KEY POINTS

  • The pirate services mimic legitimate operators, often charging $10 to $15 a month and rely on legitimate operators for hosting services and other support
  • The pirate subscriptions often come with malware that puts consumers' data at risk
  • Profits range as high as 85%

Pirate subscription services have grown into a $1 billion business servicing at least 9 million U.S. households through a sophisticated system that cheats creators and tax collectors, circumvents legitimate television services and puts consumers at risk, a report released Thursday charged.

“Money for Nothing,” the report put together by the nonprofit Digital Citizens Alliance and NAGRA, the digital television division of content provider Kudelski Group, highlights infrastructure, supply chain, revenues and profit margins, along with ad-financed internet protocol television business models. It also raises alarms about the financial risks to consumers, everything from malware to the presence of channels devoted to terrorists like Al-Manar, skirting U.S. bans.

“Given that some players offering piracy subscription IPTV services openly brag about their profits online, it’s clear that law enforcement is not their biggest concern,” said Tom Galvin, executive director of the alliance. “That is in part due to outdated laws.”

Profit margins for distribution range from 56% to 85%, the report said. The services use legitimate players, including hosting services, payment processors and social media, to further their enterprises.

The pirate services mimic legitimate operators, typically charging $10 to $15 a month for thousands of channels from around the world. Typical wholesalers can make as much as $1.3 million annually while a medium-size retailer with 5,000 subscribers can earn $600,000 in annual profits, the report said.

The report found some 3,500 U.S.-facing storefront websites, social media pages, and stores within online marketplaces provide pirated material to about 9 million fixed broadband subscribers. The subscription services represent just a fraction of the overall piracy industry.

“The basic model for the operators of these services is not complicated,” the report said in its executive summary. “They take stolen content and distribute it via the internet directly to consumers. Since these providers pay nothing to the people who create and own the programming, this is, to quote the rock group Dire Straits, truly ‘money for nothing.’”

The Global Innovation Policy Center estimates the pirate services cost the U.S. economy $29.2 billion annually.

The Federal Trade Commission warned consumers last year against subscribing to these services, saying, “Purveyors of pirated content are now spreading apps and add-ons that work with popular streaming devices. If you download one of these illegal pirate apps or add-ons, the chances are good that you’ll also download malware.” The FTC said once the malicious software has infected a wireless network, other devices, including computers harboring banking, credit card and personal information, are at risk.

“This cybersecurity threat is alarming because the users assist in the hack by ‘escorting’ the hacker past vital network security. And it all starts so simply,” the alliance found in an investigation documenting the risks. The alliance said the apps expose consumers to cryptocurrency mining, adware, ransomware and botnets.

NAGRA said the pirate IPTV operators often turn over access to third parties who can then use a subscriber’s connection to access child pornography, commit fraud or conduct cyberattacks.

The report concludes the pirate services have been allowed to flourish because the press, policymakers and the public just don’t understand how they operate and the risks they create.

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