Back in 1999, armed with a few simple tools, you could have copied a DVD in less than 10 minutes. The key was descrambling software, written by a 15-year-old Norwegian, that decoded the encrypted data stream to your TV.
Today, Norwegian police let stand a court ruling that Jon Johansen, the developer of that (DeCSS) software, had the right to copy movies (so he could watch them however he wanted) and that there was no proof his software had been used to illegally copy copyright material.
How serious a defeat is this to the movie studios?
In theory, just as Napster hurt the major record labels, movie pirates could ultimately threaten the seven companies that own major Hollywood Studios: Disney (NYSE:DIS), Time Warner (NYSE:TWX), Sony (NYSE:SNE), Viacom (NYSE:VIA), Metro-Goldwyn-Mayer (MYSE: MGM), News Corp. (NYSE:NWS), and soon-to-be General Electric (NYSE:GE).
But it won't be easy. For one thing, The Motion Picture Association of America (MPAA), of which the seven major studios are on the board, has had a string of successes in the U.S. defending copyrighted material. With 80 nations now having some sort of copyright law, the MPAA has been active in defending copyright holders and getting legislation passed that strengthens existing laws.
For another, while DeCSS has been available since 1999, it has not had nearly the impact Napster has had on the music business. One reason is that a 4.6-gigabyte movie takes a lot of time and resources to move across the Internet. Even relatively modest piracy can be detected, and the MPAA and other watchdogs can take action.
Still, the industry claims that 400,000 to 600,000 movies are pirated every day -- how many involve DVD copies downloaded over the Interenet is unknown. And yes, the stakes in the movie business are high. According to the MPAA, only one in 10 films recoups its investment domestically, and four in 10 never recoup the original investment.
Obviously, with such upfront costs, if pirating got out of hand, the impact on studio profits could be substantial. On the other hand, with DVD prices down and many low-cost DVD rental options available, Hollywood has various outlets to get movies to consumers. Also, unlike with a CD, consumers are unlikely to want to replay a movie over and over, all day long.
Bottom line: Piracy is an issue, but low-cost alternatives and the lack of a hard-to-detect five-second download make today's news out of Norway nothing more than a minor setback in a grind-it-out war. For now, the movie business should be fine.
W.D. Crotty owns stock in Disney and News Corp and frequents The Motley Fool's discussion boards. Join him at the Disney board, or talk to other investors at the Great Movie board. For a 30-day free trial to the discussion boards, click here.
