Canal Plus accuse Rupert Murdoch of piracy (update 21/3/02)
On Monday the 11th of March a $1 billion lawsuit (£760 million) was filed by Canal Plus against Rupert Murdoch’s NDS company accusing NDS of piracy of the Seca encryption system although this could rise to $3 billion or more if Canal Plus win. The lawsuit was filed in the US District Court in San Jose in California and an initial hearing will take place in about 2 weeks time. The suit alleges sabotage and violations of the U.S. Racketeering laws.
Canal Plus and its Canal Plus Technologies encryption company are accusing NDS, the encryption company behind Videocrypt and Videoguard, of setting up a massive operation, in the late 1990s, at its research laboratory in Haifa in Israel, to break the codes in Canal Plus’s Seca smartcards. After the code was successfully extracted in 1998, Canal Plus alleges that NDS sent it (as a file called “SecaRom.Zip) to NDS Americas Inc. in California “with instructions that it be published on the Internet,” so that it “would be freely available to anyone who wanted to use it to produce counterfeit” Canal Plus Seca smartcards. The suit says that, in March 1999, the code was published on a Canadian website that Canal Plus says is frequented by counterfeiters (DR7.com). After the code was published Canal Plus claims that the market was then flooded with counterfeit Canal Plus Seca smartcards.
Now this is very serious stuff indeed and Canal Plus are not messing about – they have even created a very extensive website completely devoted to the lawsuit carrying full details of the suit itself, press releases about the case and plenty more.
NDS - background
News Datacom (now NDS) has a turbulent history. Rupert Murdoch’s Sky started using the Videocrypt encryption system developed by the Israeli Professor Adi Shamir in 1988. His system was incorporated into a company called News Datacom Security Products (NDSP) which was created to exploit the revenues from a secure encryption system.
Videocrypt became the core product upon which Rupert Murdoch built, and protected, his Pay TV channels around the world (at Sky, Star TV etc). Murdoch recognised Videocrypt’s importance and, in 1992, he purchased 100% of NDSP and changed it’s name to News Datacom Ltd.
Then, in 1995, in an unprecedented investigation the Financial Times stated that the history of News Datacom “has involved offshore companies, disguised payments to executives, private investigators and secret telephone recordings”. It is believed that the FT’s investigation was sparked off by revelations that the Israeli tax authorities had raided the offices of Rupert Murdoch’s News Datacom in Tel Aviv seeking evidence of $150 million of allegedly concealed income. NDS denied any wrongdoing but did pay $4 million.
The FT investigation also detailed an alleged conspiracy that defrauded News Corp of £19 million. News Corp became reliant upon NDSP for it’s smartcards, according to Sky, as a result of an alleged conspiracy between a number of people, some of whom were Directors of Rupert Murdoch’s News International (owners of the Times, Sun etc). The conspiracy was hidden, News Corp alleged, behind a complex web of companies owned by the very people who were running News Datacom and therefore Sky’s encryption systems including Bruce Hundertmark (a News International Director), Michael Clinger (a News Group Director – who was wanted in the USA for fraudulent accounting and insider trading) and Meir Matatyahu (Operations Manager at News Datacom). In effect News Corp, and therefore Sky, were ‘over a barrel’ and totally dependent upon a single supplier (NDSP). News Corp also alleged that the owners of NDSP and various other individuals conspired to defraud News Corp by “artificially inflating” the costs of the smartcards
Even after NDSP was purchased by News Corp, in 1992, they were still effectively dependent upon the former owners of NDSP as, according to the FT, the News Datacom executives responsible for the purchase of smartcards “did not have enough technical knowledge” to acquire the cards elsewhere.
The report also states that News Corp’s attempts to get a new source of smartcards were suspended “when it’s smartcards became hit by pirate imitations” and “when a more immediate threat to it’s business emerged - pirates gaining access to Sky’s transmissions illegally”. Subsequently, in 1996, a High Court judge, Justice Lindsay, found in Sky’s favour and awarded the company £28 million in damages.
The Financial Times report also looked at the tax status of some of Rupert Murdoch’s companies and they stated that “Documents show how remuneration to News Datacom Security Products (NDSP) executives was paid, out of Hong Kong, to a variety of foreign bank accounts”
Editorial:
So Mr Murdoch purchased a company not knowing who or what it’s Directors were. And the company itself was engaged in secret telephone recordings, money to offshore bank accounts, tax evasion raids and FT reports. On top of this Mr Murdoch had to sue his own Directors for fraud. Not your normal run of the mill company – and it doesn’t say much for Mr Murdoch’s business skills either.
Canal Plus case
There is a lot of circumstantial evidence to consider when looking at Canal Plus’ claim; a) piracy of Seca is rife
Videoguard is unhacked c) there has been little or no action by Sky/NDS in the UK to crack down on the availability of pirate Seca cards in this country and d) there is a lot of anecdotal evidence to suggest that Sky at least knew of the piracy of Canal Plus’s system.
