Correction appended below.
SÃO PAULO — This city’s teeming street markets are a counterfeiter’s paradise.
Men weave through crowds pushing handcarts stacked high with garbage bags stuffed with knock-off Louis Vuitton handbags to be sold at $30 apiece. Imitation Nike sneakers sell for $8. Fake Oakley sunglasses go for $5 a pop. And packets of 50,000 emails (sorted by profession and region) can be had for just $3. But during the Christmas 2018 rush, the hottest item for sale was a little black box no bigger than a couple of packs of cigarettes yet packed with enough computer chips, circuits and software to receive nearly every cable or streaming TV series on Earth.
“This one has a thousand channels,” a salesman told me as he unpacked the box, connected it to a screen and began his sales pitch on why I should spend 480 reais (about $125) to have free — and illegal — access to HBO, FOX and ESPN. As he scrolled through the alphabetical offerings (beginning with Algerian TV and ending with Vietnamese TV), I mentioned that I was from Boston. Within seconds, the salesman had found the local ABC affiliate in Boston and was streaming a crisp image of Good Morning America.
Like millions of people worldwide, I am addicted to Netflix, Spotify and streaming services that allow me to access thousands of movies and millions of songs. Thanks to plummeting prices for streaming video over the internet, major media and entertainment companies have found a new way to bring their movies, series and news services to consumers. Legal subscriptions in Latin America for services like HBO on Demand, Netflix or Spotify are often around $10 a month, and business is booming in this C2C business model: content to consumer.
The market for streaming video in Latin America is soaring, and revenues are expected to jump from $2 billion to $6 billion per year in the next five years. But the same technology that makes it so convenient to watch content — even in an elevator or on the subway — allows a parallel industry of technologically savvy pirates to hack, copy, redirect and resell these services with their own highly discounted subscription packages, or a single one-off payment. Despite numerous government efforts to combat the trend, piracy of pay TV and illegal streaming of licensed content is siphoning off revenue in a half-dozen ways. “The whole pirate ‘industry’ has grown up and become well-organized and more commercial, with a lot of change happening behind the scenes,” said Kieron Edwards, the group technical director for content protection at SkyTV.
Across Latin America, Instagram and Facebook are awash in advertisements that offer pirated access to Netflix and Spotify, often bundled for a total of less than $3 a month. Payment is made via PayPal and security codes to access the content are updated monthly via WhatsApp. By stealing the digital signal, building out their own server farms, and signing up subscribers, pirates across the continent are seeking ways to monetize the retransmission of stolen signals from PAW Patrol to porn. It’s a business model I dub P2C — Pirate to Consumer.
Of all the ways to steal the signal and illegally stream content to customers, nothing is bigger in Latin America right now than the TV black boxes that industry experts call “illegal streaming devices.” In Brazil alone, there are roughly 2 million “TV boxes” in use, according to The Alliance Against Piracy in Pay TV, an industry group. Delays compared to live TV can be less than 40 seconds. Various platforms allow users to pay for additional software packages featuring Spain’s La Liga football matches, for example. “In the last two years, the amount of consumption through these boxes has really, really skyrocketed,” said Ygor Valerio, vice president and counsel for content protection for the Motion Picture Association of America.
Content producers and distributors have faced challenges before — from pirated DVDs to peer-to-peer sharing of pirated movies in the 2000s. But there is no precedent for the challenge posed by the black box and similar platforms. Today, nearly one-third of Latin American households with pay TV are getting their signal illegally. According to Brazil’s National Forum Against Piracy and Illegality, an industry group, losses from piracy of cable TV in that country topped $1.2 billion in 2017. The group estimated domestic film industry losses to pirate operations at an additional $950 million. Simon Trudelle, director of product marketing at NAGRA, the pay-TV industry leader in anti-piracy protection, said many owners of licensed content and intellectual property have yet to fully appreciate the threat. “It’s like having a store and then people start walking out the door and there is no security guard. At some point you have to be proactive and protect your business model, to have high-value items that are protected with a chip or a device,” said an impassioned Trudelle. He compared the current moment to the music industry in the mid-2000s, when it lost half its revenues over five years. “The whole thing could fall very quickly and land hard.”
That would be more than just a dilemma for big industry. The piracy of great acting, world-class scripts and beautiful filmmaking ultimately means less revenues for authors, musicians and filmmakers, as well as for governments who collect tax revenue. It’s true that many Latin American consumers are unable to afford full price for pay TV services, and as such they may not constitute lost revenue for the industry. But many who buy pirated products are middle class or wealthier. By not paying their share, they are sabotaging efforts to inject capital and resources into the region’s producers of great content. Colombian President Iván Duque has passionately advocated the need to jump-start Colombia’s creative industries — the so-called Orange Economy — from 3.3 percent of his country’s gross domestic product to 10 percent.
