Why are Rupert Murdoch and the NDS Group at the centre of a piracy scandal involving some of Europe s biggest media groups

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Asks kelvin

A. The row is centred on allegations made by the giant French pay-TV operator Canal Plus (on 12 March 2002) that the NDS Group (owned by Murdoch's News Corporation) had helped viewers pirate its software by providing software codes over the Internet for its set top boxes - giving access to its pay-TV channels in Europe free of charge, and reportedly costing Canal Plus millions of pounds in lost revenue.

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Canal Plus has filed a complaint to a court in California about NDS, but the case will have an effect on the UK pay-TV market because NDS produces smartcard and set top box technology used by BSkyB, and Canal Plus provides the smartcard technology for its rival ITV Digital in the UK - and ITV Digital is known to have a piracy problem.

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Q. What exactly is a smartcard

A. A smartcard is inserted into a set-top box, it looks like a credit card, and the information it contains includes details on which channels a viewer has paid for and can therefore watch - in turn it then decrypts television signals and turns them into pictures.

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If you do not have a smartcard, but do have a digital system installed, you can only watch free-to-air channels - which are basically those available on the terrestrial network e.g. BBC1 etc.

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Q. How were the smartcard codes actually broken

A. Canal Plus' law suit is claiming $1 billion (�700 million) in damages against NDS (speculation since Canal Plus' original lawsuit has estimated that the amount of claimed damages could amount to $3 billion (�2.1 billion) under US law because Canal Plus has included a civil claim for racketeering) - which has offices in Middlesex (UK), California (USA) and in Haifa (Israel) - the latter being where Canal Plus claims the code breaking took place.

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Canal Plus claims that NDS' team in Haifa broke into its encryption system which would have cost millions of pounds to fund and several months to break.

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It has been reported in the national press that the process would have involved the use of expensive electron scanning microscopes to examine small computer chips no bigger than a thumbnail - with each chip having over 60 layers with up to 1,000 transistors on board - basically a massive and very specialised job.

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Canal Plus claims that once the code was broken it was posted on the Internet to a website known as DR7.com in late 1999 and by mid-2000 fake smartcards had flooded the pay-TV market throughout Europe.

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Adding fuel to the fire, on 13 March 2002, The Guardian reported that the British division of NDS had admitted having a financial connection with a website (known as the House of Ill compute - which was closed in 2001) that distributed pirate codes used to develop fake smartcards for ITV Digital's pay-TV service in the UK.

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Q. How big is Canal Plus's smartcard empire

A. It is huge - it currently has 6.1m digital customers in 11 European countries and 12.5 million set-top boxes use its software through its subsidiary, Canal Plus Technologies, including ITV Digital.

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It is believed that Canal Plus will now have to renew the technology in its 12.5 million+ smartcards.

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Q. What do you know about ITV Digital's piracy problem

A. ITV Digital (which launched as ONdigital in 1998) has had problems obtaining and maintaining subscriber levels despite investing over �800 million in its service since it launched and it has had to face tough competition from BSkyB's Sky Digital service (Sky has approximately 5.5 million subscribers compared to ITV Digital's 1.2 million) which is now one of the most successful in Europe.

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Added to its struggling position in a highly competitive market, is the fact that its smartcards have been counterfeited, giving thousands of people access to its pay-TV service free of charge.

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According to The Guardian, codes needed to create illegal smartcards have been posted on the Internet for some time and have enabled counterfeiters to make fake cards which have been sold through pubs and street vendors for �5-�20 (ITV Digital's average monthly subscription fee is �30). It is believed that 100,000 pirated ITV Digital cards are thought to be in circulation in the UK.

In light of Canal Plus' allegations against NDS in the US, it is believed that ITV Digital may well pursue its own legal action either against NDS or even Canal Plus claiming damages for insecure smartcards. ITV Digital has yet to announce what action it will take.

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Q. How has NDS countered the claims made by Canal Plus

A. It has totally denied any connection to counterfeiting smartcards. On 18 March 2002 News Corporation made it clear that it is taking Canal Plus' allegations very seriously when it announced that it had appointed Arthur Siskind to help NDS fight the lawsuit. Siskind is News Corporation's group general counsel (its top lawyer) and very close to Rupert Murdoch.

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By Karen Anderson