MADRID — Thursday, downtown Madrid. A beaming Chinese youth enters a bar sporting a heavy sports bag. He pulls out plastic-covered DVDs of the next day’s big studio blockbuster bow and works the bar flagrantly. Having clinched sales, he leaves. There’s nothing particularly Spanish about this scene. What may be Spanish is its prevalence.

This month, vidtailer Blockbuster Video Espana announced the imminent closure of its 86 stores in mainland Spain. Losses for 2004 stood at E5.5 million ($6.6 million). Company estimates larger losses for 2005. Blockbuster blamed rampant piracy for its closure. Spanish figures are fuzzy, but damning.

Spain, according to a June 2005 report by the Intl. Federation of Phonographic Industries (IFPI), “is known for the most serious piracy problems in Europe,” judged not only by levels, but also the net damage wrought.

IFPI attacks music piracy. Film and TV infringement is hardly rosier. Over the last year, piracy has risen from 30% to 60% of the total Spanish DVD broadband/hard goods market, estimated Peter Smith, prexy of Universal Pictures Intl.

In comparison, U.K. piracy has risen from 25% to north of 30%. Italy reports a current 40%-50%. Why has Spanish piracy prospered?

“The Spanish market got very heavily pirated very quickly, going from 5% in 1998 to 40% nowadays, before the bonafide retail market and consumer habits could establish themselves,” says Xavier Marchand, managing director of top Brit distrib Momentum, which owns Spanish distributor Aurum. “As a result, high street and supermarket retailing is not as sophisticated as it could be. It’s a vicious cycle.”

Spain’s immigrant population mushroomed from 920,000 in 2000 to 3.5 million by 2005, and with job opportunities scarce, they turned to piracy. “Spanish authorities thought it was better for illegal immigrants to sell bootlegged discs than pursue other illicit activities,” says Antonio Guisasola, prexy of Spanish music producers assn. Promusicae.

Cultural factors also play a part.

Spaniards have scant respect for much petty authority. Non-criminal offenses — smoking bans, double-parking — are only now being frowned upon, and punished. Tentpoles and family pics survive piracy slightly better. Marchand cites the case of the Aurum-distribbed “The Lord of the Rings.”

But the situation could be looking up.

“From 2003, Spanish authorities have taken piracy more seriously, realizing it hardly furthered immigrants’ integration,” Guisasola says.

Backed by Barcelona and Madrid municipal authorities, over Christmas, Spanish police began to harass “top manta” pirates — street vendors selling new releases on blankets. In Barcelona, buyers were summarily fined.

Per Jose Manuel Tourne, director general of Spain’s Anti-Piracy Federation, 80% of “top manta” trade has now disappeared from Madrid and Barcelona. The move comes, however, as Spanish online piracy builds, powered by booming ADSL penetration, 24.5% by mid-2005. “In other countries such as Germany, there’s much better online legislation and enforcement,” says MPA anti-piracy VP Brendan Hudson.

Spain threatens to remain a pirate’s haven.