By Laurie Sullivan

Hollywood studios are preparing to throw their full weight behind new digital watermarking technologies they hope will help them securely sell their movies and television shows over peer-to-peer (P2P) Internet networks.

The effort is Hollywood’s latest attempt to capitalize on the Internet as a distribution vehicle for its content, while trying to avoid falling prey to the legions of online movie pirates who the studios claim cost them as much as $6.1 billion a year in lost revenue.

The movie industry also believes that watermarks—unique digital stamps embedded into each file—would enable content producers to fend off movie pirates without having to rely on digital rights management software provided by groups such as Apple and Microsoft. But analysts and privacy rights advocates argue that watermarking will not prevent internet piracy and could give rise to a number of thorny privacy and legal issues.

“The movie industry is on a very long quest to figure this out. I’m not so sure watermark technology is the answer,” said Aram Sinnreich, managing partner of Radar Research, a media and entertainment research firm in Los Angeles.

The drive to promote watermarking will get a big push on Monday when a consortium of Hollywood associations releases a white paper that urges the industry to adopt one set of watermarking standards and start testing technologies that will enable the studios to securely distribute their content over any P2P network.

Hollywood is keen to tap the potential of P2P networks, because they could cut studios’ distribution costs by more than 90 percent over those of digital movie download sites such as Movielink, a studio joint venture that has failed to attract a big consumer following. That’s because P2P networks rely on the computing power and bandwidth of users rather than concentrating it in a small number of servers.

Digital watermarks are hidden copyright notices or verification messages that help P2P networks determine whether a specific file contains copyrighted or non-copyrighted material. Illegally made files could also be traced to their source through watermarks. Studios already use watermarks in movies shown in theaters to determine where pirated movies are copied.

The white paper, which will be presented next week to Congress and the P2P Media Summit in New York, will also recommend technologies that will let P2P networks filter out illegal content and redirect searchers to legitimate copyrighted files, according to Motion Picture Association of America (MPAA) chief technology officer Brad Hunt.

The consortium includes the MPAA, the Distributed Computing Industry Association (DCIA), an industry group spearheading secure P2P network distribution, and the Digital Watermarking Alliance (DWA), which was formed last year to test watermark technologies.

The MPAA says all major studios, including Twentieth Century Fox and Sony Pictures, are behind the effort. But a spokesperson for Walt Disney declined to fully endorse the project.

Disney’s position on watermarking is noteworthy because Steve Jobs, the chief executive of Apple, sits on Disney’s board of directors and is that company’s largest shareholder, according to Thomson Financial. Mr. Jobs, of course, hopes to make Apple’s proprietary digital rights management software, known as Fairplay, the de facto DRM for the movie industry. Fairplay is already the standard in the digital music market dominated by Apple’s iPod music player and iTunes online music store.

Record executives are concerned they have ceded too much control of their content to Mr. Jobs and Hollywood studios are wary of making the same mistake by letting Apple or Microsoft establish themselves as the de facto DRM standard for digital movie distribution. “It’s difficult for the major studios to relinquish power to companies that are in the business of operating systems, media players, and rights management,” said Gregg Freishtat, chairman of Intent MediaWorks, a DRM software company.

Hollywood’s push to promote watermarking is a boon to a growing group of small software groups that include Beaverton, Oregon-based Digimarc, Hungary’s Jura JSP, and San Diego, California-based Verance, as well as technology giants such as Holland’s Philips Electronics and France’s Thomson.

Not all are convinced that watermarking is the answer to Hollywood’s problems. Radar Research’s Mr. Sinnreich said the notion that DRM will prevent piracy and secure files was “a fundamentally flawed concept.” He also said watermarks could create uncertainty over who would be legally responsible for what people do over a P2P network.

"This technique raises real privacy problems," said Marc Rotenberg, executive director of the Electronic Privacy Information Center (EPIC) in Washington. “It would facilitate profiling and marketing of consumers as well as enabling the government to more closely monitor private activities," he said.