AT&T's Piracy/Privacy Dilemma

AT&T (T) may soon beef up its antipiracy arsenal. The biggest U.S. telephone company is considering technology that could give it a heads up when customers are watching partners' copyrighted video, BusinessWeek has learned. AT&T is in talks with NBC Universal and Walt Disney (DIS) about using the knowhow to guard against illegal distribution of their shows and films.

By embedding the technology, a so-called content recognition system made by tiny Vobile, AT&T could prevent users of its network from distributing or viewing copyrighted material or force them to watch it in ways sanctioned by the content owner. In effect, the company would create a kind of no-piracy zone where studios and producers would feel safe distributing content, knowing they'd be paid for its use. BusinessWeek has also learned that AT&T, NBC, and Disney have invested a combined $10 million in Vobile.

"DNA" Tracker
AT&T confirms it has invested in Vobile, but a spokesperson says the company has "not selected or endorsed any specific technology" for its antipiracy efforts, and didn't confirm talks with Disney or NBC. In an Oct. 19 interview with BusinessWeek, AT&T CEO Randall Stevenson said the company had been looking at some startups with promising technology and was talking to movie studios and other content producers. "We're doing a lot of work in this area," Stephenson said. "If you look at what's driving massive amounts of traffic on our network, a lot of it is illegal content."

Sources say few details of how the initiative will work have been nailed down, and that it would be put into commercial use in late 2008 at the earliest. But the general idea is that NBC Universal and Disney would agree to let AT&T maintain a database of some of their movies, shows, and other content. Vobile's technology does two things: It extracts a string of bits from each digital file—what it calls "video DNA"—that serve as digital IDs for each piece of video. Then, traffic on AT&T's network is run through racks of Vobile servers, which look for matches.

In a recent bake-off held by the Motion Picture Association of America, sources say Vobile tested better than a dozen or so other systems when it came to identifying pirated content—even clips that had been altered by hackers hoping to avoid detection. It did so without generating many false positives or instances where it claimed piracy when none had occurred. That's considered critical for any filtering system, as Net service providers fear the backlash that would occur if they wrongly accused customers.

Customer Appeal
Soon after the June ending of the MPAA bake-off, Disney and NBC Universal got interested. AT&T first learned of the Santa Clara startup through its chairman, Vernon Altman, a senior partner at Bain & Co., who also knows CEO Stevenson. Sources say AT&T's Stevenson, Disney CEO Bob Iger, and NBC Universal's Jeff Zucker have been involved personally in the discussions.

AT&T is proceeding cautiously. Sources say it has been testing Vobile's technology since early spring. But besides the laborious job of tuning the technology to work inside a massive network, AT&T is also working on a plan for marketing the approach to consumers. One possibility is to focus at first on using the technology as a way to filter illegal content, such as child pornography. "This could make it all seem a lot more innocent," says Forrester Research (FORR) analyst James McQuivey.

Proponents also could argue that the technology could give consumers access to higher-quality content. Rather than mess with virus-infested video from illegal file-sharing sites, consumers who ask for a given show might be invited to buy a higher-resolution copy from a legal site.