Pirates Of The Internet

High-Tech Thieves Are Coming After Hollywood

Summer has always been a profitable season for Hollywood, as millions of people buy tickets to see new blockbuster movies.

But this summer is also a time of worry and fear for America's film studios, because the pirates of the Internet are gaining on them.

Almost every new film can now be found on the Internet -- and downloaded for free as soon as it's released, and sometimes even before.

As Correspondent Lesley Stahl first reported last year, it may be illegal, but it's becoming easier and easier to do.

The people running America's movie studios know that if they don't do something - fast - they could be in the same boat as the record companies.

But what's really at stake for the movie industry with all this piracy?

"Ultimately, our absolute future," says Peter Chernin, who runs 20th Century Fox, one of the biggest studios in Hollywood.

He knows the pirates of the Internet are gaining on him.

"I think it's probably in the hundreds of thousands, if not millions," says Chernin. "It's only gonna grow. Somebody can put a perfect digital copy up on the Internet. And with the click of a mouse, send out a million copies all over the world, in an instant."

And it's all free. Chernin organized a "summit" between studio moguls and some high school and college kids -- the people most likely to be downloading.

"And we said, 'Let's come up with a challenge,'" says Chernin. "Let's give them five movies, and see if they can find them online. And we all sat around and picked five movies, four of which haven't been released yet. And then we came back half-an-hour later. They had found all five movies that we gave them."

Did these kids have any sense that they were stealing?

"I think they know it's stealing, and I don't think they think it's wrong," says Chernin. "I think they have an attitude of, 'It's there.'"

An Internet copy of the hit movie, "Signs," starring Mel Gibson, was stolen even before director M. Night Shyamalan could organize the premiere.

In fact, Shyamalan said the first bootleg copy appeared a few weeks before the premiere: "Before the Internet age, when somebody bootlegged a movie, the only outlet they had was to sell it to those vendors on Times Square, where they had the boxes set up outside and they say, 'Hey, we have "Signs" - it's not even out yet.' And you walk by and you know it's illegal. But now, because it's the digital age, you can see a clean copy. It's no longer the kind of the sleazy guy in Times Square, with the box. It's just, oh, it's on this beautiful site, and I have to go, 'Click.'"

So how did this happen?

"Through an absolute act of theft," says Chernin. "Someone steals a print from the editor's room; someone steals a print from the person; the composer who's doing the music ... steals a print, makes a digital copy, and uploads it."

Digital copies like "The Matrix Reloaded" have also been bootlegged from DVDs sent to reviewers or ad agencies, or circulated among companies that do special effects, or subtitles.

"The other way that pre-released movies end up (stolen) is that there are lots of screenings that happen in this industry," adds Chernin. "People go to those screenings with a camcorder, with a digital camcorder, sit in the back, turn the camcorder on..."

It used to take forever to download a movie, but anyone with a high-speed Internet connection can now have a full-length film in an hour or two.

In fact, there are many Web sites where hackers will announce their piracy releases, says Randy Saaf, who runs a company called Media Defender that helps movie studios combat online piracy.

Stahl asked him to show her Kazaa, which he calls "the largest peer-to-peer network."

It's called peer-to-peer because computer users are sharing files with each other, with no middleman. All Kazaa does is provide the software to make that sharing possible. When 60 Minutes went online with Saaf, nearly four million other Kazaa users were also there, sharing every kind of digital file.

"Audio, documents, images, software, and video. If you wanted a movie, you would click on the video section, and then you would type in a search phrase," says Saaf. "And basically what this is doing now, it is asking people on the peer-to-peer network, 'Who has 'Finding Nemo'?"

Within seconds, 191 computers sent an answer: "We have it."

With crisp picture and sound, "Finding Nemo" was downloaded free from Kazaa a month before its release for video rental or sale.

And now, you don't even have to watch a movie on a little computer screen. On the newest computers, you can just "burn" the movie onto a DVD and watch it on your big-screen TV.

