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Home  >  Topics  >  Investigations

May 09, 2002
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In Satellite Piracy War, Battles on Many Fronts

by Jennifer Lee, New York Times

WINDSOR, Ontario - The palm-size cards started appearing last year at border inspection points. They were stashed in glove compartments and trunks. Tucked into pockets and wallets. Hidden in brown paper packages.

Drivers tried too hard not to appear nervous, and flubbed explanations when questioned by American customs inspectors.

A new kind of contraband was trickling across the border from Windsor into Detroit along with the pseudoephedrine and the Cuban cigars. Initially, United States customs officials say, they found the cards puzzling. They looked innocuous enough — blue plastic cards imbedded with computer chips.

As the inspectors investigated further, it soon became clear to them that Americans were flocking to Windsor for more than the second-rate casinos and strip clubs. They were crossing the border to satisfy an illicit desire of a different sort: one for pirated satellite television.

In the past few years, satellite TV piracy has become a multimillion-dollar industry in the United States, with as many as one million households, by some estimates, illegally obtaining programming from the nation's two big satellite providers, DirecTV and EchoStar. The desire to tap into satellite channels without paying the monthly fees has spawned a loose distribution network of fly-by-night dealers and Web sites, raids by law enforcement agencies, and an electronic cat-and-mouse game between the pirates and the satellite companies.

But if piracy has become big business in the United States, it owes a lot to Canada, where until recently it was legal to receive pirated satellite signals. In border cities like Windsor, a mini-industry of pirate providers flourished, selling the means for Americans, be they individuals or dealers, to gain access to satellite programming.

For now, that industry is reeling from a Canadian Supreme Court ruling in late April that it was illegal for Canadians to watch American satellite television. Stores were closed and equipment removed, and several online stores were shut down.

But dealers say that the demand is too great and the business too lucrative for the industry to disappear entirely. It will either move offshore or underground, many dealers predict, ensuring some sort of supply chain for Americans.

"All they really do is push it below ground," said Adam Dicker, owner of Satan's Playhouse, a chain of three satellite television stores in Toronto. "It's the dealers they want to put out of business, but we only get more business."

In satellite piracy, the cards are the keys. Inserted into an inexpensive receiver, a card unlocks the streams of entertainment to a user who points a small dish antenna in the right direction. Legitimate users pay a monthly fee to unscramble the signals. But a satellite access card can be transformed to a free card through reprogramming. What was once available only by subscription — basic channels and premium services like HBO, pay-per-view movies and sports — can be viewed for the one low price of hiring someone to hack the card, anywhere from $20 to $50 a pop.

"It's like heroin," said Joann Kolonelos, a dealer at DSS Pirate, a satellite piracy store in Windsor whose clientele has been approximately one-third American. "Once you have access to all those channels, all those movies, you can't give it up."

The satellite companies and law enforcement agencies call it theft, plain and simple. The companies, which together have about 18 million paying subscribers in the United States, hesitate to put a figure on the price of satellite piracy. But cumulatively, the cost of enforcement, legal action and lost revenue has probably run into the hundreds of millions of dollars, according to industry experts. In 1997, DirecTV was awarded damages of $33 million as a result of a single lawsuit against 30 dealers in Seattle.

DirecTV, whose encryption system was cracked before EchoStar's, is pouring money and people into its anti-pirating division, the Office of Signal Integrity. The office helps law enforcement agencies conduct frequent raids on satellite dealers across the country. In three raids on a single day in May 2001, for example, police officers confiscated $4.5 million in satellite piracy paraphernalia in Orange County in California. Since the beginning of this year, there have been 33 seizures of satellite access cards by customs inspectors in Detroit alone.

Satellite piracy is a federal crime punishable by up to five years in prison for dealers and one year for viewers, in addition to fines. But many scoff at the idea of getting caught.

"There are so many people doing it, it becomes socially acceptable for you to do it too," said a hotel manager from Detroit who spoke on the condition that he not be identified. The manager, who went to Windsor to obtain cards and satellite equipment, started pirating signals in 2000 when he became frustrated with his high cable bills.

He crossed the border because Canadians were able to exploit a discrepancy: government jurisdictions stop at borders, but satellite signals do not. Piracy of American satellite television could not be challenged here because the companies are not licensed in Canada. And while there are two Canadian satellite broadcasting providers, the appetite for American programming is overwhelming.

Today, an estimated one million Canadian households — about 10 percent of the population — are watching American satellite TV, in most cases without paying DirecTV or Echostar. Satellite dishes have sprung up on Canadian houses like gray mushrooms after a spring shower. Piracy Web sites flourished, and hundreds of stores opened as legitimate tax-paying businesses. In Windsor alone, 40 piracy stores emerged from 2000 to 2002. Classified ads were filled with offers to hack satellite cards.

