HOLLYWOOD — When Motion Picture Assn. of America prexy Jack Valenti testified last week that “it’s only a matter of time” before hackers crack the encryption codes on DVDs to pirate them, little did he know it would be sooner than he thought.

This week, anonymous hackers in Europe distributed on the Internet a DeCSS program that removes the copy protection technology on most DVDs, allowing them to be copied using a computer’s DVD-ROM drive.

Most DVDs also carry the CSS copy protection codes, designed to ensure that discs sold in the U.S. can’t be played on machines sold in Europe or Asia. The DeCSS program would also do away with those safeties.

Once heralded as unbreakable, DVD’s protection codes reportedly were cracked due to a gaffe by a software developer and the weakness of the encryption technology.

The hackers’ move signals that in the World Series of movies, the pirates are winning. And the industry may never be the same.

Vastly improved digital camcorders are enabling a new crop of criminals to tape the onscreen action in theaters and create quality bootleg films to sell on public street corners or on the Internet.

And the DVD, though studios and industry groups hailed it as the “next big thing” for home entertainment, is beginning to show its more dangerous side: Popular U.S. releases can be bought online by a viewer in Europe or Asia, long before the title hits those shores in theaters, let alone homevid.

Currently, it’s possible (but not easy) to find a handful of film titles, such as Par’s “Sleepy Hollow” and Pixar’s “Toy Story 2” on the Web. But by next year, some 30 million PCs in the U.S. are expected to be equipped with DVD-ROM drives. The new hardware can play any DVD disc, enabling would-be pirates to start posting movies on the Web.

Costly problem

With DVD hitting critical mass, e-commerce estimated to be netting $85 billion by 2003, and with 10 million U.S. homes expected to have high-speed Internet access by the end of next year — meaning feature-length pics can be downloaded in 15 minutes — the MPAA is bracing for an “avalanche” of ‘Net piracy from digital delivery, Valenti said.

DVDs, unlike videocassettes, have a standard format around the world. The multi-language soundtracks many studios put on DVDs only adds to their appeal outside the U.S.

Its popularity could eventually force Hollywood film and homevid execs to schedule global day-and-date openings of a film to combat piracy and e-commerce on the ‘Net.

“If this phase of sophisticated piracy cannot be curbed — and I don’t know how it can — and movies become instantly available on the Internet, it will change the economics of the industry,” said Tom Pollock, producer and former CEO of U Studios.

“And if the economics change, so will the content. We will have virtually simultaneous worldwide day-and-date releases around the world, which will make present-day high marketing costs seem but a fond memory. Also, it will dramatically shorten the window between theatrical release and whatever new forms of home delivery will be afforded by Internet streaming.”

Different methods

Digitally-enabled piracy comes in several flavors: The most common is the anonymous sale of bootleg cassettes and discs over the Internet. (Bootlegs are dubs of tapes made with digital camcorders in movie theaters or are struck from stolen prints).

Another is simply an update of the long-standing problem of illegal dupes of legit cassettes and discs. But anti-piracy cops say the problem will worsen, because every digital dupe is as good as a studio original.

The flavor that studios fear most, however, is downloading movies stored on Web sites. Once a movie makes it into cyberspace, it’s impossible to control where it goes or how many times it goes there, stripping the copyright owner of his property.

Valenti’s testimony last week in D.C. pointed out that studios are embracing digital technology, but they have serious concerns about the increased potential for piracy.

“The hundredth copy of a digitized movie is as pure as the original, whereas in the analog world, each copy is degraded in quality. With a single keystroke, a pirate can do millions of dollars’ worth of damage to the market for a film, even if the pirate doesn’t make a nickel himself,” Valenti said.

In an effort to combat the growing digital piracy, the MPAA tapped Bill Hunt to the newly created post of chief technology officer, charged with coordinating the group’s Internet and optical media antipiracy efforts.

The reason for the growing hysteria can be blamed on the music biz, which allowed the Internet to be littered with tens of thousands of Web sites that post music tracks for free downloading, most unauthorized by copyright owners. Hollywood’s film execs fear a replay of the music problem.

Last year, Congress passed the Digital Millennium Copyright Act, which makes the circumvention of digital anticopy systems illegal. But, as Valenti notes, “All the equipment needed to upload a movie on the Internet fits in a laptop computer, and can be done anywhere in the world.”

“Bear in mind that we don’t have broadband access today, so we don’t have many movies on the Internet today,” Valenti adds. “But by the middle or end of next year, we will have an avalanche.”

As a result, Valenti said a wave of high-tech piracy could “dwarf the dollar amounts we lose today.”

Not everyone shares Valenti’s bearish view of the future. Reps for the hardware manufacturers, testifying at the same House of Representatives hearings last week, attribute efforts by studios to limit the ease of copying to a desire to extract consumer dollars.

Gary Klein, of the Home Recording Rights Coalition, said Valenti is trying to “take the ‘L’ out of the play button and make it the pay button.”

Global problem

Like everything with the ‘Net, the problem is not confined to the U.S. Once a movie is posted on the Web, anyone in the world with a PC can access it. Estimates are that 7 million people worldwide have broadband cable service, a number expected to triple by the end of 2001.

Still, the size of digital movie files online are large and can take from five hours to days to download — as opposed to digital music files, which take mere minutes to copy and listen to. Once viewed, they’re often smaller than Post It Notes.

The quality of the pics are often unwatchable, offering a shaky picture, poor sound and even conversations and the rustling of popcorn bags from viewers sitting next to vidscam culprits.

And just finding the pics is hard enough. Sites with downloadable bootlegs are frequently shut down by Internet service providers only to reappear at a different Web address.

The MPAA may currently have nothing to worry about, considering the majority of online film viewers isn’t the general public but scrappy college kids in dorm rooms with free high-speed Internet connections, burning downloadable pics onto CDs.

But that will soon change:

  • Amateur pirates on campus, in fact, are the prime source of illegal music on the Web and are leading the charge into movie-posting.

  • Companies like Pixelon.com are making online video viewable full-screen in TV-quality, upping the interest from Netizens to view online programming.

  • With digital projection hitting theaters, studios will be making more digital prints of their pics. Pirates will be doing anything they can to get them.

  • Computer retailers this Christmas expect to see a boom in the sale of DVD-ROM-equipped PCs, enabling any DVD disc to be played; that will give would-be pirates easy and cheap access to all the equipment they need to start posting movies on the Web.

Speaking at an industry forum last month, Columbia TriStar exec VP and prexy of industry consortium the DVD Video Group Paul Culberg, notes, “There are 15 million college students in the U.S., and the PC is rapidly becoming their core entertainment device. They certainly know that a DVD-ROM drive can play movies.”

Sales pitches

New forms of e-commerce, such as online auction sites at Amazon.com and Ebay have given bootleggers access to world markets. Emboldened by the anonymity of auctions, pirates offer illegal dubs of new theatrical fare, shipping them anywhere in the world.

Auction sites do not police what is for sale, in part to protect themselves from liability in cases of bootlegging.

And even if bootleg auctions could be shut down, the Internet would still pose a challenge to Hollywood.

Legit product sold online in the U.S. would still quickly find its way overseas, including territories where the pic has not yet been released.

The Video CD format is popular in many Asian countries, where a black market in VCD discs has left U.S. distribs gun-shy about bowing the higher quality DVD format there.

Antipiracy sources also note that more sophisticated bootleggers in Asia have begun setting up illegal DVD pressing facilities, particularly in Malaysia, and expect the problem to worsen as more consumers around the world get DVD players.