And that's a dagger pointed right at the heart of Hollywood. "Where movies make the bulk of their money is on DVD and home videos," says Chernin. "Fifty percent of the revenues for any movie come out of home video ... so that if piracy occurs and it wipes out your home video profits or ultimately your television profits..."

And as movies continued to be made, Shyamalan says they wouldn't be any good, because profits would be negligible, so budgets would shrink dramatically: "And slowly it will degrade what's possible in that art form."

"Technology always wins. Always. You can't shut it down," says Wayne Rosso, Hollywood's enemy. They call him a pirate, but officially he's the president of Grokster, another peer-to-peer network that works just like Kazaa.

60 Minutes downloaded Grokster's software for free and asked Rosso questions about his network.

"We're like radio. We're advertising supported," says Rosso, who estimates that 10 million people have used Grokster each month.

He says he has no way of knowing what people are downloading, "and we can't stop it. We have no control over it."

And Rosso has the law on his side. A federal judge has ruled that Grokster and other file-swapping networks are not liable for what their downloaders are doing.

"So we're completely legal, and unfortunately this is something the entertainment industry refuses to accept," says Rosso. "They seem to think the judge's decision was nothing but a typo."

The studios are appealing that court ruling. And they may follow the music industry and begin to sue individuals who download movies.

But they're also fighting the pirates in other ways, with ads about people whose jobs are at risk because of the piracy - people like the carpenters and painters who work on film sets.

At the same time, Hollywood is trying to keep copies of movies from leaking in the first place.

"You will very seldom go to an early screening of a movie right now where someone's not in the front of that auditorium with infrared binoculars looking for somebody with a camcorder," says Chernin.

And once a movie's released, or if copies begin to leak, the studios hire people like Randy Saaf to hack the hackers.

"What we're just trying to do is make the actual pirated content difficult to find. And the way we do that is by, you know, serving up fake files," says Saaf.

It's called "spoofing," and Saaf and his employees spend their days on Kazaa and Grokster, offering up thousands of files that look like copies of new movies, but aren't.

"It might just be a blank screen or something," says Saaf. "Typically speaking, what we push out is just not the real content."

But Rosso says it won't work: "It doesn't work because what happens is that the community cleanses itself of the spoofs."

What he means is that downloaders will quickly spread the word online about how to tell the fake movie files from the real thing.

"It's like an arms race," says Chernin. "There will be, you know, they're gonna get a step ahead. We're gonna try and get that step back."

"But I'll tell you one thing: I'll bet on the hackers," says Rosso, who believes the hackers will break whatever block the studios come up with.

Hollywood knows that downloading off the Internet is the way millions of consumers want to get their entertainment -- and that isn't going away.

"The generally accepted estimate is that more than 60 million Americans have downloaded file-sharing software onto their computers," says Chernin. "That's a mainstream product. That's not a bunch of college kids or, you know, a bunch of computer geeks. That's America."

So, instead of trying to stop it entirely, the studios are looking for ways to embrace it, but also get paid.

Rosso says the best way is to negotiate some kind of licensing deal with him. And he says he would sell Grokster to a movie studio in a heartbeat: "If the movie industry acts now and starts exploring alternatives and solutions with guys like me, hopefully they won't have a problem."

The idea of making deals with what Chernin calls "a bunch of crooks" doesn't appeal to Hollywood. Instead, Fox and the other studios have just launched their own site, Movielink, where consumers can download a film for a modest fee, between three and five dollars.

"I think you would love the idea that you don't have to go to the video store. You can do this," says Chernin. "And that's what we're working on. But in order for that to be effective, we have to stop piracy, because the most effective business model in the world can't compete with free."

The movie studios may begin to file their lawsuits against individual downloaders before the end of this summer.

Director M. Night Shyamalan's new film, "The Village," premiered on July 30. The first bootleg copy of the movie appeared on the Internet the next day.

Since 60 Minutes did this story, Rosso announced he was leaving Grokster to take over as president of another big file-swapping software company based in Spain. Grokster was to continue under new management.