But without diligent protection of intellectual property, that is unlikely to happen. After attending an industry gathering in September 2018, a leading pay TV executive listened to the latest updates regarding piracy and concluded, “We are losing this war.”
Flying Off the Shelves
The latest round of digital piracy in Latin America was first spotted six years ago, according to Michael Hartman, senior vice president at AT&T and long-time general counsel at DirecTV Latin America (now known as VRIO Corporation). In 2012, Hartman received a phone call from Puerto Rico. “They were saying, ‘Hey, DISH boxes (set-top boxes) are being sold all over Puerto Rico at just incredibly small prices without any monthly fees. We don’t know what’s going on.’”
At that time, DISH boxes were not being legally sold in Puerto Rico, but pirate entrepreneurs with access to capital, bandwidth and technology were competing with DirectTV’s satellite services by offering an alternative broadcast scenario: Buy a desktop box. “The thing that was really attractive to the user,” said Hartman, “was connecting that box to the internet to get all the pay TV signals for free.” After the 2012 call, Hartman realized disruption was on the horizon. “It became very apparent to me than when this hit the rest of Latin America, we were going to have big problems.”
He was right, of course. The thriving commerce so blatant on the streets of São Paulo is the tail of a business that begins with the box manufacturer in Asia and employs an international army of hackers that industry insiders have thus far identified as working from China, Hong Kong, Eastern Europe and Chile. To guarantee consistent high-quality service to consumers, the Chinese companies often manufacture the boxes with built-in “pirate-friendly” configurations. Some even set up and maintain sophisticated pirate servers. Among the standard features now contained in the box’s software is code designed to automatically reconfigure networks when local law enforcement shuts down access to foreign servers.
To build entire networks of channels, the pirates capture the protected signal in various locations around the world, either by illegally modifying legitimate operator boxes, or using video capture hardware and software available in the industry. They then link the video feeds from these boxes together — each individual box is dedicated to stream a single channel. Layering these signals together, they create their own international content platform, adding subtitles as needed, which are bundled into hundreds of video streams, delivered by powerful cloud servers and hosted on the internet, ensuring worldwide reach and high video signal quality. To bypass encryption technology, the pirates hire experts who create software that can steal the high definition (HD) content directly from the legal TV box or the TV set. Brazilians are so accustomed to these foreign pirate broadcasters that few wonder why, in the middle of local programming, Chinese subtitles sometimes pop up on screen.
To supply the thriving Brazilian market, hundreds of thousands of these boxes are exported from Asia to Paraguay, where they are part of a multi-billion-dollar contraband stream including cigarettes, cocaine and pirated software crossing the border into Brazil. Once in Brazil, the black boxes are trucked to retail dealers working street markets like the one I saw on Santa Ifigenia Street in São Paulo. On a single block, I found more than 40 outlets offering the black boxes with pirate software installed. Clandestine programmers offered to customize the boxes with additional software for another $15. One salesman said he sold on average 20 to 30 boxes a day. Gesturing toward a nearly empty shelf, he said, “That’s where they were.”
I also saw box vendors handing out slick flyers offering access to a pirate platform called My Family Cinema which touts “more than 60,000 films and series.” The glossy brochures for My Family Cinema promise “A Revolution in Smart TV” and free access to “more than 250 channels, the majority in ultra HD” with content for the whole family, including sports, content for kids, series and even adult channels. The business is so professionally organized and run that some consumers might believe they are paying a legitimate company. “These are well-structured organizations,” said Pascal Metral, one of the industry’s top enforcement lawyers. “Some people in Asia will call them a business, and some people call them pirates. In our culture we would call them organized crime.”
Some Latin American governments have been slow to appreciate the scope of the problem, much less act. But others are scrambling. In a rush to catch up, industry leaders are drafting legislation, financing anti-piracy summits, and sharing model legislation.
The challenge is huge, in part because pirate operations are nimble and often international. In Brazil, an estimated 90 percent of the illegal signals downloaded come from abroad – principally Eastern Europe and China. To battle this new phenomenon industry leaders in Latin America formed The Alliance Against Piracy of Pay Television and developed a cybercrime laboratory capable of measuring the illegal traffic and aiding in prosecutions. “The piracy we are fighting against requires resources. You can see the hundreds of thousands of users with illegal streams received from one single pirate organization. We have subpoenaed PayPal and similar payment systems, and there we got an idea of how costly it is for such organizations to pay the servers,” said Metral, who heads the anti-piracy intelligence unit at NAGRA. “One guy had a million dollars just in payments to hosting companies.”
