Meeting Report - May 17, 2005

Theft and Piracy in Motion Pictures and Broadcast

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Richard Atkinson, Walt Disney Studios, and Darcy Antonellis, Warner Bros., provided a fascinating look behind the scenes at how two major Hollywood studios are dealing with the increasingly serious economic issue of the theft of intellectual property in the motion picture and broadcast
industries. The negative impact on legitimate business was illustrated with amazing charts, graphs, maps and photos along with samples of pirated content and counterfeit packaging.

Richard provided a general overview of Media Piracy – what’s happening, by whom, how, what and why – using Disney movies as an example – along with a little of how we are responding as an industry. Richard reported the profit from cocaine trafficing is considered to be 100%, heroin - 400%, and the sale of illegal DVD’s – 800%! Only the illegal sales of popular computer software, at 900% margin, were more profitable. There are very, very few post production leaks these days; the pre-release screenings are under control but as few as four screen video camera copies during the
first 48 hours of a film’s release can result in VHS rips worldwide in several languages that are added locally through the piracy ecosystem. Through the use of slave labor in some countries and very sophisticated communication tools such as internet mailing lists the techniques used are
similar to the drug trade and extremely difficult to defeat. On a recent popular film release all the illegal DVD’s worldwide resulted from just 10 pirated screen captures. Within 24 hours of the film’s release the DVD’s were fully replicated and available to the man-on-the-street in Indonesia. Within 14 days good quality disks were available in every major market and could be traced to these same sources. In terms of the broadcast industry, on the West coast it is possible to illegally download the East coast feed of popular shows from the internet long before the West coast airing because of time zone differences.

Richard stated that Disney’s approach was to learn deeply and understand the problem in order to become more strategic and less reactionary and tactical. He reported there have been great improvements in the past 24 months and they consider themselves to be proactive and strategic.

Darcy then shared a specific look into how the studios are specifically responding – using Warner as the example – from priority, to organization, to key metrics and urgency. She reminded us of the $3.5 billion impact of this worldwide issue. Through research in 21 countries loss estimation models have been built to arrive at this figure. If internet sales were included the figure would double to $7 billion. 30% of individuals surveyed reported they had downloaded illegal music or movies, including some industry professionals – only half of whom believe this is a serious problem. Anti-piracy efforts must be customized for individual markets. 23% of all DVD’s sold in the UK are pirated at an industry loss of $550 million. China has a manufacturing capacity of 2.6 billion disks and in some countries illegal duplicating facilities are on government property and the illegal sale of intellectual property is seen as less offensive to the authorities than the other activities, such as drug dealing, theft and prostitution that these same criminals would otherwise engage in. Due a
considerable reduction in the cost of entry into illegal screen capture, duplication and distribution illegal DVD’s of a recent Disney film were available in 24 countries within one month of its release.

Illegal camcording is now a felony in the US and this is a huge step forward. Warner Bros. has intensified their digital rights management efforts and monitoring services and has greatly reduced the number of screeners made available prior to the release of the official DVD. Intensified efforts at making the general public aware of the seriousness of the offence and the severe penalties that could ensue and educating children about intellectual property and the surrounding issues are
underway. As an example of consumer awareness Darcy screened a commercial from Germany warning of the dangers of media piracy and told us of upcoming discussions with the FBI to discuss the effectiveness of existing warning messages and other public policy concerns. New business
initiatives include a review of day-and-date strategies, video on demand and other alternative release patterns.

The section plans a follow up meeting in the coming year on developing technologies, forensic tools and marketing strategies to combat this growing problem.

SUBMITTED BY:
Name: Patricia Keighley Section Chair
Company Affiliation DKP 70MM Inc., An IMAX Company