Keys to the Media Kingdom
Not too many years ago, one of the major buzz hives spanning Silicon and Silicone Valleys emanated around a small company called InterTrust Technologies. InterTrust was said to have, in its vast patent portfolio, the keys to the kingdom when it came to the critical issue of controlling, securing and merchandising digital content across cyberspace. In time, InterTrust, which did an IPO and reached a market value of $6 billion came to be in sequence one of the shiniest and most tarnished poster children of the Tech Boom and Bust cycle.
InterTrust had literally invented, in depth, the concept of digital rights management or DRM. Long before Hollywood ever imagined it would be worrying about networks like Kazaa, Victor Shear, the inventor-founder of InterTrust, was burning the midnight oil anticipating what might happen in a world equipped with an ubiquitous digital distribution system (that came to be known as the Internet) and digital technologies that would make massive reproduction of published media, music and movies as easy as clicking a mouse.
The first patent applications were filed back in the late 80's, a tad before other entrepreneurs like Peter Sprague, the founder of Wave Technologies, also began to pursue the issue. But whereas Sprague concentrated on a hardware solution and the security side --his background was National Semiconductor-- after all, Shear and colleagues pursued another vision that inevitably led them to envision a hybrid network in which servers and clients and other clients and other servers all became critical nodes in the wholesale and retail distribution chain and consumers in the digital world might begin to behave more or less like consumers in the molecular world always had.
In that world, consumers might rent, borrow, buy, trade or just carry with them the things they paid for and assumed they had rights to. Traditional copyright law and customs regarding plagiarizing were the controlling factors and different communities worked about different usages for the various stakeholders, such as the hallowed concept of "fair rights" in the US.
InterTrust would go on to painstakingly patent, from a number of angles, the concept that different devices, in a peer to peer or server based environment would, for any real efficiency, need to handle and negotiate rights on an automated basis. In other words, as the owner of a piece of music, you wouldn't have to ask anyone permission to bring it into your car and play it there or even trade it with a friend for another piece. Fluid rights, embedded in various places within the network would be checked, updated and negotiated machine to machine.
InterTrust, the company founded by Shear, and the holder of the patent portfolio, quite naturally engaged in serious conversations with all the great players in the media and technology world and many of them were ready to pay it close attention. But there were also many problems involved in the implementation of a network to support trusted digital commerce as proposed by InterTrust. For one thing, on the business side, there was the concept of a toll or tax that would have to be paid by everyone to InterTrust each time a commercial event took place on the system. Most companies, and unfortunately, all too successfully, resist paying the Feds a tax and certainly the idea of cutting one company into their take was perceived by the moguls, the way they might perceive a virus designed to feast on their very DNA.
The technical problems were just as daunting, if not greater by several magnitudes. In a network and operating system world as riddled as the state of Nebraska with swinging barn doors, only wide open gaps of a technical nature, how in the world was InterTrust going to succeed in its quest to build a truly trusted system?.....trusted like the dial tone, as the folks from Santa Clara were wont to say.
So in the end, while there were many who listened and more than a few, like Nokia, Bertelsmann and Price-Waterhouse-Cooper that dabbled, only one company really, truly paid attention and that was Microsoft. It is also widely said that InterTrust and Microsoft came within a hair of closing a deal that would have greatly enriched the major stockholders of the company. That deal, much to the chagrin of the negotiators and knowledgable stakeholders, fell through and Microsoft went home to begin seriously architecting their .Net Framework to match what they might have learned during the due diligence phase of the negotiations.
They knew that technology adoption occurs over a gradual path and that the courts represent a very slow avenue when it comes to patent infringements and, further, from experience, that litigation can be extremely expensive and daunting business strategy for any company to follow, especially when it's against Microsoft. And so, a fair interpretation might be, that they just plain left InterTrust out to hang and dry.
And turn to near dust it did. The world was nowhere near ready for DRM and the major media companies knew they were better off waiting for the technology wars to show winners and losers before placing their bets. And so the InterTrust braintrust, with no real way to generate cash flow and who had placed all their bets on the notion that the great media companies would actively resist letting Microsoft into their business, were forced to eat their own dog food.
By the time the tailspin had taken its own toll, InterTrust, its stock now trading for a hundredth of its peak price, had got rid of its original people and shrunk itself to a core group of patent sitters. Eventually, the company was picked up in a bargain by a company primarily owned by Sony and Philips and brought private, leaving most stock and option holders high and dry.
This brings us to a little over a week ago when InterTrust and Microsoft announced that the patent suit had been settled and that Microsoft would pay InterTrust $440 million dollars for unlimited rights to its patents.