By serving as wholesalers to dealers in the United States or selling to individuals who crossed the border into Canada, hackers and piracy shops nurtured the temptation for Americans to steal satellite signals.

How far are people willing to go for television? Windsor dealers say that customers have driven from as far as Oklahoma, West Virginia and Texas. Some have bought dozens of cards to sell or give to friends. Some Americans who could not get to Canada mailed their cards to friends in the Detroit area with pleas that they be returned before the big game, said the hotel manager.
The access cards are a valuable commodity. One Satan's Playhouse store was held up at gunpoint last year, said the owner, Mr. Dicker. The thieves made off not with cash but with hundreds of satellite cards worth tens of thousands of dollars.

To create the finished product, Canadians have had to look to the United States for the original cards. Last year the Canadians found a new source across the border for large volumes of low-priced cards: Wal-Mart, which like many retailers was selling DirecTV systems, which consist of a satellite dish and a black-box receiver, for a heavily subsidized $50.
Canadians printed out maps of Wal-Mart locations from the Internet and headed for the border, said David Fuss, the president of Incredible Electronics, a major Canadian wholesaler. They bought the systems by the dozens and the hundreds. What Canadian dealers wanted were the included satellite cards, which could be hacked and sold for $150, a handsome profit.

DirecTV's accounting showed that hundreds of thousands of cards disappeared into the vortex of piracy during that period. Last fall the satellite company started shipping systems to Wal-Mart without the card. "It was costing us a lot of money," said Larry Rissler, the head of DirecTV's Office of Signal Integrity. Now subscribers who buy from Wal-Mart have to order the card separately from DirecTV.

Last year DirecTV hired five law firms to mail cease-and-desist letters to American addresses obtained from raids on dealers. To date it has mailed over 7,500 letters. "We are going after the users," Mr. Rissler said. "We are trying to teach them a lesson."

The company is also fighting fire with fire, with its engineers hacking to fight the hackers. The Office of Signal Integrity designs little bits of code with a name that evokes cold war weaponry: Electronic Counter Measures, or E.C.M.'s. The E.C.M.'s, which travel up to the satellite and down to the cards, are the equivalent of heat-seeking missiles. When they find a card that has been hacked, they destroy the programming on it.

A few months ago, DirecTV stepped up its E.C.M. attacks to two or three a week. Within minutes of each attack, dealers said, their phones would start ringing and people would begin lining up in front of the Windsor stores to get their cards reprogrammed.

"It's television," marveled Patrick Reid, manager of Pirate Satellite, another store in Windsor. "It's supposed to be entertainment. But for some people it's critical."

Some viewers have found a remedy to the E.C.M. attacks: they are buying the hardware to program and fix the cards themselves. The devices, called loaders and unloopers, hook up to a PC. After an attack, hackers devise a software remedy and distribute it on the Internet. Within a day, most people are up and running again.

With a PC and an Internet connection, anyone can now be a pirate. The price of hardware has plummeted as competing manufacturers have flooded the market. Equipment that used to cost several thousand dollars has dropped to $100 or $150.

"Everybody and their neighbor has a programmer these days," said Rod Freire, a satellite installer in Windsor who has five satellite dishes on his house.

Still, the Canadian Supreme Court decision on April 26 changed the picture. The ruling that it was illegal for Canadians to watch American satellite television came on a Friday, and over the weekend, satellite piracy in Canada came to a stumbling halt. Storefronts were shuttered and Web sites were pulled down. Apologetic signs went up. Customers panicked. What would they do without their satellite TV? On the Monday after the ruling, the shelves and tables in one Windsor store were bare. The owner had stripped out all his equipment over the weekend. But customers kept calling.

"I can't talk to you on the phone," the owner said. "You can come here and we can talk face to face."

Customers wandered into the store one by one. An older man pulled a small envelope out of his pocket and took out a card. "Do you still . . . ?" he asked.

"We don't program anymore," the proprietor said firmly. Well, at least not officially. The owner then asked the man to leave his name and number on a piece of paper.

"We'll contact you," the owner said. "We'll work something out." The owner, who spoke to a reporter on the condition that he not be identified, said he would probably start making house calls but that his prices would go up.

There is currently an injunction on the enforcement of the ruling. But no matter the outcome, satellite piracy will continue, dealers say, with Web sites moving to offshore servers and more viewers buying the hardware themselves. Decoder News (decodernews.com), for example, a site that had been operating out of Toronto, plans to move its server to the Caribbean.

"If you never give kids candy in the first place, they'll be O.K.," said Mr. Dicker, the owner of Satan's Playhouse. "But you can't give kids a bunch of candy and then take it away. The same is true for satellite."






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