The growing threat of optical disc piracy

The MPA estimates that the US film industry loses over $3.5 billion a year due to what we term “hard goods piracy” – primarily, today, the manufacture and sale of pirate DVDs, VCDs, DVD-Rs and CD-Rs. About $1 billion of that loss is due to such piracy in Europe, worries DARA MacGREEVY.

Six years ago, the estimated losses worldwide were $2.2 billion. With the arrival of the DVD format and the increased penetration of VCD players in many Asia Pacific markets in 1998-99, piracy reached epidemic proportions in many countries.

One indicator of the worsening piracy trend is the number of “items related to piracy” (including pirate products, packaging and equipment) that have been seized worldwide. In 2003, that number exceeded 72.8 million – a jump of 25% over the previous year and of 226% since 1999.

The MPA has responded to the threat from rising optical disc piracy by increasing its enforcement efforts worldwide. In 2003, our programmes around the globe conducted almost 50,000 investigations and participated in about 32,000 raids.

Over 16 million pirate DVDs were seized worldwide, an increase of 135% over the previous year (almost 28 million pirate VCDs were also seized in 2003). In the EMEA region, over 3.8 million pirate DVDs were seized, a jump of 383% over 2002. Even more staggering was the 491% increase last year in the number of pirate DVD-Rs seized worldwide.

The pirate DVDs that are found in Europe today are generally sourced from either Asia or Russia.

DVDs pressed in Malaysia, Pakistan, China, Thailand and Taiwan are entering European markets in ever-increasing numbers. The UK market is the worst affected, but other EU countries are being increasingly used as entry points.

With the accession of 10 new countries to the EU in May of this year and the eastwards expansion of the EU’s borders, our fear is that this trend will continue. Pirate DVDs have all but taken over the UK pirate market.

The seizure rate has exploded over the past year. In 2002, 330,000 were seized. Last year, the number hit almost 1.6 million (with a street value of over $22 million), an increase of over 377%.

Pakistan has now become one of the world’s leading exporters of pirate optical discs of all kinds and is known to have eight illegal facilities in operation. In 2003, these facilities produced upwards of 180 million discs, far in excess of local market demand.

The other source of pirate DVDs found today in Europe is Russia. Over the past two years, there has been a major surge of large-scale factory production of DVDs in Russia. There are now at least 16 DVD lines in the country. In 2002, the film industry’s anti-piracy organisation, RAPO, seized over 226,000 pirate DVDs; in 2003, this number exceeded 1.4 million DVDs.

In Poland last year, over 51,000 pirate DVDs were seized, an increase of 200% over 2002 and of a truly staggering 10,000% over 2001 (when only 481 were seized).

In Germany, the increase in DVD seizures last year was a remarkable 1,470% – over 89,000 pirate DVDs were seized. In Turkey, over 41,000 DVDs were seized, an increase of 555% over 2002.

The Industry’s response

The MPA’s investigations point to the involvement of highly organized criminal syndicates in what has become a global marketplace. The MPA centralised the oversight of its worldwide optical disc enforcement efforts in 2002 by establishing a Worldwide Optical Disc Office (WODO). Its primary focus is to target the sources of illegal replication and to identify and seek the prosecution of those involved in the distribution of our members’ movies on DVD.

In 2003, 16 factory raids were carried out in China (including 5 DVD plant raids), bringing the number of factories raided there since 1996 to 102. A further 48 raids were conducted last year on DVD and VCD factories in Taiwan, Malaysia, Hong Kong, Thailand, Indonesia and the Philippines.

In Russia, RAPO conducted three DVD plant raids in 2003, including the first against a government licensed factory in April that was believed to have been responsible for the manufacture of up to 30% of the pirate DVDs on the Russian market.

In February, the Economic Crime Police of the Moscow Region raided a further clandestine pirate factory situated on the territory of a government defense facility in Pushkino near Moscow and seized three new DVD 9 lines, about 800 stampers and over 25,000 pirate DVDs.

For the past several years, we have been actively advocating the passage and enforcement of comprehensive optical disc laws as an essential tool to limit illicit disc production, to control the import of replication equipment and raw materials and the import and export of finished product. Beneficial laws have been passed in territories such as Hong Kong, Malaysia, Macau and Taiwan.

We continue to seek to apply pressure on countries that harbour pirate optical disc plants through the Special 301 process. Special 301 is a section of the US Trade Act of 1974 that requires that the US Trade Representative identify foreign countries that deny adequate and effective protection of intellectual property rights or fair and equitable market access relying on intellectual property protection. Countries that have the most egregious practices can face retaliatory trade measures if they fail to resolve the dispute.

