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The emergence of piracy in the film industry has become a complicated topic over the past decade.  The American movie industry loses an estimated $1 billion annually to illegal copies of its films. While the losses accrue to many segments of the sector, including theaters and movie rental establishments, the biggest loser and largest opponent of piracy has been the film studios. Although the major corporate players have taken steps to limit practices, such as bootlegging and illegal downloading, piracy is a difficult problem to eliminate entirely.  Moreover, the advancement of technology has accelerated the problem. In the past, the threat of illegal copying and bootlegging was limited by the relatively poor quality of video cassettes. However, through the years, it has become easier to obtain higher quality versions of movies over the Internet with relatively little risk. This has enticed more and more movie watchers to avoid $10 to $25 movie ticket and DVD prices and resort to free downloaded versions.

Taking a closer look, it is apparent that certain genres of movies are more deeply affected than others by the threat of Internet-based piracy. According to BitTorrent, the most illegally downloaded movie in 2009 was Star Trek, with just under 11 million downloads, closely followed by Transformers: Revenge of the Fallen at 10.6 million downloads. Among the top ten, nine were action or sci-fi based, with only one comedy in the group, The Hangover. In general, popular romantic comedies and animated movies were less frequently downloaded, relative to their respective rankings in the box office.

Over the years, the movie industry has attempted to flex its muscles to reduce the impact of movie piracy. The most notable force has been the Motion Picture Association of America (MPAA), which represents a collection of the “big six” major film studios, including Walt Disney (DIS - Free Analyst Report), Sony (SNE), Viacom's (VIA) Paramount, News Corporation's (NWS) 20th Century Fox, General Electric's (GE - Free Analyst Report) Universal Studios, and Time Warner's (TWX) Warner Brothers.  The MPAA has used its resources to stop some of the major Internet-based offenders with varying degrees of success. In 2006, the group shut down a number of networks that facilitated the swapping of movies between more than one million users. That year, the MPAA also orchestrated the raid and arrest of the founders of bit-torrent provider The Pirate Bay in Sweden. However, within days, the charges were dropped and the network has been fully operating since.  The MPAA has also targeted creators of technology. Earlier this year, RealNetworks (RNWK), which provides software used in storing DVD images, was ordered to pay the MPAA more than $4 million in damages.

While many consider the act of selling bootlegged copies of music and movies to be illegal, a large part of the public is opposed to the actions taken by the industry to pursue alleged perpetrators in the downloading community, particularly those without the intent to sell. Many believe that privacy rights are violated in the process of identifying potential violations over the Internet. Some say that the industry’s efforts are a lost cause due to lack of enforceability and the ongoing proliferation of more advanced pirating technology. Others believe that it is well within one’s rights to share music and movies. Another train of thought is that there has been little analysis about the economic benefits to society, including the idea that piracy provides the best form of competition to the movie industry and cheapens the price of films for moviegoers.

The rise of piracy has forced the film industry to get more creative in its approach toward the consumer. More studios have been using three-dimensional technology, which has been well received in a number of the latest action, horror and sci-fi movies. The popularity of 3D was greatly accelerated by its use in Avatar, the highest grossing movie ever. After years of remaining relatively dormant in the industry, 3D films grew to represent roughly 10% of the movie market in 2009.

At the same time, although in its early stages, the market for 3D in the home setting has started to take off. Manufacturers, such as Samsung and Panasonic (PC), expect 3D TVs to be a major contributor to sales later this year. All of the recently released 3D films will be available in the format on DVDs and in Blu Ray. The one drawback to this technology is that the user must still wear 3D glasses to get the full effect. 

Similarly, the introduction of IMAX (IMAX) and IMAX 3D has added to the visual resolution and sound quality of movies.  The technology has become a popular attraction in various film genres, with the most recent version of Shrek released in 194 IMAX theaters across the country. IMAX Corp. has developed a growing international base of more than 400 theaters. It also has many of the upcoming blockbusters signed on for release in IMAX format, including The Twilight Saga: Eclipse and Harry Potter and the Deathly Hallows.

We look for these cinematic advancements, as well as others, to enhance the movie going experience. Most important, the effects of these features cannot easily be duplicated, reducing the appeal of illegally obtained copies. This, in turn, should return more profits to the movie industry.  Moreover, companies like IMAX and those involved in 3D technology, such as Samsung and Panasonic, ought to reap the benefits as well.