Piracy spins a global web

Los Angeles Times Staff Writer

Before a single frame of "Spider-Man 2" was shot, Sony Pictures Entertainment launched a global effort to protect its summer blockbuster from piracy.

During production, daily film footage was locked overnight in vaults. When Sony conducted preview screenings on its Culver City lot, guests were subjected to airport-style identification checks, metal detector scans and surveillance by security guards with infrared goggles.

"Everyone got wanded at every screening," said Jeff Blake, the studio's vice chairman. "Film reviewers, talent agents, artist managers, even Sony executives -- including me."

Each of the 10,000 theatrical prints was embedded with a unique digital tracking code. Sony also took the extraordinary precaution of delivering seven reels of film to each multiplex in two well-guarded shipments before its June 30, 2004, premiere at a minute past midnight.

One of those cinemas was the Loews Kips Bay Theatre in Manhattan. And somewhere in that first early-morning audience sat a bootlegger with a camcorder, the first link in a network of rampant global piracy.

Four hours after its premiere, a copy of "Spider-Man 2" was on the Internet. By morning, counterfeit DVDs showed up for sale in malls and makeshift stalls in the Philippines.

Within a week, street merchants were hawking pirated copies of "Spider-Man 2" in Scotland, Israel, Hong Kong, Peru and South Africa -- and downtown Los Angeles. Within a month, Sony investigators had collected bootlegged "Spider-Man 2" DVDs from Australia, Southeast Asia, China, the Middle East, Europe, Africa, South America and the United States, nearly all of which traced back to the one copy made at the Loews Kips Bay.

"The lightning speed with which these copies spread around the planet was horrifying," Blake said. "No matter how much you spend on security or what precautions you take, the grim truth is once a film gets uploaded on the Internet, suddenly it's everywhere."

The global flight of "Spider-Man 2" illustrates one of the ugly byproducts of the digital transformation of entertainment. In addition to creating profitable new businesses, such as movie DVDs and downloadable music services, digital technology has created an unprecedented opportunity for leeching by commercial pirates.

The damage is hard to calculate. In many cases, the people who buy pirated goods cannot afford to buy $10 movie tickets or $20 DVDs. So the DVDs that sell for $1 or $2 in markets around the world are not necessarily replacing sales the industry might otherwise have made.

Nevertheless, the Motion Picture Assn. of America claims that disc and tape counterfeiting siphoned off $3.5 billion in potential revenue last year, more than the industry made at the box office in any country except the United States. And the International Federation of Phonographic Industries estimates that 1 of every 3 music CDs sold last year, or 1.2 billion discs, was an illegal copy.

"Piracy not only has an economic impact on our industry," said Dan Glickman, chief executive of the global Motion Picture Assn. and its U.S. affiliate, the Motion Picture Assn. of America, "but it has an impact on the creative spirit in this country."

Despite a growing number of raids and arrests around the world, entertainment industry executives say the amount of disc bootlegging continues to grow. That's because there is no shortage of eager bootleggers, as well as a variety of ways to cash in on piracy.

The shadowy network that brings pirated movies to market is elaborate and lucrative. In countries rich and poor, the rewards can be great and the risks minimal. Even small-time bootleggers can clear thousands of dollars a week. And when anti-piracy laws are enforced, the punishment is often light.

"Prosecuting these cases has been an uphill battle," said Leroy Frazer Jr., chief of the special prosecutions bureau of the Manhattan district attorney's office. "Judges don't treat pirates as seriously as they do other criminals. They don't think pirates victimize anyone -- particularly not the people who buy their wares. They say bootleg customers know exactly what they are buying."

Tracing the Source

Movie piracy typically begins with the "cammers," who sneak tiny video cameras into darkened theaters and surreptitiously film new movies. They are maddeningly hard to catch. Some are believed to be amateurs who record movies for fun, and others -- a couple of dozen, investigators guess -- do it for pay. For example, one professional cammer boasted in his diary that he made up to $4,000 a week.

The cammer's copy is manufactured into discs by two types of pirates: well-financed counterfeiters who use costly manufacturing plants to churn out tens of thousands of discs each day, and bootstrap entrepreneurs who burn hundreds of discs on home computers.

The discs ultimately are sold in malls, at market stalls and on blankets spread along a curb, or by roving peddlers who stash their wares in a bag. Many times the sellers are immigrants working for a flat daily fee. And the price typically is a quarter to half of what legitimate DVDs sell for, yet the profit margins can be higher than 70%.

In the case of "Spider-Man 2," one opening-night cammer was spotted and stopped at a Chatsworth multiplex by a projectionist wearing night-vision goggles. But cammers can be ingenious, concealing their cameras under coats, in handbags or even in belt buckles. On opening night, three cammers were able to capture "Spider-Man 2."

