Holding Up Hollywood

These days the big star at Sony Pictures' special-effects shop, Imageworks, isn't Spider-Man or Stuart Little--it's a piece of software called Linux (news - web sites). Twelve years ago a Finnish college student named Linus Torvalds (news - web sites) hacked it together and gave it away on the Internet. Since then thousands of programmers around the world have developed it collaboratively, crafting an operating system that is fast, stable and--best of all--free.

So instead of buying pricey specialized computers from the likes of Silicon Graphics, the techies at Imageworks simply load Linux onto hundreds of cheap Intel-based PCs to crank out dazzling effects for movies like Lord of the Rings, Seabiscuit and Spider-Man. Better yet, these low-cost systems are way more powerful than what they replaced.

"Almost everything we do now we could not have done before," says George Joblove, a senior vice president at Imageworks. "To have Spider-Man swinging through New York City, to have the entire city--the sky, the buildings, everything in that frame--digitally created, that could not have been done five years ago."

Most of Hollywood's big special-effects and animation companies now use Linux. DreamWorks, maker of Shrek and Sinbad, boasts on its Web site of its "groundbreaking adoption of Linux." Digital Domain, which worked on Titanic and Apollo 13, runs Linux on about 1,000 processors. Lucas Digital runs Linux on nearly 1,500 boxes to create effects for the Star Wars epics and Harry Potter (news - web sites) movies.

But this love affair with freeware may prove costly. SCO Group, a $64 million (sales) software shop in Lindon, Utah that owns copyrights to the Unix (news - web sites) system that inspired Linux, aims to collect fees from companies that use the free code. It may target Hollywood next. "They're using a ton of Linux in Hollywood, so they've become a lightning rod for us," says Darl McBride, SCO's chief executive.

McBride points out that Hollywood studios, keen to protect their movies from being pirated on the Internet, have preached the need to respect copyrights. "It's hypocritical for them to be going around saying that they don't want their stuff to be given away for free, but at the same time saying, Boy, this free stuff sure is cool,'"he says.

And Hollywood is just the start. SCO, which has retained hired gun and Microsoft nemesis David Boies, plans to target titans of financial services, transportation companies, government agencies and big retail chains, says Christopher Sontag, an SCO senior vice president. SCO aims to collect a one-time fee of $699 for every server processor that runs Linux. That would offer a nice windfall:Worldwide, nearly 2.6 million machines run a server version of Linux, says IDC, a market researcher. SCO has a list of 300,000 Linux servers and their owners. Earlier this year it sent warning letters to 1,500 big companies and claims some have signed up, though it won't name any. "We're ahead of plan," Sontag says.

McBride concedes that many firms scoff at the notion of paying fees to some little, unknown outfit, especially since SCO hasn't proven its claims are legitimate. Formerly known as Caldera, the firm didn't even play a role in creating Unix, laying claim to it through a circuitous round of deals. AT&T sold its Unix version in 1992 to Novell, which in 1995 sold it to a firm named Santa Cruz Operation, which in 2001 sold it to Caldera. Santa Cruz became Tarantella and last year Caldera renamed itself SCO.

So what if the studios tell SCO to take a hike?"We're going to force people down a path,"McBride says. "They can choose licensing or litigation. If someone says they want to see a court ruling before they pay, we'll say, Fine, you're the lucky winner. We'll take you first.' I'd be surprised if we make it to the end of the year without filing a lawsuit."

SCO began its litigious crusade in March when it sued IBM for $3 billion, alleging IBMdevelopers put Unix code into Linux. IBMdenies it and has filed a counterclaim; a federal trial is set for 2005 in Salt Lake City.

By contrast, the assault on Hollywood has started on a softer note. SCO claims it has had brief conversations with executives at Fox, Universal and Sony Pictures. Patrick Scholes, an investment banker at Morgan Keegan & Co. who advises SCO, says that on Oct. 9 he spoke by phone with Mitch Singer, a senior vice president at Sony Pictures, broaching the fact that Hollywood companies use a lot of Linux. Scholes says Singer understood the implication. "He said, Okay, I can read between the lines,'" Scholes recalls.

Singer was unavailable for comment. Sony's Imageworks runs Linux on 1,400 dual-processor servers. But executives there say they have had no conversations with SCO, and Imageworks President Tim Sarnoff says he isn't worried. "It's not on our radar right now." DreamWorks and Lucas Digital declined to comment on SCO's threats, as did Digital Domain.

