Unkindest Cuts?

Cuts promises "You bring the video, we bring the edits." Users can condense video, mash it up with other video, create popup commentary, even recast movies with different actors. By separating the edits from the underlying movie, Cuts believes it's complying with copyright law. Cuts promises to work with multiple formats, including protected WMV files and files downloaded from the iTunes Store. You can share your "cuts" with anyone else who owns the same file. But the original content is never shared or altered, which is why Cuts thinks it's complying with copyright law: its editing software is even called a "virtual remote control." (Separate query: does using Cuts violate the iTunes contract? If so, is Cuts therefore tortiously inducing breach? The current contract doesn't seem to prohibit this conduct -- but give it time.)

We never did get an answer to the question "Does a ClearPlay program create a derivative work?" Because what Cuts does goes beyond that authorized in recent amendments to the Copyright Act, perhaps that question must be asked now. Some discussion from Cuts here. Video demo here.

I am particularly interested in the attribution aspects of this. Cuts contends that, by separating edits and original content, integrity and proper attribution are assured. No one could mistake one for the other. That's surely true of the parents using this to edit out the scary scenes of Finding Nemo. But I can't reconcile the attribution-safety claim with the simultaneous boast that, because there will be more viewers than editors, people will be able to download others' edits rather than redoing the work for themselves. If they're not familiar with the underlying content, they won't be able to distinguish the original from the edited version -- and certainly their kids won't.