In July 2018, a criminal complaint by FoxNetworks Group and The Alliance Against Piracy in Pay TV led to a raid by Chilean police on seven locations in Santiago. Eight people were arrested and more than 10,000 computer devices seized, including servers packed with the names and viewing habits of the clandestine network’s 50,000 subscribers distributed from Panama to Brazil. “We hope that what happened in Chile sets a precedent for the whole region. We have presented legal actions in different countries against other criminal networks with a similar modus operandi,” said Daniel Steinmetz, chief anti-piracy officer of FoxNetworks Group Latin America.
In Brazil, authorities are working with police across the country to coordinate takedowns of illegal broadcaster networks and coordinating seizures of servers and warehouses. In the Brazilian city of Foz do Iguaçu — bordering the Paraguayan smuggler’s paradise in Ciudad del Este — 153,000 illegal cable boxes were confiscated in 2017. That same year, in Porto Alegre, Brazilian federal police arrested a gang that they estimated had imported some 90,000 illegal black boxes from Peru then resold them for up to $500 apiece.
Under former President Michel Temer, who left office on Jan. 1, the Brazilian government was extremely active in a push to strengthen anti-piracy legislation — and also influence public opinion. “One of the challenges we have in the fight against piracy is to … (make) people perceive how they are harmed by causes of piracy, or how much piracy is harmful to society, to the state,” said Brazil’s recently departed minister of culture, Sérgio Sá Leitão, as he spoke at a recent anti-piracy summit. “Piracy is a crime, it is a robbery, it is a theft from the property of another.”
Others have echoed this effort to educate the public on what exactly piracy is. “It (contraband) has been imported by an organized crime group. You have handed your money to an organized crime group,” Vanessa Neumann, author of the book Blood Profits: How American Consumers Unwittingly Fund Terrorism, told an audience at the launch of the Portuguese language version of her book in São Paulo. “This is why you wake up one morning and find that your police are unresponsive and your government is not working for you — because you have engaged in funding corruption.”
Yet getting such messages across has been an uphill battle. When Brazilian authorities announced a crackdown on illegal cable and TV services in 2018, a poll showed 95 percent of the public opposed the measure. “Our society thinks these illegal markets are okay. That is our reality, across Latin America,” said Edson Vismona, the president of Brazil’s National Forum Against Piracy and Illegality. “Everyone says it is important to be ethical but when they see the product at a lower price, they say okay, and buy it.”
Crackdowns on pirate groups in Brazil have produced fleeting victories. After spending months investigating and receiving judicial orders to shut down a major pirate broadcasting network in Brazil, regulators and industry cheered when the illegal streaming was halted. But hours later the software installed in the boxes had linked to alternative servers and the clandestine network was back up and running. “The Chinese hosts use their own (server) networks and when legal actions shut down their service, the boxes immediately migrate to Amazon,” said Antonio Salles Neto, who works in the anti-fraud intelligence unit of the Brazilian Association of Pay TV. “They hide inside Amazon and it is not possible to shut them down.”
In July 2018, Brazil’s Ministry of Culture inaugurated a new division to coordinate anti-piracy and intellectual property crime investigations. Brazilian government committees in both the culture and justice ministries are holding bilateral talks with Spain, Chile and Argentina to discuss coordinated campaigns against pirate networks. “With this new body, we will give the due attention, dimension and scope that copyright deserves. We have an urgent challenge, which is to confront piracy,” said Marcos Tavolari, who headed the then new Secretariat of Copyright and Intellectual Property Rights.
Among the tactics being considered by the Brazilian government is expedited site blocking in which access to internet sites that host pirated content is shut down. In the efforts to stop piracy of live sports events, having to wait 48 hours for a judicial order is ineffective. The Brazilian government is now studying successful campaigns by content providers like the English Premier League, which has secured extraordinary powers granted by the British judiciary. Anticipating the live-stream pirating of football matches, Premier League authorities have a preapproved order to shut down the servers rebroadcasting their matches. In November, Spanish laws were modified to offer more expedient site blocking as well. “The holy grail for this, in terms of mounting an effective and timely response, is site blocking,” said Gustavo Pupo-Mayo, chairman of the Television Association of Programmers Latin America, who applauded the recent Spanish move to combat piracy. “The rest of the world should follow.”
Other industry leaders were more philosophical. “We will always have a gap between our understanding of technology and our legal understanding. This has been going on since Galileo,” said Salles Neto of the Brazilian Association of Pay TV. The important thing is to take the problem seriously, and act, he said. Right now, “the life of the pirates is too easy.”
Due to an editing error, a previous version of this article incorrectly referred to NAGRA as a brand of audio electronics.
Tags: Brazil, Piracy, Technology