Our own direct knowledge of NDS’s methods and the security services employed by Mr Murdoch stretches back to 1993 with the start of piracy of Mr Murdoch’s Videocrypt encryption system. We actually met with 2 members of Sky’s security staff, from a company then called “International Security Consultancy Limited” in West London that year. These people were very professional, very intelligent and very frightening. They were interested in trying to find the source of the Videocrypt piracy and we firmly believe that they thought that there had been a deliberate leak of the Videocrypt codes by someone at the head office in Israel. They were sufficiently alarmed to suggest to us that someone had disappeared recently from their Israeli laboratories and they could not find them (see parallel with Mr Gibling later).
Videocrypt piracy was rife and must of cost Sky millions of pounds during the mid 1990s. But the advent of digital stopped that analog piracy in its tracks. However the launch of Viaccess, Conax, Irdeto and Canal Plus’ Seca digital smartcards and systems opened the doors once again to piracy and, indeed, pirate smartcards for all the major encryption systems, except Mr Murdoch’s Videoguard, quickly appeared and proliferated.
There have long been rumours in the industry, which we investigated at the time but have remained unproven, that Sky did a deal with certain pirate code writers to stop the development of a Videocrypt hack (series 6/7/8) and similarly to stop Videoguard piracy.
But – is there any truth in Canal Plus’ allegations? Well any encryption company is going to take its competitor’s products to bits and that must be taken for granted. But Canal Plus are stating that NDS did more than this – they actually put the code on the internet. Why would NDS do this?
European piracy, according to the Anti Piracy Group AEPOC (of which Sky and Canal Plus are both members!), will generate £600 million in revenues for the pirates this year, revenues that the individual broadcasters will lose. This money is the difference between profit and loss for broadcasters such as Telepiu, Stream, Premiere World etc.
For instance the Kirch owned German Pay TV broadcaster Premiere World (in Betacrypt encryption), only back in June, stated that they believed that they were going to lose £500 million from piracy over the next 3 years. And in October the Head of the Spanish Via Digital package (Nagravision) said he believed that there were 300,000 pirate Nagravision cards in use in Spain for his package. In Italy things are even worse. In January of this year some interesting figures came out of Italy regarding their piracy. The advertising agency Cairo TV calculated that there are approximately 4 million dishes in the country but there are only 800,000 official Telepiu subscribing homes and 700,000 official Stream homes (total 1.5 million). This suggests that there could be as many as 2,500,000 homes using pirate smartcards in Italy representing possibly £500 million in revenues! Bearing in mind that together Telepiu and Stream have been racking up losses of somewhat less than that each year – if they stopped piracy in Italy they would have 2 profitable broadcasters operating. And what encryption system do they have in common? Seca. And looking just in the UK a similar pattern emerges. ITV Digital use a form of Canal Plus’ Seca system. The latest estimates are that there are 100,000 pirate ITV Digital cards in use in the UK – and 1.2 million official cards. This suggests that ITV Digital could be losing as much as £20 to £30 million a year to piracy – an amount that would help the broadcaster in its well publicised fight to stay on air.
So – a hack on an encryption system can make the difference between a profitable broadcaster and one that has to fold or, as in Telepiu and Stream’s case, merge. In this context it is notable that Mr Murdoch is circling the Premiere World broadcaster at the moment. Kirch’s Premiere World owe Mr Murdoch £1 billion payable in September of this year. Premiere World use Betacrypt encryption which has been consistently hacked for the past 3 years. On the basis of their forecast loses over the next 3 years it must be reasonable to assume that the broadcaster has lost a few hundred million pounds over the past 3 years – money that would go a large part of the way to fending off Mr Murdoch’s predatory moves!
Another argument that Canal Plus themselves have put forward in their Court documentation is that NDS have presented to European broadcasters on the basis that theirs is the only viable, unhacked, encryption system available. And this is true. All the others have been compromised (although Irdeto II and Viaccess II have, so far, beaten off the pirates). The encryption business is a multi million pound business and is certainly one way for Mr Murdoch to entrench himself in a broadcaster – supply them with Videoguard and then they are tied to him.
And with Pay TV becoming the norm in most countries the encryption systems are going to become more valuable and essential rather than less. Mr Murdoch, at the moment, is able to stroll into any broadcaster and offer his wares and take a large slice of their revenues for his smartcards and technologies. Canal Plus are adamant that NDS’s hacking of Seca has contributed directly to them losing customers – and they are right.
It is also very noticeable to us and to other observers how little Mr Murdoch has done, if anything, to stop the sale or production of pirate cards for any of the foreign broadcasters in the UK. The sale of these cards generates revenues for the pirates who are then able to develop further hacks (Viaccess II, Irdeto II next ?). Strangely Mr Murdoch has done nothing to stop these activities and yet we know that his staff are more than aware of the business. In the context of Canal Plus’ complaint this inertia appears to be, at the least, intriguing.
So – the stakes are very high indeed. High enough to hack an opponent’s system and put it on the internet? NDS had the technologies, the money, the staff, the background (!) and the ‘interest’. Canal Plus claim that they have spent 3 years getting to the bottom of what happened (smartcard technologies are, by their nature, extremely secretive so it will also be interesting to see what comes out of the Court case) and Canal Plus would not make their extraordinary allegations if they did not have evidence to back their assertions up – Vivendi (Canal Plus’ owners) have ridden the media downturn very well – why rock the boat now?
