The concept of watermarks for video content (it's harder to get away with in audio) is really just serialization. Think of somebody stamping a serial number into the DVD you just purchased. That serial number travels with any copies you make, so if it ends up in a BitTorrent someday, it can be traced right back to you.
Great idea, or at least so thinketh Tivo and others.
Some problems come to mind, though. The first one is theft. Let's say I legitimately transfer a TivoToGo show to my PC. For realism, let's make it my Microsoft PC. I have done due diligence with regard to anti-virus and anti-spyware software on this PC, but dag-nabbit, the fool thing gets infected because of a zero day exploit. Not that anything like that would ever happen, of course. Nothing to worry about, right? Anyway, this takeover of my machine transfers everything of value out to a server in some other country, and of course that includes all the Tivo content, which immediately is offered for download at cut-rate prices. Is that my fault? My bet is that the movie studio and Tivo would look at it that way.
Another scenario is my watermark appearing and I don't think I ever owned the movie in question. Quite naturally, I'd like some proof that the studio or Tivo or whoever really is absolutely certain that this watermark belongs to me. In other words, I and my attorney would like to see the source code that produces the watermark. Do you think the offended parties will just hand that over willingly? Somehow I doubt it - I bet that would be considered extremely proprietary, because letting out the code would make reverse engineering with an eye toward removal that much easier.
But why would it be that hard anyway? I would think that if you wanted to steal this stuff, all you'd need to do is compare a number of copies of the same content and see where they differ. Sure, there will be red herrings in the bits, but with enough copies, couldn't you figure out what was going on - at least enough to obfuscate the watermark? Of course the people developing watermarks are trying to avoid those problems.
My gut feeling is that the pirates will win this battle.
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