Industry elites convert DVDs to digital

High-end movie buffs early adopters of format

Brett Ratner calls his Kaleidescape media server “the coolest thing in the world that I own … I have my entire movie library on it and on every TV in my house, so I can play any film anytime,” he says.

With all of his more than 10,000 DVDs loaded on several terabytes worth of hard drive space, Ratner told Variety last summer that he’d planned to auction all of his discs to charity. “It cost a fortune but it’s the most state-of-the-art system and really worth it as I ran out of space for my DVDs,” he added.

Of course, deep-pocketed Hollywood creatives like Ratner — as well as George Lucas, another reported Kaleidescape user — have a history of pioneering media consumption trends. A decade ago, film and TV pros were among the first to adopt DVD when they brought the then-pricey discs into their Mediterranean-style homes. Their enthusiasm for the new format not only amounted to a key consumer endorsement, it seeped into their professional lives, where their creative zeal maximized the potential of the medium.

So will U.S. homevid mavens soon forsake their discs en masse for home digital video distribution systems like Kaleidescape?

Demand seems to be percolating. “Almost every client that requests distributed audio also requests distributed video now,” says Zack Fagan, g.m. of Los Angeles-based home theater design and installation company Audio One. With an entry-level pricetag of around $13,000, the Kaleidescape is “an expensive option,” he concedes, “but it’s definitely one we’re now selling on a regular basis.”

Robustly featured — system software lets users search their vast libraries by director, actor or a number of other indexes, then watch the movie from whichever AV-equipped room they’re in — Kaleidescape is sold mainly by professional installers to high-end clients, which number about 4,000 right now.

But ultimately, if distributed video in the home remains a niche business, it probably won’t be because of price point.

“This technology is only going to become more affordable and more refined, and someday you’ll be able to buy an entertainment server for the home for only a few thousand dollars,” predicts Michael Malcom, founder and CEO of Mountain View, Calif.-based Kaleidescape.

In fact, away from professionally installed solutions like Kaleidiscape, cheap off-the-shelf media-server solutions are available today. “You can buy a $279 disk drive at Best Buy that can theoretically store 1,000 movies in (standard-definition) quality,” says consumer electronics analyst Richard Doherty.

However, outside of the finite number of digital movies made available online under restricted terms, finding content to play on these systems is another matter.

In order to upload DVDs to most distributed homevid systems, users must turn into hackers, employing one of a number of widely available illicit software tools needed to overcome DVD’s very basic Content Scramble Solution (CSS) encryption scheme.

Founded in 2001, Kaleidescape decided to do things, as Malcolm puts it, on the “up and up.” The company actually went out and bought a CSS license, just as any legit manufacturer of DVD playback or recording hardware would. It then started embedding in its software the tools needed for its installation partners and end-users to circumvent the copy protection so they could upload DVD to hard drive.

If it’s a dues-paying CSS licensee, Kaleidescape reasoned, and it’s not trying to enable illegal distribution of movies by its end users outside the home, everything should be cool, right?

Not exactly. Working under the umbrella of the DVD Copy Control Association (DVD CCA), the studios sued Kaleidescape in late 2004, accusing the company of breaching its CSS licensing agreement by enabling its end users to play back movies without the DVD present.

“There’s nothing in the CSS licensing agreement that says you can’t make a copy of a DVD. What you can’t do is expose it to a publicly accessible bus (i.e. send the movie to a friend),” Malcolm says.

In March, a San Jose Superior Court judge sided with Kaleidescape, but the battle continues, with the DVD CCA appealing in June.

For his part, Malcolm says Kaleidescape can continue the fight. “It has soaked up some of our resources, but the company is still healthy, and we’ve been profitable the last two years, he notes.

Still, with the studios trying to shift the business into the high-definition realm — a place Kaleidescape’s high-end clients want to be — the company and its distributed-vid ilk have even greater challenges ahead.

How are they going to get legal access to high-def movies to play on their systems?

Notably, the far more robust AACS copy protection found on Blu-ray and HD DVD discs are anchored securely to the hammer which is the Digital Millennium Copyright Act — it comes with legal language that’s much more explicit about movie-copying.

For that reason, Kaleidescape has chosen not to test those waters in court, even though its dealers are requesting that the product be adapted to the new formats. “AACS doesn’t permit us to do the same thing for HD DVD and Blu-ray,” Malcolm says.

Given its growing appeal to the marketplace, might Kaleidescape be embraced one day by the studios? Malcolm says he’s not optimistic about that.

For now, like the broader homevid biz, he’s waiting to see how the studios fare in their attempt to launch a new generation of physical media. “It depends to some degree how successful Blu-ray and HD DVD are,” he explains. “The jury is out — if sales continue to be slow over the next few years, studios might be interested in other channels of distribution.”