The codes embedded in each of the film's prints -- which were virtually invisible to the eye but could be detected by Sony investigators in the bootlegged DVDs -- revealed precisely which theaters had been breached: the Loews Kips Bay and two others in Montreal and Los Angeles.

Those locales are not surprising. Investigators say professional cammers do almost all their work around New York and Los Angeles.

The recording from the Loews Kips Bay made its way almost immediately into the hands of Pirates of the Theatre, a group of bootleggers that trades movies through the Internet. Less than two hours after the midnight showing ended, the group had uploaded the movie to a private site for online pirates. From there it spread to other private sites, public chat rooms and online file-sharing networks.

A prolific "ripping crew" -- a secretive coterie of geeks who race to obtain bootlegs and post them online -- Pirates of the Theatre put more than 90 camcorder-recorded movies online from May 2004 to July 2005, according to www.vcdquality.com, a website devoted to pirated movies and other goods online.

Although authorities have been able to penetrate a handful of movie ripping crews, they say they have no idea who runs Pirates of the Theatre, where it operates or how it gets its movies.

The Pirates' version of "Spider-Man 2," like most videos recorded in theaters, was marred by a loud, steady hiss and the back of a theater patron's head bobbing in and out of the frame.

But that didn't make it any less marketable.

A Costly Operation

Most of the bootlegged "Spider-Man 2" discs were produced by disc manufacturing plants in Southeast Asia, China, Pakistan and Russia. Three-fourths of the 75.6 million pirated discs seized last year came from this kind of factory, the Motion Picture Assn. of America said.

The plants are expensive to set up, with the equipment for each DVD assembly line costing about $1 million. Given the cost, investigators suspect that many of the plants are backed by organized crime syndicates, such as the Chinese Triad gangs or Russian mobsters. Another likelihood, they say, is that the same lines are used to produce authorized and bootlegged discs.

For example, in Malaysia -- regarded by officials at the Motion Picture Assn. as one of the top manufacturers of counterfeit DVDs -- anti-piracy raiders found bootlegged discs last year at four licensed factories as well as seven unlicensed ones.

Like their colleagues in many developing nations, Malaysian authorities play a cat-and-mouse game with pirates.

Malaysia started regulating disc manufacturers four years ago, enabling investigators to conduct surprise inspections and take "fingerprint" samples from disc-making equipment. Now, when pirates import equipment for a black-market manufacturing line, they bring pieces to multiple ports and describe the gear as "injection molding" machinery, said Zainal Abidin, a top Malaysian anti-piracy official.

Once the gear is set up in warehouses, the only hints to what's inside are unusually powerful air-conditioning units and multiple vents in the roof. That's because the machines that mold discs generate a lot of heat and noxious odors.

The operators often bring in workers from other countries without revealing their own identities, Zainal said, and forbid them from leaving the factory.

"They get their money; they get what they want to eat every day; they cook inside there," Zainal said of the workers. "They don't have the chance to talk to the people around there."

Catching plant operators is all the more difficult when the pirates are tipped off by bribed officials. Phil Kennington, an anti-piracy consultant for the MPA in Manila who used to work in Malaysia, told of one 16-month investigation that identified a pirate disc factory that was importing workers from Bangladesh and Myanmar.

After learning what the plant was doing and when it was operating, Kennington alerted the authorities, who scheduled a raid for 4 a.m. When they arrived, the plant manager was waiting there with coffee and breakfast -- but no bootlegged discs or other incriminating evidence.

"An operation that cost $65,000 to put together was sold out for probably $100," Kennington said.

In-House Production

While Malaysian "Spider-Man 2" discs spread to the Philippines and other piracy hotbeds in the Pacific, bootleggers in Australia produced their own copies of the movie with computers and DVD recorders.

One such entrepreneur, investigators for the Australian Federation Against Copyright Theft say, is David Ngo (pronounced No), a stocky Filipino immigrant with an aquarium full of tropical fish. Ngo lives in St. Albans, a hardscrabble suburb of Melbourne.

Copies of "Spider-Man 2" with Ngo's trademark "S" and "9" logos on the artwork were among the first to hit the streets in the province of Victoria and were widely available in Melbourne-area flea markets, said Neil Gane, the federation's director of operations.

The group's investigators, including an undercover agent known as Shadow who infiltrated Ngo's operation in 2003, provided a detailed picture of its workings that year.

The hub was on the back side of the brick house he rented, past a potbellied stove where his wife, Lee Tran, boiled shellfish and a miniature barbecue grill where she cooked meat.

