Finding the source of DVD piracy is elusive.

According to the Los Angeles-based Digital Entertainment Group (DEG), the DVD industry has shipped over three billion discs since the format's launch in 1997. The accountant firm Kaplan, Swicker and Simha on behalf of DEG, has calculated that studios and publishers have shipped 649 million DVD discs to U.S. retail, just in the first six months of 2004. There are currently over 34,000 DVD titles in release in the U.S.

With these kinds of figures, it is natural that Hollywood studios and other DVD industries, including music and gaming, have increased efforts to rein in "casual consumer piracy" through anti-piracy technology. The Motion Picture Association of America estimates the average costs to produce and market a movie in the U.S. today at $80 million, maintaining that analog piracy alone costs them worldwide $3.5 billion a year and reporting that digital piracy will prove even more costly.

According to Macrovision Technology Group's Carol Flaherty, "The landscape on casual consumer piracy has changed over the last two years. In order to stop it, we've got to close the holes available to consumers in their home equipment, develop multiple layers of protection and give consumers a reason to buy instead of steal."

One incentive would be to make the sales price of a DVD more reasonable and in-line with actual production costs. While cassettes are $4 each to manufacture (including packaging), DVD's duplication cost is $1.50 and replication is even cheaper. And yet, studios routinely charge anywhere from $30 and up because, besides viewing DVD as a cash cow, such high rates cover consumer piracy, which is encouraged by high costs.

In an interview with Media Line News, Charles Slocum, assistant executive director of writers' union WGA West, reported that Studios' average wholesale price for a DVD is $16 with profits of $10.55. Only 5 cents go for writers' residuals.

The current DVD and videocassette residual terms stand at 0.3 percent for the first $5 million of the wholesale, and 0.36 percent of the wholesale thereafter. Normally, for ancillaries like TV license fees, it's all 1.2 percent.

Of all the new technologies, none rankle the movie studios more than file-sharing, although, in the past year, two court decisions have dealt content owners stinging setbacks in their efforts to thwart the technology.

Now, however, Senators Orrin Hatch (R-Utah) and Patrick Leahy (D-Vermont) have introduced the Induce Act to the U.S. Congress, which will criminalize the act of inducing another to commit a copyright violation. According to RIAA, the recording industry organization, 97 percent of transactions over P2P networks are illegal.

In August 2004, the three-judge panel of the U.S. 9th Circuit Court of Appeals upheld the April 2003 ruling of a Federal judge that online file-sharing software companies are not liable for copyright infringement.

The court found that the movie and music studios were in effect trying to rework existing copyright standards, which the court deemed "unwise." The court also noted that using history as a guide, markets have a way of adjusting to new technology, usually to the financial benefit of the entertainment companies. According to Fred Von Lohmann, an attorney for the Electronic Frontier Foundation, "In 1978, the studios said that, for a trivial cost, Sony could redesign the VCR to make sure no infringed copies could be made. But nowhere in copyright law does it say ownership of copyright can dictate technology development. As long as the technology is multi-purpose you do not have to redesign your technology to appease copyright owners.... We're in the case because it's about preventing a chilling effect on innovation."

Now the studios are trying for some technical innovation of their own. In an attempt to curb piracy via PVRs, Macrovision has reached agreements with ReplayTV and TiVo that place limits on how much content may be recorded and stored on high-capacity units.

The negotiated copy-control settings, which only apply to NTSC and not PAL PVRs, range from a provision that would permit consumers to "copy freely" to stipulations that they be confined to 90 minutes worth of storage before the PVR would automatically start writing over the material. A third setting would let a consumer view content within a 24-hour period during storage limited to 7 days, while a fourth would allow unlimited viewing during the 7 days. As the technology improves, other options will become available. Flaherty calls the new agreement a "win-win" for consumers as well as content providers.

But a report by AT&T and the University of Pennsylvania disputed the overemphasis on consumers, concluding that 77 percent of illegal copies were generated from within the industry itself, either with employees involved in the production process or screeners sent out for marketing purposes.

On the consumer end, Technicolor's Tim Mauer said that thanks to invisible watermarks placed on films in theatre that can be detected in copied versions, it is now possible to track the origin of bootleg DVDs.

But of even greater concern is a potentially far more serious financial threat to studio, video game and record label DVD bottom lines--piracy by organized crime. Rich LaMagna, Director of Digital Investigations for Microsoft said, "Theft and leakage out of the supply chain is our greatest threat." Current efforts to reduce DVD piracy are focusing on areas such as replication plants, where stampers (machines that duplicate DVDs) have gone missing, and recyclers, who sometimes resell "scrap" products (overruns and other surplus product), which are then, in turn, sold on the black market.