Our own contacts in France tell us that the head of Canal Plus Technologies met with the French Secret Service early last year to discuss the situation but, even though they had been looking for proof of wrongdoing by NDS, at that time they did not have it. We have been told, by the very highest authority, that the French Secret Service were involved because of NDS’s alleged links with the Israel’s own Secret Service. We are very certain indeed that NDS did have these links and still do.
And these same sources now say that they strongly believe that Canal Plus has received information (which is almost certainly written or copies of emails) in the past few weeks that NDS America did supply the DR7.com website owner, Al Menart, or others with the SecaRom.Zip file.
Other facts
And certain other intriguing facts are emerging about the story. For instance NDS’s Head of Security is a Mr Ray Adams. He is also a Board member of AEPOC (the European Anti Piracy Group) representing both NDS and Sky!
He was the youngest ever Commander in the British police force but retired in 1993 and joined NDS. Besides being investigated twice following corruption allegations (once for his involvement in the Kenneth Noye case and a second time for his relationship with a defendant in the Stephen Lawrence case) Mr Adams financed and had regular contact with a smartcard pirate by the name of Lee Gibling whilst he was working as NDS’s Head of Security. Mr Gibling ran a very well known pirate website called THOIC (The House of Ill Compute). Indeed NDS’s Margot Field has confirmed that NDS paid several thousand pounds into Mr Gibling’s personal bank account – “Payments were made for information about hacking activities. It was a commercial arrangement to gather information. It is all part of normal intelligence gathering.”
According to the Observer newspaper links between THOIC and NDS emerged in April last year when several members of THOIC quit claiming they did not want to be ‘stooges’ for NDS. For instance the newspaper quotes one member as saying “THOIC was one big cover for an organisation whose job it was to bust people and take sites down”.
And according to the Observer’s sister publication, the Guardian, they have copies of emails between NDS and Mr Gibling. These emails suggest that NDS was paying THOIC’s expenses and even providing Mr Gibling with spare server capacity when the traffic to the website became too heavy. For instance the Guardian has in its possession the following email sent by Lee Gibling to Ray Adams. “I hope you don’t mind me spending so much time on aus and nz activities because I know you cover my work out of your budget.” And another email in the Guardian’s possession, from NDS’s Mike Warren to Lee Gibing, states “Lee – Your expenses were signed by R.A. and have been taken by hand to finance and received them last Wednesday. I asked that they were dealt with ASAP.”
However although they have admiited links with Mr Giblings THOIC website both NDS and Mr Adams claim that they did not know that the THOIC website published pirate ITV Digital codes!!!! And Mr Adams won’t even discuss the nature of encrypted emails between Mr Gibling and himself! How can an ex-police chief and member of the Board of AEPOC not have known that THOIC was involved in the piracy business? Who is lying – an ex-policeman? Surely not.
It also suggests blinding incompetence or naivete that such an experienced ex-police officer should have thought that information about NDS’s involvement in THOIC would not, eventually, become public knowledge.
The THOIC website abruptly disappeared mid way through last year and Mr Gibling no longer appears at the address registered to the website (The Lodge, Westbury Gardens, Higher Odcombe, Yeovil BA22 8UR). Evidently he is still active in the smartcard world at another web address.
Editorial
This would beat even one of Mr Murdoch’s 3rd rate films for an unbelievable storyline. But it could cost Mr Murdoch around $3 billion if he is proved to have aided or abetted the distribution of the Seca codes to the pirates.
If Mr Murdoch is found to have broken trust and have pirated Seca then the ramifications will be enormous. But it would certainly, at the very least, call into question his suitability to be the gatekeeper, via Videoguard, of British TV. Indeed, if the May 2000 Anti Piracy law was retrospective, Mr Murdoch could, if found guilty of sabotage and racketeering etc, run the threat of a 2 year jail sentance!
However, if he is found guilty he will, no doubt, blame others. It is very interesting that News Corp have already tried to distance themselves by claiming that NDS operates independently - even though News Corp owns 80% of the company and Rupert Murdoch’s son, James, has been on the Board of NDS for 2 years and his other son, Lachlan, since last month! On top of these positions Mr Murdoch has appointed News Corp’s head of legal affairs (and his personal confidant), Arthur Siskind, to fight the case.
And Mr Murdoch certainly would not give control of a company (NDS) upon which his very media empire is so dependent to anyone else – certainly not after the fracas with Mr Clinger in 1994/1995. Indeed it was Mr Murdoch himself who recognised the vital importance of encryption systems by purchasing the News Datacom company back in 1992.
No doubt Mr Murdoch will, if Canal Plus do put up irrefutable proof, twist and turn, hire every lawyer going and prevaricate to the last degree – and won’t that be wonderful to see. The OFT are accusing him of illegal anti-competitive behaviour and now Canal Plus are calling him a racketeer! And, as the Guardian newspaper states – “ So far no one has explained how codes to ITVDigital smartcards ended up on THOIC's site.”
