ACTOR: Down! All hands down!
JEFFREY KAYE: If you want to take in a new movie, one not yet officially out on DVD or video, you could go to your local Cineplex and pay to see it on the big screen. Or you could go to Santee Alley in downtown Los Angeles and buy a pirated copy of a new film from numerous bootleg movie vendors, all openly hawking their illegal merchandise.
The bootleggers' selection of DVDs is up to date. For five bucks a copy, you can buy films currently in the theaters, but not in the video stores, and if you're curious about the quality, you can even get a free preview. This bootleg movie vendor, he wouldn't give his name, said sales are brisk.
VENDOR ( Translated ): I can sell all these in a day. Fifty, I can sell about 50 to 60 movies in a day. That adds up to $300 in profit.
JEFFREY KAYE: Santee Alley is just one outpost in a mushrooming global black market of pirated movies. Hollywood studios claim film piracy costs them billions of dollars in lost profits, and threatens to undermine the economic foundations of moviemaking. Barry Meyer is chairman and CEO of Warner Brothers Entertainment.
BARRY MEYER: I'm not saying that our industry dries up overnight as a result of piracy. But I think slowly, over a period of time, the amount of product that we make and are willing to make investments in will decrease and contract, if we can't protect the product from theft. You would not grow as many tomatoes if you couldn't sell them and protect people from stealing them. It is just a basic economic fact.
JEFFREY KAYE: There are various ways pirated movies get to the black market. Some bootleggers sneak camcorders into theaters and shoot the movie right off the screens. These can vary in quality. We bought a bootleg DVD of "The Last Samurai."
MOVIE: And those drops became the islands of Japan.
JEFFREY KAYE: The picture was blurry and it had Spanish subtitles that couldn't be removed. Another source for bootleg films is industry insiders. Pirates have obtained high-quality film copies during some phase of post-production, such as editing. They have also gotten their hands on screener copies, such as those sent to Academy Award judges. Once obtained, stolen films are often distributed globally on the Internet. And online, bootleg movies can be copied unlimited times, says Christopher Johnson, a Los Angeles federal prosecutor involved in several film piracy cases.
CHRISTOPHER JOHNSON: When that gets up on the Internet, where it is acquired by a criminal group, in any fashion, they can make unlimited copies. And sell those in the same kind of movie format you would buy in the store.
SPOKESPERSON: How much are these?
SPOKESPERSON: Five dollars.
JEFFREY KAYE: Organized crime rings, seeing a low-risk lucrative market, are increasingly getting into the film piracy business, say federal law enforcement officials.
CHRISTOPHER JOHNSON: We see them utilizing their distribution chain, which used to be used primarily for narcotics and stolen property, things of that nature. And they're now finding that they can readily distribute vast quantities of illegally obtained copyrighted material, and make a fortune doing so.
JEFFREY KAYE: Asia is a major battleground between movie pirates and law enforcement. In the Philippines, police conduct military-style assaults on bootleggers. Working hand in glove with the film industry's trade group, the Motion Picture Association, police say last year they seized nearly a million pirated DVDs. In Manila last April, a raid on merchants selling bootlegged DVDs ended in gunfire.
SPOKESMAN: Hey, John. Take out your laptop.
JEFFREY KAYE: But for millions of Internet users, there's little drama in obtaining pirated movies.
STEVE QUEZADAS: You know, there's lots of people who, you know, trade movies like they do bubble gum cards.
JEFFREY KAYE: Steve Quezadas is a computer security specialist who dabbles in online movie swapping.
STEVE QUEZADAS: Trading movies over the Internet used to be the domain of hackers and underground people, but now it's becoming more and more mainstream. It's becoming like downloading music, where people do it without thinking. You know, there's some hardcore people who do nothing but collect, but, you know, more and more people are just casually downloading things here and there.
JEFFREY KAYE: By accessing file-sharing networks, it's easy to find a movie online.
JEFFREY KAYE: So, the Oscar-nominated film, "Master and Commander," is that available?
STEVE QUEZADAS: Sure. You can just type "Master and Commander" here. And you scroll down and you have "Master and Commander."
JEFFREY KAYE: Five different versions of "Master and Commander."
STEVE QUEZADAS: Five different versions of "Master and Commander," some in different languages, some in different qualities.
JEFFREY KAYE: And to download them, what do you do?
STEVE QUEZADAS: You just simply click on the link.
JEFFREY KAYE: High-speed Internet connections allow users to exchange films at ever faster rates.
CHRISTOPHER JOHNSON: When you look at the size of a standard movie file, for a bootleg movie file, it's approximately 600 megs to one gigabyte in size. To move that file 12 years ago would have taken 8.2 days.
JEFFREY KAYE: And today?
CHRISTOPHER JOHNSON: Today, with a three-megabyte connection, which is largely becoming the standard in fairly high-speed home markets, it would take about 42 minutes.
JEFFREY KAYE: The film industry monitors Internet sharing sites and sends cease and desist letters to Internet service providers with instructions to contact users suspected of illegally downloading films. U.S. law enforcement is also gradually cracking down on movie pirates.
Federal authorities recently indicted Russell Sprague for allegedly obtaining and copying Academy Award screener copies of such films as "Mystic River." He has pleaded not guilty. The Justice Department has also accused four employees of a Hollywood DVD duplication company of copying and distributing such recent films as "Matchstick Men" and "Kill Bill."
Attention to security is changing the way the film industry does business. At production facilities, surveillance cameras and searches are increasingly common to prevent film copies from being smuggled out. Prints of many new films are now made with so-called watermarks-- invisible digital tags that allow authorities to trace a pirated movie to its source copy. Warner Brothers officials said they could trace our bootleg copy of "The Last Samurai" to the specific movie theater where it was shot on a camcorder.
RAMNATH CHELLAPPA: The movie industry has to first accept that it is impossible to fully put an end to piracy.
JEFFREY KAYE: Impossible?
RAMNATH CHELLAPPA: Impossible, because the genie is out of the bottle.
JEFFREY KAYE: Ramnath Chellappa, a professor of information management at the University of Southern California, studies film piracy. He argues that to fight movie bootlegging, Hollywood has to compete with pirates in the marketplace.
RAMNATH CHELLAPPA: Can we do, for example, product segmentation? You know, like create a high-quality and a low-quality movie? One version of the DVD, with songs, with games, with all the other paraphernalia that a real fan of "Lord of the Rings" would want.
JEFFREY KAYE: And that would be more expensive than the other version, which would contain...
RAMNATH CHELLAPPA: Which would contain the bare minimum movie.
JEFFREY KAYE: Although the film industry hasn't adopted that model, it is trying to compete with movie-swapping on the Internet. A coalition of five studios is behind a Web site where movies can be downloaded for $3 to $5 each. Hollywood also hopes new laws will help fight piracy. Pending legislation would make it a federal crime to possess a copy of an unreleased movie, punishable by up to three years in prison.
JEFFREY KAYE: But even as they introduce new weapons in their battle, Hollywood studios predict revenue losses due to movie piracy will increase in the year ahead.