New York Times - Nature and scope of piracy in Hollywood

Excerpts and Highlights (in block quotes):

Why piracy matters to Hollywood?

Piracy in the digital era is more lucrative, sophisticated and elusive than ever - and poses a far bigger financial threat.

Hollywood reported global revenue of $84 billion in 2004, according to PricewaterhouseCoopers, the accounting firm. With most theatrical releases amounting to little more than an unprofitable, expensive form of marketing, DVD's have become Hollywood's lifeblood: together with videos, they kick in $55.6 billion, or about two-thirds of the industry's annual haul, with box-office receipts making up most of the rest.

Correction: Sept. 4, 2005, Sunday:

An article last Sunday about film piracy included incorrect revenue data supplied by the Motion Picture Association of America. Hollywood's global revenue in 2004 was $44.8 billion, not $84 billion. Of the total, $21 billion, not $55.6 billion, came from sales of DVD's and videos.

Why is it happening now?

Film piracy is taking place against a larger backdrop of technological and demographic shifts that are also shaking Hollywood. Elaborate home theater components - like DVD players, advanced sound systems and flat-screen TV's - are helping to shrink theatrical attendance, as more and more film fans choose to watch while stretched out on their couches. And with the advent of high-speed Internet connections that can deliver large film files to personal computers, the movie business is confronted with the same thorny challenges that the music industry encountered several years ago with the emergence of file-sharing programs like Napster.

Others watching the wrangling between Hollywood and film pirates say the online world offers an alternate distribution system - free from the confines and control of movie studios and television networks - that will allow independent filmmakers to reach a broader audience. Their concern is that antipiracy efforts will stymie innovation.

Who is involved in movie piracy?

Online, piracy essentially has no boundaries. But the packaging and distribution of bootleg DVD's take place in a number of far-flung locales; among the hot spots are the United States, China, Russia, Britain, Indonesia, Malaysia, India and the Philippines.

At the heart of this network, according to federal investigators and analysts, are cybergeeks who fashion themselves as digital Robin Hoods, stealing from rich studios and giving film fans a free ride. Operating alongside them are cold-blooded hard-core criminals who have the money and connections to efficiently hijack and distribute films within hours of - and sometimes even before - a theatrical premiere.

"The parts of the world where replication is thriving are where large-scale operations exist, sometimes controlled by organized-crime groups who can afford to spend more than $1 million on a replication machine," said John G. Malcolm, who oversees antipiracy efforts for the Motion Picture Association of America. "Asia is piracy central, and a majority of the world's pirated discs are replicated there."

Piracy threatens the value of intellectual property in the creative economy:

"This is not just about the film industry: whether you're talking about the pharmaceutical industry, the information technology industry or filmed entertainment, the protection of intellectual property is crucial," said Darcy Antonellis, who helps oversee antipiracy efforts for Warner Brothers, a unit of Time Warner. "If we can't build businesses around ideas, and feel comfortable that we have the right to those ideas, then our entire business is threatened."

The Supreme Court recently affirmed legal protections for creative content distributed online when it overturned a lower court's decision to dismiss a copyright infringement case that Metro-Goldwyn-Mayer Studios and other entertainment companies brought against Grokster and another company that makes file-sharing software. The ruling will make it easier for Hollywood to litigate more aggressively, should it choose to do so. Studios say that such protections are merited because it now costs about $98 million, on average, to produce and market a film domestically, while 6 of every 10 new films lose money.

The world of bootleggers and pirates:

Piracy teams are typically known as "warez" groups, a street derivation of the word "software" that is pronounced "wares." Members all have nicknames, or "nics," and their true identities usually remain hidden, even from one another. Investigators and others familiar with piracy say that aspiring bootleggers secure admission to a warez group by either running a computer server where the movies can be stored or by sharing copies of stolen films.

NEEDLESS to say, warez pirates also have a willing and enthusiastic online audience. Like music lovers who pounced on Napster's offerings without questioning whether they were trading in stolen goods, film buffs have been flocking to public peer-to-peer computer networks that traffic in movies. Average Joes and Janes who download movies also have a designation in the piracy world: "leeches."

Law enforcement officials say two groups are involved in online film piracy: a nonprofit arm that is in it just for the kicks and a much smaller arm that is in it for the money. Those in the first group are happy to accept free downloads of other films in exchange for successfully uploading a copy of their pirated film, investigators said. Mr. Smith, the software developer, said that someone in the pay-for-play crowd can put in about a week of hard work and then usually earn enough cash to pay for a year of private college tuition.

The Asian rings also have strong roots in the United States, law enforcement officials say. Last fall, federal prosecutors in New York indicted 51 people linked to the two largest Chinese organized-crime families in the city. Charges ranged from human smuggling and extortion to money laundering and murder. Law enforcement officials said people named in the indictment were also heavily involved in film piracy.

Law enforcement strategy/focus:

"We continue to focus so many resources on this form of online piracy because we have hard evidence that the top-level warez groups are releasing a product that is not only being distributed freely over the Internet, but is also being supplied to the for-profit, hard-goods market involved in copyright infringement," said Michael M. DuBose, deputy chief of the Justice Department's computer crime and intellectual property unit.

Size and scope of the problem:

While the amounts of money involved in piracy can only be estimated, some successful prosecutions reveal the handsome sums involved. In April, two Americans working in China, Randolph H. Guthrie III and Abram C. Thrush, received prison sentences in Shanghai for illegally selling $840,000 worth of pirated DVD's and for stashing more than 210,000 of the knock-offs in three warehouses. American and Chinese law enforcement authorities said the pair sold the DVD's on eBay and through a Russian Web site to buyers in almost two dozen countries, including the United States.