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MICHAEL HILTZIK

Casual purchase of counterfeit DVD shines light on piracy

High-quality copies pose a real, and frightening, capacity to take a bite out of the legitimate retail market.

January 04, 2010|Michael Hiltzik

About a week before Christmas, I took a stroll around the Los Angeles Toy District and bought a pirated DVD.

As I wrote on Dec. 21, curious about the quality of the merchandise for sale on the street, I shelled out five bucks for a copy of the movie "District 9," which was still days away from being available in your local retail store.

As I've been informed, quite properly, by readers in and around the movie industry, that casual act made me part of a global problem that is killing jobs and eliminating opportunities for creative people everywhere.

Consider this the other side of that column.

What I expected to find in the case I bought from a street vendor was a traditional crummy camcorder copy, providing the view and sound of a screen somewhere far on the horizon but of the audience too, chattering, coughing, and getting up to go to the bathroom. Such low-quality copies are among the largest single categories in the international film piracy trade, especially overseas, though digital copies and online files made from stolen prints or discs are posing an increasingly serious threat.

Indeed, but what I got was a high-quality digital copy with up-to-date trailers, a navigable menu that (mostly) worked and even some special features. Plainly the source was a DVD diverted from the retail stream -- stolen from a warehouse, perhaps, or slipped to a gang of copiers by a confederate at a DVD factory.

In other words, the pirates have really got their act together. Product like this has a real, and frightening, capacity to take a bite out of the legitimate retail market.

The retail stream is porous, and it only takes one lost disc to start the counterfeiting process, says Michael Robinson, chief of content protection at the Motion Picture Assn. of America, or MPAA. Sometime before the release date, "one will leak," he says, "usually after you've produced millions and they're in process of being shipped to distribution centers."

The direct costs of movie piracy are impossible to measure accurately. In 2005, the MPAA estimated the direct loss to its member companies at $6 billion and the total loss to the global industry at $18 billon, or about 5% of all revenue. Around the same time, a Washington think tank placed the cost in lost or forgone U.S. jobs and tax revenue at nearly $27 billion.

One problem in estimating the cost is that the industry isn't above blaming piracy for losses that may have more mundane causes. In 2003, Universal blamed illegal Internet viewing of a work print for killing the buzz for its would-be blockbuster "The Hulk." Yet the movie scored a very healthy gross of $62 million on its opening weekend. Universal's claim that piracy accounted for its sharp drop-off thereafter glossed over the possibility that the real reason for the bust was the putrid word of mouth from theatrical audiences.

Rand Corp., in a study this year of piracy’s links to organized crime, warned that all estimates "should be taken with caution." Still, it concluded that, whatever the real figure, it's rising dramatically.

Piracy's effect goes beyond the direct loss of revenue from customers downloading an illegal copy or buying a pirated disc on the street. The movie industry's distribution infrastructure is eroding worldwide because selling legitimate DVDs in some countries no longer pays. In 2006, Blockbuster cited piracy as one reason it was closing its 86 stores in Spain: Of DVDs viewed in Spanish households, the company contended, 60% were pirated. Illicit downloading of content from the Internet is even beginning to cut into the audience for pirated hard copies.

For independent producers, these indirect costs can be much more devastating than direct losses. That's because to get capital, indies depend on deals with foreign distributors, who pay upfront or offer revenue guarantees to get the cameras rolling. In some countries piracy has cut distributors' expected income so sharply that they're offering guarantees of a fraction of what they used to.

"DVDs used to be a huge revenue source for independent distributors," says Richard S. Guardian, co-president of Lightning Entertainment, a Santa Monica distribution agent for independent productions. "But when the DVD business is worth a fraction of what it used to, distributors are going to be much more selective, and they're going to pay much less money upfront for our films."

The movie industry complains that consumers, lawmakers and law-enforcement agencies all take too casual an approach to intellectual piracy.

"People must have the attitude that this is stealing," says Avi Lerner, chairman of indie production company Nu Image and producer of the recent release "Bad Lieutenant: Port of Call New Orleans." "If you steal a car, you'll go to jail. If you steal the work of thousands of people, no one cares."

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