"Satellite piracy has gone crazy," says Rik Hawkins, owner of Starpath Communications, which sells DirecTV programming in Hardin County, Ky. "The numbers are bigger than anyone will admit."

Estimates of satellite theft — practitioners prefer the term "hacking" — are probably on the low side. They usually don't include people who buy the basic channels and then reprogram the decoders that sit atop their TV sets to let them watch premium and pay-per-view (PPV) channels free.

Satellite companies and the channels, movie studios and sports franchises that supply programming lose well over $1 billion a year in uncollected revenue from piracy. The satellite services typically offer far more PPV channels than most cable services do, and all their signals are digital, making them clearer and easier to copy.

DirecTV, the El Segundo, Calif.-based industry leader, with 11 million subscribers, is the target of choice for most pirates, who typically refer to it as "Dave." It offers about twice as many conventional PPV movies and twice as many PPV pornography channels as Englewood, Colo.-based EchoStar, the No. 2 satellite company known for its Dish Network.

The other big attraction is DirecTV's extensive sports packages. It has exclusive national broadcast rights to 14 Sunday NFL games and the first three rounds of the NCAA men's basketball championship tournament in March. It has non-exclusive rights to packages of pro baseball, basketball, hockey, soccer, and college football and basketball games.

"For every five people buying DirecTV legitimately, there's one who's getting a system with no connection to DirecTV," says Satellite Business News Editor Bob Scherman. Pirates don't plug decoders into a phone line, which is how satellite firms monitor authorized boxes, so "the company doesn't know these people exist."

Several hackers, who would speak only privately, say they simply want to save a few hundred dollars a year.

Also, "A lot of smart people make this their hobby," says Jimmy Schaeffler, CEO of The Carmel Group, a telecommunications consulting company. With the belief that they're free to manipulate signals that fall into their backyards, "They don't consider it stealing. And law enforcement officials don't see it as a big deal."

Prosecutors and investigators say enforcement is uneven. Some local officials consider piracy a priority, others don't.

A growing number of pirates also find ways to profit from it. Sports bars sometimes use pirated equipment to show big games that are blacked out in their local markets. Some pirates tape PPV porn channels and sell the cassettes privately — often at flea markets.

Some people charge friends and neighbors a fee to set them up with free satellite service. That includes some professional installers who want to pocket an extra few hundred dollars. "He'll size up the customer and say, 'Hey, how would you like a wide-open card?' " says FBI Special Agent Evan Rae, who has investigated several cases.

EchoStar declines to discuss the subject, although CEO Charlie Ergen recently told analysts that piracy is something "we haven't seen any progress as an industry on."

DirecTV disagrees.

"In the last two years, we've ramped our enforcement up dramatically, and the information I get is that it's damaging the (piracy) market," says Larry Rissler, vice president of DirecTV's office of signal integrity. "I think I'm safe in saying it hasn't increased. If anything, we've seen a reduction in the last year or so."

DirecTV sues under '98 law

DirecTV has been helped, he says, by a provision in a 1998 law, the Digital Millennium Copyright Act. It enables companies such as DirecTV to sue manufacturers and distributors of satellite-theft equipment and, with a judge's approval, seize their equipment and customer records.

Few security experts or law enforcement officials seem to share DirecTV's view that pirates are on the run. They point to several trends that spread hacking into the mainstream. For example:

The Internet makes it a snap for hackers to beat anti-theft efforts by DirecTV and EchoStar
Satellite broadcasters scramble their signals, which are descrambled by the set-top decoder. A programmable smart card is the key to that process: It tells the box which channels to open.

Pirates have no trouble getting these cards. A host of sites, from SatansPlayhouse.com to eBay.com, offer some for as little as $45. Once they get the card, hackers program it with a script that instructs the boxes to unscramble everything, including premium and PPV channels. The scripts, and often step-by-step hacking instructions, are on sites such as DssHideaway.com, DssHotLine.com, DSSMafia.com, and DimeDealer.com.

To trip them up, DirecTV and EchoStar periodically broadcast a signal — known as an electronic countermeasure (ECM) — designed to corrupt unauthorized cards, making them unusable.

"We do ECMs probably on a weekly basis, and they're all unique," says DirecTV CEO Eddy Hartenstein.

But many pirates laugh at ECMs.

Some sites have people who monitor the satellite data streams and can tell when an ECM is coming. Less than an hour after one hits, they usually have new scripts available that can be downloaded straight to the card with a reader and writer that connect to a PC.

Dedicated hackers pay about $20 a month to subscribe to sites that offer codes that are virtually impervious to most ECMs. People who write the most bulletproof scripts can make as much as $1 million, says one piracy expert.

