned through the corporate
changes to Martin Marietta and Lockheed Martin, before moving to Wave.
The Wave Systems engineering group is located across from the Princeton
Airport. With approximately 45 people in 6,400 square feet of space,
Wave is "bursting at the seams" and actively looking for new
space. Butt expects that the new inTelecast company will be located
in Princeton, because of his success in building Wave’s engineering
"Princeton is the best area in the country," says Butt. Other
locations have lower living costs and lower salaries, but the right
kinds of people are not available. Silicon Valley has lots of engineers,
with high living costs and with high demand driving high salaries.
"Princeton is a very good compromise between these extremes,"
says Butt. "It has lots of high-tech companies and universities
and a large base of talent. It is about as good as it can get."
Butt has worked hard to hire quality people, doing "lots of leg
work," and using a staffing consultant three days a week. So far
he has not had to pay relocation costs for a new hire.
One obvious attraction for potential employees is Wave’s position
as an existing company that can act like a start-up, but one that
offers stock options in publicly-traded securities. Wave is still
a "development stage corporation," and reported a net loss
to common stockholders of $12.7 million for 1998. It completed a $23
million private placement at the end of March, and its stock price
then increased from under $15 to $26, before recently settling in
the high teens. Wave is continuing to develop partnerships to "expand
the number and type of platforms and services" they support, says
Butt. "Our ability to pursue them is based on bringing in good
players and doing a good job of developing strategic partners."
08540, 609-683-9226; fax, 609-683-4822. Thomas Butt, VP, product development.
Home page: http://www.wave.com.
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