Even though the deal went nearly unnoticed by even the most knowledgeable media outlets, this was, without any exaggeration a cyberspace-shattering deal for the media world and the first repercussions came almost immediately as Real Media and Apple announced their own plans to work more closely together.
The deal, in sum, probably does more to open up a major source of new revenues for Microsoft than anything the company has been able to accomplish in the last 10 years and may rank in importance with Ms's browser and media player coups.
The weather has been rainy, raw, and, some would say, dreary, all week long here in the mid-Atlantic. Still, blossoms push optimistically out of even the most unlikely patches of ground and thousands of trees have brightened into white, pinks, fuchsias and golden yellows. We are, of course, at that cusp when the cold stored over a long winter is swept back from the ocean on a swirl of Eastern breezes and time, itself, seems to stand still.
Every particular season has its own personality: in some years in early Spring there is a deep frost a night or two after the magnolias put out their silken petals and within the day they go brown and float off. To these ancient rhythms we are passing bystanders. What we do know is that the days grow longer as the sun climbs higher into the sky and that cold, or warm, they will be followed by warmer ones. These are the fundamentals. Whether it will be a warm April or a bleak, cold one, we cannot know. But we do know that before long we will be longing for a well shaded outdoor table and a chilled glass of white wine.
A couple of days ago, the employees of the two largest supermarket chains in the Washington, DC area voted overwhelmingly (95%) to allow management to lower their level of medical benefits and raise the amount of out of pocket costs they would have to bear. Against this and other losses that would cut the pay of newly hired workers, they would get an hourly pay raise of $1.25 split over 4 years. New employees would no longer get coverage for their spouses for the first six years of employment, would shoulder higher medical costs and higher out-of-pockets, and would sacrifice weekend time and a half. Giant and Safeway, the two big guys in question, argued that they needed the cost cuts to compete with our old bogeyman, Wal*Mart.
On the surface, their argument rang pretty hollow since Wal*Mart's and Costco's footprint in this prosperous area is still relatively quite small. But everyone in management and labor, took a lesson from the real tale of agony that played out in Los Angeles earlier this year and before.
As this Pyrrhic battle took place, we couldn't help thinking about some of the points made in Elizabeth Warren's and her daughter Amelia's book, "The Two-Income Trap"; i.e., that jobs that once were sufficient to support a family of four are now hardly able to do half that. Chances are that the guy in charge of the grocery counter busily sorting the collard greens at the neighborhood Safeway, like most of his neighbors, is maxed out on his credit card and, along with his mate, faces a mortgage and payments on two cars. A 60 week strike, as in LA, would have just about ruined them.
We're reminded that one of the great breakthroughs in the growth of the US economy came when workers on Ford's assembly lines were able to earn enough to buy a car, themselves. By the time World War II had faded into the Eisenhower era, America could look a lot like "The Flintstones" minus the running stone-age shtick.
Unlike the headlines today, surely, the supermarket employees were making a very clear statement on how they view the present employment situation here in the nation's capital, a place that is booming relative to the rest of the country as more and more government functions get privatized and there are no longer any constraints on how much the government spends. The horrible happenings in Fallujah during the week point to a strange aspect of this phenomenon: the second largest army in Iraq, it turns out, is made up of mercenaries paid for, not out of the military budget, but out of some other pocket. The soldiers in this army, run by subsidiaries of the usual suspects, get $1,000 a day while their uniformed brethren are earning around 10 bucks.
So much for sleight of hand. Our point is that there are fundamental trends and there are bumps up and down. It's hard not to get distracted by the day to day news cycle. The OPEC gang may or may not pump less oil in the next quarter and that will make some impact on the price of gas at the pump but it has little to do with what's really driving the price of petroleum: more consumers in China and India, bigger cars and houses in the US and longer commutes as housing prices drive ordinary working folk further out into sprawl-land, and ultimately a dwindling supply of black gold. Did anyone bat an eyelid when Shell admitted that their estimates of "proven" reserves were inflated by nearly 20%, or 5 billion barrels of oil.
Worldwide consumption of basic resources like copper, gold, petroleum, platinum will increase over time even if the US and European economies falter. World demand will continue to grow. China will be able to hold down the price of manufacturing labor for years to come but it will not be able to supply the basic elements needed for its production. Ironically, one of the US's largest exports to China these days is scrap iron. All going into the maw of this growth engine where, like the employees churning out Model T's, pre-"Flintstones", in this country, Chinese workers will be demanding washing machines, TV's and ultimately the family wheels.
Where this is all going to end, dear readers, we could hardly offer a glimmer. But be sure that, rainy or sunny, damp or balmy, the season is what it is and the next will happen because the sun is higher or lower in the sky, not because of what anyone says.
Copyright 2004 Richard Mendel-Black All Rights Reserved
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