It was a windowless "granny flat" bungalow that held Ngo's computers, three homemade DVD-burning towers equipped with seven DVD recorders each, two flat-screen monitors, printers to crank out artwork for the discs and their cases, and a paper cutter to trim the artwork. The setup cost about $20,000, Ngo told Shadow.

Ngo's DVD recorders enabled him to burn 21 copies of a movie simultaneously in 20 to 30 minutes. He would often pass the time in the brightly lighted bungalow chain-smoking Marlboros, watching TV and chatting online while the burners whirred away.

When a batch was finished, he'd separate the good copies from the occasional duds, then feed another 21 blank discs into the towers. He'd repeat the process several times for each movie, enough to generate a few hundred copies of the hottest titles. These discs would fill the inventories of at least half a dozen wholesalers, who fed his wares into black-market DVD stalls at flea markets in the area.

Ngo obtained many of his movies off the Internet, frequently receiving bootlegs from unknown sources on ICQ, an Internet chat network owned and operated by Time Warner Inc.'s America Online. Others personally delivered master copies from the U.S., Malaysia and other foreign lands, handing them off to Tran at the Melbourne airport.

Each week, Ngo would obtain an average of 15 movie files to copy, both new releases and improved versions of older bootlegs. His total inventory grew to well above 10,000 discs and 140 titles.

On Friday nights and Saturday mornings, Ngo and Tran would deliver to wholesalers the 500 to 800 discs each had ordered. The distributors would sell the discs through a network of peddlers at flea markets and other outlets, charging about $11 per DVD.

If the discs sold out, the total take could be more than $50,000 in a single weekend, about half of it going to Ngo. Because the cost of blank discs and other supplies was so low, Ngo's profit margin was 70% to 80%.

Police raided Ngo's house in mid-2003, seizing his equipment, 12,000 discs and about $22,000 worth of Australian $50 notes stuffed in a box. He pleaded guilty in December and received a suspended sentence in March 2004.

Investigators say Ngo went right back to work burning counterfeit discs, leading police to raid him again in November. That case is pending.

Tough Battle

Operations like Ngo's are common in the United States and are growing in number around the globe. Investigators say the grass-roots ventures are becoming increasingly organized and lucrative, with ambitious local pirates developing into regional powerhouses.

Brad Buckles, anti-piracy chief for the Recording Industry Assn. of America, says about three-fourths of the bootlegged CDs seized in the U.S. are produced in disc-burning operations like Ngo's.

Hundreds of underground disc-burning rooms operate throughout New York and Los Angeles, linked to crude distribution networks capable of moving tens of thousands of contraband DVDs -- tax-free -- out of the trunks of beat-up cars, at street-corner stands and at swap meets every week.

The first person caught selling a counterfeit "Spider-Man 2" DVD was Moussa Baide, a 35-year-old illegal immigrant from New Guinea. At dawn July 1, 2004, the day after the sequel's midnight launch, Baide double-parked a van loaded with 3,000 bootlegs of "Spider-Man 2" in front of a salmon-colored warehouse on Broadway in Manhattan.

Detectives raided Baide's van and the warehouse that day, unearthing 10 rooms of bogus recordings and confiscating an estimated 28,000 DVDs and 40,000 CDs. Baide was eventually convicted of trademark counterfeiting and criminal possession of a forgery device. He spent a few nights in jail and was then sentenced to five years' probation.

Three thousand miles away from New York -- but just a few miles from Sony's Culver City lot -- Alejandro Silva was at work in the blazing sun on a rooftop parking lot at 9th Street and Maple Avenue in Los Angeles when LAPD detectives surrounded his red Volkswagen Jetta sedan.

For weeks, investigators had watched Silva, 26, tucked behind a parking tollbooth and surrounded by vehicles, peddling counterfeit DVDs out of his vehicle eight hours a day. On July 14, investigators hiding in a van videotaped Silva as he conducted several cash transactions before arresting him and seizing 600 DVDs and a calculator from the trunk of the Jetta.

Police suspect Silva got his movies from Gonzolo Arista, 42, who was arrested in a Pico-Union apartment full of thousands of pirated DVDs -- including "Spider-Man 2."

The two men pleaded no contest to trademark infringement and were sentenced to three years' probation.

"The moment we shut Gonzolo Arista down, another pirate just like him pops up somewhere else," said Los Angeles Police Department Det. Rick Ishitimi, lead investigator in the piracy unit of the organized crime and vice division.

"There are a hundred other budding Gonzolos already in business, each with his own manufacturing and distribution setup and a crew of street vendors. Here and in every other big city. That's what scares the movie industry."

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