Video Pirates: The Bane of Hollywood

60 Minutes' Lesley Stahl Investigates Multi-Billion Dollar Video Piracy

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Where do you think organized crime is making its money these days? With drugs, gambling, and prostitution? Yes, but also - and this may surprise you - the movies.

Mobsters have moved into the movie piracy business and it is bleeding Hollywood to the tune of billions of dollars a year.

Movie pirates used to be small-time operators, selling VHS copies of films on the sidewalk for $5 or less.

But now, with the Internet and DVDs, the movie piracy business has exploded, and police departments across the country are struggling to keep up.

Every month, a special unit of the Los Angeles Police Department mounts two or three raids looking for pirates. Just last Thursday at a raid on a warehouse in downtown Los Angeles, they arrested two men who they say have been filling orders for counterfeit DVDs for years.

Detective Rick Ishitani found one of their order books. "These are movies titles that just came out. 'Angels and Demons,' they ordered 100 movies. And 'Terminator,'" the detective explained.

Police say the suspects were wholesalers who acted like mobsters. They would pick up customers in a van and drive them around blindfolded, before bringing them to the warehouse to fill their large orders.

In the last four years, the LAPD has confiscated nearly a million counterfeit DVDs.

The DVDs are made by pirates who often sit in the back row of theaters and record movies with tiny cameras.

Illinois police say Gerardo Arellano did just that. He was arrested at a multiplex outside Chicago and showed up at court with his family. They were also with him when he was recording in the theater, according to investigator Gary Kissinger.

"He was actually observed with the camera sitting on his right leg, along with his wife and small child," Kissinger told 60 Minutes correspondent Lesley Stahl.

"He brought a child with him to do this?" Stahl asked.

"Yes," Kissinger said. "We're finding that to be more commonplace because not only their child, but other family members or friends, because they act as lookouts and also they're less conspicuous. They blend in with the rest of the audience."

Kissinger works for the MPAA, the Motion Picture Association of America.

Stahl interviewed him at the AMC multiplex where Arellano was arrested.

"I actually heard once that one of these people brought a camera in in a baby carriage," Stahl remarked.

"Sometimes even in the diaper bag," Kissinger said. "Actually, we've seen it where they cut out the cup holder and they'll set the, cut out the bottom of the cup holder and actually set the camera in here."

"And then they control the camera with a remote control device and monitor it," he added.

Police say Arellano worked out of his home, where they found more than 13,000 DVDs he had made from his recordings, along with the computers he used to upload the movies onto the Internet.

"Rarely do you see an individual that's involved in all three major components of the piracy activities: in other words, camcording, Internet piracy activities and also selling the movies on the street as well," Kissinger said.

John Malcolm, a former Justice Department official specializing in intellectual property, says pirates like Arellano are linked to organized crime rings that are making a barrel of money selling DVDs.

In Mexico, the drug cartels are brazenly stamping their DVDs with their logos.

"Here, for instance, are pirated DVDs by the Zetas," Malcolm said, showing Stahl a DVD stamped with a gang logo.

"Here's a Leonardo DiCaprio film with the drug cartel. And they're advertising. It's just breathtaking," Stahl remarked. "Are they getting out of drugs and into movies?"

"No. They want to diversify," Malcolm explained. "They might be doing gambling on Monday, human trafficking on Tuesday, child prostitution on Wednesday, drug dealing on Thursday, and counterfeiting on Friday."