One big question that has emerged recently is whether pros from a Rupert Murdoch-controlled smart card firm, NDS — which serves DirecTV and satellite companies in other countries — have fed hackers. In September, DirecTV sued NDS, and EchoStar applied to join a lawsuit filed by Canal Plus, a Paris-based pay-TV service.

They allege that in 1999 NDS cracked the code of a rival smart card service that EchoStar uses and co-owns, NagraStar, and circulated the hack on the Internet. In October, the U.S. attorney's office in San Diego launched its own investigation.

Murdoch says the accusations "are a joke. They're worthless. We look forward to meeting them in court." Hartenstein counters, "We are not in the habit of filing frivolous suits. We're taking this very seriously."

DirecTV decided in April to drop NDS as of August 2003 and design its own smart cards.

Now, NDS is countersuing DirecTV for patent infringement and breach of contract, alleging that its "gross mismanagement" jeopardized the NDS system and "resulted in widespread piracy."

Canada helped to build a marketplace for pirates.
For years, Canadians had several incentives to unscramble DirecTV and EchoStar without paying. They didn't have many authorized alternatives: The country's own satellite services were slow to launch.

When they did, Canadian law barred the services from carrying popular U.S. channels, including HBO, Showtime, ESPN, the Disney Channel and American Movie Classics. Canadian channels often license the same movies, events and programs, including original productions such as The Sopranos.

Canadian police left hackers alone. Because DirecTV and EchoStar weren't authorized to serve Canada, it wasn't clear whether they were covered by anti-piracy laws. That changed in April: The Supreme Court of Canada ruled that they are.

DirecTV says that's made a big difference in turning the tide against hackers. Others say it was too late. Too many people were making too much money selling descrambling hardware and software.

"Some are selling $10,000 to $20,000 (of equipment) a day," says Serge Corriveau, national director of the Film and Video Security Office of Canada. "The products are getting better. And there's no real enforcement. The government isn't taking it seriously."

Hollywood has taken notice. While domestically it focuses on sales of illegal DVDs, "probably 90% of our enforcement in Canada is devoted to cable and satellite theft — mostly satellite theft," says Ken Jacobsen, in charge of worldwide anti-piracy efforts for the Motion Picture Association of America.

As demand for hacking equipment grew in the USA, so did the number of domestic firms that want to make and sell the hardware. "Hardware distributors make millions," says James Spertus, a U.S. attorney in Los Angeles. "There's massive theft going on, and the losses are huge."

Competition has made the equipment more affordable. About a year ago, a card programmer cost about $100. Now, they're as little as $39 with an extra feature, called an "unlooper," that restores cards hit by a particular kind of satellite-company-beamed attack on the illegal cards' software.

Cable is harder to steal.
Cable operators say technology is starting to give them the upper hand in trimming the ranks of the 3 million to 4 million people who deliberately steal their signals.

Most cable firms now transmit their big attractions — premium and PPV channels — digitally, so customers who want them must get a digital decoder. Most digital boxes provide constant two-way communication, enabling operators to easily determine whether the user is hooked to an authorized decoder and which channels it's allowed to unscramble.

"Digital technology has not been compromised, so our subscribers can't steal cable," says Brian Allen, Time Warner Cable's director of corporate security.

FBI Special Agent Rae, who has long tracked signal pirates, agrees.

"Going digital made a big difference," he says. "And cable's hard-wired. Getting a signal out of the air is a lot easier."

People who can't hack into cable are turning to satellite TV.

EchoStar and DirecTV are each introducing smart cards that are supposed to be harder to hack. In September, a new kind of card started to come with EchoStar's receivers. It was the first change EchoStar had made in six years.

DirecTV has taken on a much more difficult task. It has been trying to replace cards for all of its subscribers. But the swap appears to have been put on hold. According to some reports, the new card creates glitches in satellite decoders that also have TiVo-like personal video recorders, which record TV programs on a digital hard drive, making them easier and more flexible to use than a conventional VCR.

DirecTV isn't just relying on technology to solve the problem. It has also stepped up its efforts to discover and prosecute people who sell the equipment that pirates use.

Threatening letters

Now it's cracking down on users it believes are stealing its signals. It recently began to send letters threatening to prosecute thousands of people whose names turned up on invoices of raided companies. To avoid being charged with a crime, they must pay DirecTV $4,500.

That has sent a chill through the hacker underground. Some say DirecTV also is bullying people who didn't steal its services.

"Some people who ordered these products are no doubt guilty. But DirecTV has no way of knowing that," says Lakeshore Law Center's Jeffrey Wilens, who's seeking class-action status for a lawsuit against the satellite company in Los Angeles Superior Court. "They're carpet-bombing an entire city to get one or two enemy strongholds. It's a classic shakedown."

DirecTV disputes that.