Movie Piracy Is Rising With Studios Skipping Theater Releases

(Bloomberg) -- Along with stalling film production, shutting theaters and throwing release schedules into chaos, the coronavirus pandemic has brought still another woe to Hollywood: a rise in movie piracy.

Studios have tried to salvage some of their big-budget films this year by selling them through streaming services for $20 to $30. But that business model has made it easier for pirates to illegally copy and share new releases, with an estimated loss of millions of potential customers for the production companies.

Unlicensed downloads of Walt Disney Co.'s most-recent picture, “Mulan,” have outpaced those of other movies since its Sept. 4 U.S. debut on the Disney+ streaming service, according to TorrentFreak, a website that tracks pirating activity on public servers. Compared with “The Lion King,” which came out last year in theaters, “Mulan” saw about twice as many downloads in the days and weeks after its release.

When a traditional movie is released in theaters, thieves struggle to obtain high-quality recordings of it, often resorting to bootlegging with a hidden camcorder. With digital releases, pirates use technologies not available to most consumers to make perfect copies quickly.

Read more: Cineworld's shutdown caps a ‘lost year' for theaters

The high cost of legitimate first-run streaming movies may also be dissuading some people. A licensed version of “Mulan” costs $30, on top of a $7-a-month subscription to Disney+. “Trolls World Tour,” from Comcast Corp.'s Universal Pictures, started streaming in April for $20.

Disney and Universal didn't respond to requests for comment.

Limelight Networks Inc., which provides digital distribution of entertainment content and applies antipiracy measures, has seen piracy “going up dramatically” in recent months, Chief Executive Officer Robert Lento said.

“We spend more time talking to our customers about it now than ever before,” Lento said.

Adding Watermarks

The most common technique to limit piracy is by adding watermarks that help trace which customer originally received the movie. When content is found on a pirating website, the watermarks can be used to ban the original purchaser. But that method doesn't always work, and it hasn't stopped the yearslong surge in piracy.

Government efforts have also been unsuccessful at preventing viewers from accessing pirated content. Pascal Metral, vice president of legal affairs at Nagra Kudelski, another digital-distribution company, said studios are most concerned with shutting down the big players who move films for profit. Attempts to go after casual users could alienate more customers than it's worth, Metral said.

What Bloomberg Intelligence Says

“The seemingly muted performance of Disney's ‘Mulan' in the premium digital-film-distribution window raises questions about the viability of skipping a theatrical release in favor of streaming, further vexing the decision-making for studios delaying blockbusters like ‘Black Widow' and ‘No Time to Die.' ‘Mulan' appears to have fallen short of the 10 million digital buys needed to break even on a $300 million production and marketing budget, based on our scenario analysis.”

--Geetha Ranganathan, media analyst

Click here to read the research.

While movies on peer-to-peer networks are free, those files often contain malware. Consequently, an entire industry has been propped up that offers reliable high-quality streaming of copyrighted works for a low monthly fee or advertisements. Streaming videos resolves most of the security risks.

Under scrutiny in Congress is one loophole of copyright law that lets streaming pirates off with only a misdemeanor offense, said Frank Cullen Jr., vice president of intellectual-property policy at the U.S. Chamber of Commerce's Global Innovation Policy Center. Other types of pirating where the content is republished as a file is punishable as a felony.

Closing the loophole has been discussed since at least 2011, although congressional talks are still ongoing, Cullen said.

‘Up-to-Date Penalties'

Karyn A. Temple, then-director of the U.S. Copyright Office, last year wrote to the chairman and ranking member of the Senate Judiciary Committee to urge the adoption of “up-to-date criminal penalties that are appropriate to the offenses and the digital world in which we operate.” Temple is now general counsel of the Motion Picture Association.

Last month, the U.S. Immigration and Customs Enforcement launched an ad campaign in conjunction with several industry trade groups. The focus is on risks to digital security and fraud when accessing pirated content. At a press conference, ICE officials highlighted the economic risks, noting that piracy costs the economy more than $29 billion each year.

“Clearly the rise of digital streaming presents new challenges when it comes to copyright protection for both the content creative industry and of course law enforcement,” said Derek Benner, executive associate director for Homeland Security Investigations.

Not all pirates go unchecked. In August, the Justice Department charged three men for their involvement in a disc-based piracy ring that distributed nearly every movie released by major production studios. The losses are estimated at tens of millions of dollars.

©2020 Bloomberg L.P.