Jeffrey Segal

Entrepreneurial Dominion

Blockbuster

Virginia-based Cinea develops technology that combats movie piracy. A system for thwarting camcorder copies could prove to be a mega-hit.

As a member of the Academy of Motion Picture Arts and sciences, Carmine Caridi enjoyed access to “screener” copies of movies before they made their debuts on the big screen. Best known for his wise guy roles in Mob movies like Carol’s Wake, Whacked and The Godfather II and III, the character actor made a practice of shipping every copy to a “friend,” Russell W. Sprague, in Chicago, who has been charged with making bootleg copies for resale.

The arrangement went undetected for at least two years. It wasn’t until the Academy began stamping movies with hidden “forensic watermarking” technology that law enforcement authorities tracked down, early this year, the original source of the pirated films. Digital watermarks found in illegal copies allowed investigators to trace them back to the screener that had been given to Caridi.

Movie piracy is a $3 billion-a-year industry, and Hollywood is willing to pay handsomely for technology that protects its intellectual property. And that creates a business opportunity for Reston-based Cinea and its R&D operation located in Richmond’s Shockoe Bottom. “Piracy is a business proposition,” explains Jeffrey Segal, Cinea co-founder and chief technology officer. “You can’t stomp it out entirely. But you can make it as expensive as possible and as risky as possible.”

Forensic watermark technology is one of the first revenue generators to come out of Cinea, but there are others in the pipeline. Another product just entering the market is a system for encrypting and managing movies showed on airplane flights. Movies are particularly vulnerable to theft during transport from the studios to the airplanes.

But the blockbuster – the Titanic of anti-piracy technology – is still in production. Crooks with camcorders sneak into movie theaters on opening night and, within days, flood the market with bootleg copies. Cinea’s 23 employees have been wrestling with that problem day and night for years, and they think they’re close to a solution. Their “CamJam” technology would digitally embed films with distortions – a flicker, perhaps, or an intensification of greens and reds -- that don’t register with the human eye when viewing a film, but would be magnified by a camcorder and ruin the viewing of a pirated copy.

The research, underwritten by a $2 million National Institute of Standards and Technology grant, is showing promising results. If it pans out, the camcorder-thwarting technology could propel the small Virginia company into the big time. The watermark and airline products could turn into financial “singles” and “doubles”, says Segal, but CamJam would be “a home run.”

Such an outcome would be sweet for Segal as well as co-founders Robert Schumann, the president, Laurence Roth, the VP in charge of business development, and various refugees from Divx, a company which developed a system in the late 1990s for renting digital movies to homeowners without the hassle of limited viewing periods and late returns. Preventing piracy was a top priority for Divx executives – including Schumann, who was a chief architect for Divx’s secure content delivery platform, and Segal, who was director of interactive systems.

Circuit City Stores pumped hundreds of millions of dollars into the venture, inventing 25 new technologies and supporting a development team of more than 400 people, 300 of them in Richmond, before it collapsed. The technology worked, but Divx never could get the buy-in from enough key industry players, many of whom saw themselves as competitors.

By contrast, Cinea was a self-funded, boot-strap operation from the beginning. Segal regales listeners with tales of flying to San Francisco on economy fares and sleeping in budget hotels that he booked on the Internet. On the other hand, competitive rivalries do not appear to be a problem: The Hollywood studios are desperate for Cinea’s technical fixes.

The acquisition of Cinea last fall by Dolby Laboratories won’t hurt either. A supplier of audio systems to the entertainment industry, Dolby enjoys excellent relations with Hollywood and the major theater chains. Dolby and Cinea make a great fit, Segal says. “Dolby knows how to sell in this marketplace. And we bring them solutions for their customers.”

Schumann started the company in 1999, soon after Divx folded, thinking he could approach the market from a different direction. Divx entered the movie distribution system relatively late in the game – at the video distribution stage, after the theatrical release had already generated 30 percent to 40 percent of the movie’s total take. But piracy is a problem from opening day. Indeed, it is potentially a problem from before opening day. Some movies are so widely anticipated that studios worries about video buccaneers stealing copies before they hit the big screen.

Segal joined Schumann after stints with iXL and East3, now-defunct Richmond technology ventures. Although he shares the title of “co-founder,” he credits Schumann with the inspiration for the company.

As Segal tells it, Cinea was a classic entrepreneurial story of highs and lows. Schumann built a strong team of technologists dedicated to their vision, most of whom stuck with the company through grueling hours and financial uncertainty. The company never would have survived without “amazing” support from family, friends and vendors, Segal says. But the company was “running on fumes” when the NIST grant came through in 2002. And the situation was getting dicey again when Dolby entered the picture.

Rather than attempt to go it alone, management chose to sell. The California company loved Cinea’s technology, and it wanted to keep the team intact. The founders, in turn, had always admired Dolby. Perhaps most important, Segal says, Cinea executives shared the same philosophy: “Don’t be greedy.”

“To me,” says Segal, “success doesn’t mean making a lot of money. It means bringing products to the marketplace and making things work.” Thanks to Cinea’s great technology and the resources that Dolby brings to the business, Segal’s dream appears very close to coming true.

-- May 19, 2004

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