This explosion in illegal downloading has hit the adult business particularly hard. Companies are becoming desperate for a solution, and now there is one: the German-based company, DigiProtect.
"It used to take two or three days to download a movie," said Thomas Hein, key account manager for DigiProtect. "Now the new technology allows people to download large media files at once. In the next five to 10 years, the download time for a movie is expected to be as low at 30 seconds, so if you don't find a solution before then, there won't be any significant DVD sales in the U.S.
"Our company offers a solution. Maybe it's not the final solution, but it buys time and generates recovered money over the coming years," Hein said.
Under its current procedures, DigiProtect treats both the distributors and the recipients of illegal downloads in P2P transactions as pirates, and takes appropriate legal action to punish them. How do they find the culprits?
"We have the infrastructure to monitor all P2P networks worldwide," Hein said. "We know exactly when somebody is downloading something in the U.S., Japan, China, India or Europe. We do this through the IP records. We start with search engines, and access videos by artist name or company name, and which sites they're on.
"Through our tracking software, we record all IP addresses that have uploaded or downloaded a specific file. Legally, we have to download the file and watch it, to make sure it's the file that has been downloaded illegally, also that it's the file our customer has legal rights to. It's a very time consuming job, especially for movies. This makes it very costly, too. One video could be on 50 networks, so we have to download 50 movies and watch them all. Our monitoring department does this, because they have to testify that this movie is actually the one to which we have legal rights. We get the legal rights from the companies to distribute these movies to stores, and with these rights we can sue illegal downloaders.
"Then we take legal action in every country possible, concentrating on the places where such action will be profitable. It's different from country to country, and there are some places where legal action didn't turn out very well, because we finance ourselves only through the money we can collect. Right now it's going very well in Germany, where there is a huge P2P community, and the number of people who do file sharing is comparable to the U.S."
Since its 2006 formation, DigiProtect has enjoyed success in Germany, where levels of digital piracy are among the highest of the world's developed economies. This success has translated to the recent addition of the U.K. to the DigiProtect list of client countries, and the company currently is in contact with law firms in the U.S. and Japan.
Regarding the legal hurdles found in the United States, Hein said, "It's a very complicated business. Every state has a different set of laws, especially for adult material. Our services probably will be available only in some states of the U.S. We don't know which ones yet, because we have to wait for the lawyers to look into it."
Structurally, DigiProtect has set itself up as something similar to a franchise. The company obtains customers seeking its infrastructure to track down pirates, then partners with legal firms around the world that specialize in intellectual property cases. DigiProtect works with these firms on a no-cost basis. The law firms get their fees from the profits gleaned through victorious lawsuits.
"No one working for DigiProtect has a fixed salary," Hein said. "If we make money, everybody makes money. If we don't, nobody does. This means the lawyers, sales people and customers. It's all about how much money can be recouped and then sharing it. But there is no financial risk to the customer whose content we protect. We pay for everything like court costs and legal costs. The studios give us the rights to distribute their material for free to P2P networks, which really shows a lot of trust in our company."
The system has turned out to be very profitable, according to Hein. This is why DigiProtect has branched out to American adult studios, and signed its first U.S. client last December. Since then, the firm has signed with others and today boasts of five major American studios among its clientele.
The years of experience have taught Hein that most illegal downloads are for personal use, although the downloaders frequently make copies for their friends. The immediate offshoot is that would-be customers don't even have to enter a DVD store, because they're getting the material for free. This is especially prevalent in adult, and Hein thinks he knows why.
"A lot of people are still hesitant to buy adult DVDs in a store," he said. "They prefer to keep it a secret. For instance, we have huge download numbers affecting our gay studio customers. Also, special interest movies are high in illegal downloads. Many of these people don't want to reveal their tastes by purchasing DVDs in a store.
"Also, I personally think that people tend to disrespect the adult industry. They see the material as something kind of illegal anyway, and because of that they don't feel they have to pay for it. So when they download, they don't feel like they're committing a crime. It's totally different than the mindset people have when stealing software from Adobe or Microsoft."
When someone illegally downloads a movie, DigiProtect goes into action by getting the pertinent IP address. Then the company prepares legal documents to obtain a court order that would allow them to track the identity and location of the IP address owner. As it is now in Germany and the U.K., the firm goes to the public (prosecuting) attorney, presents its evidence to obtain the court order and then takes the IP address to the Internet Service Provider to identify the downloader. Once the company has that information, it can initiate a civil lawsuit for copyright infringement.
"Our success rate is high enough to make good money for everybody," Hein said. "And it's also high enough to deter people from stealing content in the future. But we have to be careful about the amount of damages we ask for. We try to find a figure that covers our costs and pays money to our licensors, which is usually around €500. Other firms are going for huge amounts of money, and the judges don't like it. If the judges feel you're being greedy, they won't rule in your favor. Our approach is not to be a money-making machine, but a company that compensates the artists and studios for their losses."
Recently, DigiProtect became the first company in Germany to win a lawsuit under the new law, which allows the owner of copyrighted material to get a court order and go directly to the ISP to identify illegal downloaders.
"Our company is the first to prosecute these kinds of cases in England," Hein said, "and we're the first to try to get the system set up in the U.S. There are a lot of lawyers who try to do what we do, but they don't have the experience that we have. Counting our work in the music industry, our company has been about protecting intellectual property for six years."