The MPA continues to work towards wider adoption of voluntary codes of conduct by legitimate optical disc plants and by the manufacturers of replication and mastering equipment and precursors. The MPA also actively trains local programme, law enforcement and customs personnel across the world, and liaises closely with the World Customs Organisation on both training and the development of model Customs legislation.

We have also sought to build on the relationships we have with the other intellectual property industries to improve investigative and enforcement cooperation. This industry overlap in the digital age led us to enter into a Memorandum of Understanding with the IFPI concerning joint investigations. Our high level of cooperation with the IFPI has also resulted in the recent development of a Z-CARDTM on the identification of pirate CDs and DVDs for use by law enforcement personnel around the globe.

In Malaysia, over the past year, more than 6,500 express post and courier packages containing over 140,000 pirate optical discs were seized in transit due to the cooperation of postal and courier company officials, and to a package scanning machine that was financed by the MPA, the IFPI and Microsoft.

Internet and the rise in CD-R/DVD-R burning

As enforcement authorities worldwide make it more difficult for pirates to replicate and smuggle their goods across national borders, many have shifted production to small-scale, in-country operations that can burn discs to individual customersí orders. The falling price of CD-R/DVD-R technology is also driving this shift.

In a large number of European markets, CD-R/DVD-R burning is now posing a significant threat to legitimate revenue streams, and we anticipate that this type of activity will increase.

Pirate DVD-Rs already represent a major threat to the Italian market. The discs are widely available throughout the country and regularly contain titles still being shown in theatres. Organized criminal groups dominate the pirate market and use illegal immigrant networks to sell their products. Last October, the Guardia di Finanza of Naples launched simultaneous raids on a number of pirate DVD-R labs and warehouses, seizing approximately 340 DVD-R burners, 50,000 pirate DVD-Rs, and 100,000 blank DVD-Rs.

These developments are also intimately connected with the phenomenon of Internet piracy. We are witnessing an increasing convergence between online and offline piracy, with pirates sourcing their masters from the Internet, downloading DVD ripping software and subtitles, and then distributing their wares via websites, auction sites, IRC channels, FTP sites and newsgroups.

A good illustration of this convergence is provided by an operation in France that began back in November 2001 when the French anti-piracy programme, ALPA, and the Gendarmerie in Amiens raided the owners of a French website that was used to trade in pirate hard goods. At that time, six individuals were arrested, thousands of CD-Rs were seized and the website was shut down.

Acting on intelligence gathered from that raid and following further investigations, ALPA and 450 police officers began a nationwide crackdown in July last year on a network of 160 pirates involved in trading pirate hard goods via the website. Raids occurred simultaneously in cities across France, and resulted in the seizure of 91 hard discs and 36,000 CD-Rs, of which 80% contained movies in the DivX format. 110 individuals were detained for questioning.

Last November, the German Federal Film Board published the results of its second study into the phenomenon of optical disc burning. According to the study, Germans burned over 30 million films onto discs in the first nine months of 2003, compared to 27 million during all of 2002. The most popular source for discs was reported to be other burned discs, followed by Internet downloads. The study claimed that over 2 million Germans had downloaded films from the Internet since January 2003, with over 300,000 people downloading on a weekly basis.

While pirate CD-Rs and DVD-Rs are easy to spot, finding where they have been duplicated is not. They are often produced to order, from lists passed around in schools and businesses.

Security and prevention

Apart from the various strategies against optical disc piracy outlined above, the MPA is also focused on preventing or delaying the theft of our members’ films, and on stopping their introduction onto the Internet.

Preventing the theft of our members’ movies involves activities such as site security surveys and steps to stop camcording at theatrical screenings. Nearly 9 out of 10 movies that first show up on the Internet come from camcorded copies.

Between May 2002 and May 2003, over 50 major movie titles were stolen by camcording prior to their theatrical release in the US. Our member companies are spending substantial sums to upgrade movie print security and have retained security companies to conduct routine bag examinations and handheld metal detector inspections at pre-theatrical screenings. Warning signs have also been posted in theatres, alerting audiences that they might be observed by guards using night-vision monoculars, or other methods.

The MPA’s highest priority today is to secure the digital future of its member companies, based upon the belief that unless our members can adequately protect their content, there will be no future for the film industry. We will, accordingly, continue to combat the growth in optical disc piracy with all the means at our disposal.



Dara MacGreevy is VP Regional Director of the Motion Picture Association’s Anti-Piracy, Europe, Middle East & Africa. He joined the MPA in April 1996 as Legal Counsel and became Regional Director in July 2000. Dara is a qualified barrister in Ireland and England.
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