Most of these companies use Linux in "render farms," where hundreds of low-cost Intel-based servers are yoked together to do the number-crunching needed to churn out visual effects and animated images. Imageworks and others also use Linux to power some desktop machines that artists use.

Until two years ago most effects shops used expensive workstations from SiliconGraphics. The SGI machines used specialized chips and SGI's own souped-up version of Unix. But these days ordinary Intel machines can outgun SGI machines for a fraction of the price, and free Linux sharpens that edge. Hammerhead Productions, a 30-person effects house in Studio City, Calif. that created effects for Blue Crush and 2 Fast 2 Furious, uses Linux machines that cost one-tenth the price of its old SGIgear--$1,200 versus $12,000--and yet are ten times faster, says Thaddeus Beier, director of technology.

Beier, who runs a 30-server render farm, says he hasn't heard from SCO, but the idea of being asked to pay for Linux makes him furious. "That just sends me right up. If I had explosives, I'd be in Salt Lake City," he says, adding that if SCO presses him, he may drop Linux and switch to a free version of Unix.

Some tech execs say SCO is bluffing and running a shakedown. Investors believe otherwise; after all, SCO previously bought a little-known program related to Microsoft DOS and exacted a multimillion-dollar settlement from the formidable software giant. SCO shares, which traded at less than $1 before SCO sued IBM, have soared to $17.36. And even at that price Deutsche Bank analyst Brian Skiba rates SCO a buy, saying it could hit $45 in the short term.

Two investors, Integral Capital Management and Royce & Associates, recently have boosted their stakes in SCO, Securities & Exchange Commission filings show. In October BayStar Capital paid $50 million to acquire a 17.5% stake in SCO through a private placement of 2.9 million shares.

BayStar is betting that SCO will be able to collect license fees from Linux users. "We think this licensing initiative is going to work," says Lawrence Goldfarb, managing partner. "We spent a lot of time calling around to potential licensees, and we believe SCO is going to sign enough companies to make this an interesting growth story."

McBride's assault on the "peace and love" Linux movement already has made SCO the most hated villain in the computer industry. Now he wants to shake down the people who make cartoons for kids. Happy to play the heavy, he tells of receiving voice mail recently from an anonymous caller who challenged him to a fistfight, leaving a callback number, "if you have the guts." Feeling playful, he had his secretary contact the irate critic and offer to set an appointment for the clash. The caller declined.

Wow. This one reads like it came from SCO's PR people. Besides the one line about 'tech people suspect a shakedown' there is no counterbalance. Yahoo maintains it's high journalist standards once again.

A lot of people are going to buy SCO stock and lose their butts when IBM cleans up in court. And Linux will be made to look like a bad thing because investors lost money on SCO.

This is one of those days I wish IBM would just buy them and make the problem go away.

SCO has obviously been studying the shakedown tactics of Jesse Jackson and personal injury lawyers.

Not in this case. My hunch is that this sort of claim ("you are infringing my copyright, and I will sue you!") is a daily occurrence in Hollywood. Every movie and song probably draws callers claiming that the idea was ripped off from something else. The studios probably have lawyers on retainer just to make guys like this go away.

SCO would be walking into a buzzsaw suing Hollywood. They know all there is to know about fighting copyright lawsuits, and they are not going to fall for McBride's nonsense about not having to reveal what it is that's been copied. That might slip by a computer industry trade journalist, but a Hollywood copyright lawyer would just laugh.

The only reason McBride would pick Hollywood is because he'll get more publicity that way. And that's all these guys really care about. Their court cases aren't serious, they are just ornaments on a PR campaign.

The interesting thing about this article is that McBride has just contradicted what his own lawyers told the judge in the Red Hat case. They are trying to get that case dismissed, saying that SCO has never threatened to sue Red Hat or its customers. All Red Hat needs is one customer in Hollywood, and McBride has just negated his own lawyers' attempts to get the lawsuit against SCO dismissed.

McBride shooting his mouth off here may have just handed Red Hat a declaratory judgement, saying that Red Hat linux does not infringe SCO's copyrights. The more McBride talks, the deeper the hole he digs for himself.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.