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The War on Piracy

By David Mendosa

Last Update: January 14, 2001

I t was a rainy night and the meeting was stormy. Leaders of a new organization of Latin American cable operators formed to combat cable piracy had gone to Guatemala last October to persuade cable companies there to get legal.

The atmosphere was tense. An official of the Motion Picture Export Association of America was there at the request of the new group. At the time only 5 percent of Guatemala's cable operators were paying for any of the programming they were retransmitting.

If the Guatemalan industry does not participate in the legalization process it will undercut the ability of market forces to affect the quality and prices of the signals that are out there, she told them. "But they claimed they had done so much and had suffered so much, that prices were too high, and they just could not afford to pay for it."

The MPEAA official, who by organizational policy cannot be identified by name, was discouraged. "I was not getting very far," she admits.

That's when Jose Guanti took over. He is the permanent secretary of TEPAL. Those initials come from its name in Spanish, Organizacion de Empresas de Television Pagada de las Americas. In English it's the Organization of Pay Television Companies of the Americas. In other words, cable operators.

Mr. Guanti then said very quietly to one of the cable operators, recalls the MPEAA official, "let me ask you something. Let's say somebody called you up and said they wanted to subscribe to your cable system and said, 'I can't afford $8 a month, so I'm going to pay $5.' Would you accept this person as a subscriber?"

The cable operator responded, "of course not."

The MPEAA official remembers that Mr. Guanti then drove the point home. "This is the position you are in," he emphasized. "You have to understand that there are prices for these products, and if you cannot afford them, you must take them off."

When Mr. Guanti concluded, there was stunned silence in the room, the MPEAA official declares. "It was as if realization had come to them for the first time. It was a real turning point in Guatemala."

Until then, Guatemala was the worst cable pirate in the hemisphere. According to a report by the International Intellectual Property Alliance in Washington, Guatemalan firms pick up television signals via satellite and then retransmit them without proper authorization to about 300,000 local cable subscribers.

The upshot of the meeting, according to Mr. Guanti, was an agreement for all of the companies operating in Guatemala City to pay for all rights by the end of 1993. The ones operating in the interior of the country agreed to be legal by the end of March.

It was a substantial victory for a young group that few cable professionals in the United States have ever heard about. Founded in September 1992, TEPAL now has 19 member cable companies with 1.5 million subscribers. There are member companies in Argentina, Colombia, Costa Rica, Curaçao, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Panama, and Venezuela.

"We are the only serious organization that is combating piracy," says Mr. Guanti with justifiable pride. International Cable magazine talked with Mr. Guanti by telephone at his office in Panama City, where he is president of a cable company and MMDS operator called Cable Onda 90.

Mr. Guanti gives several people, all representing Latin American cable companies, credit for starting TEPAL. Besides himself, two others come from Cable Onda 90--Anna Fifer, the president, and Humberto Garcia, secretary to the board of directors. Pablo Garza from Mexico is the vice president. Tomas Batalla from Costa Rica is the treasurer. Matilda Boshell from Colombia, Humberto Ravell from Venezuela, and Federico Licht from Guatemala are the other founders.

"We founded TEPAL for several reasons," Mr. Guanti explains. "One of them, of course, was to combat piracy. But interchange of information regarding technological advances, marketing strategies, and programming is another of TEPAL's purposes."

Already the organization is important enough that pirate cable operators have good incentives to join. Embarrassment can be another incentive.

The MPEAA official explains that at the first meeting in Panama they made it a central principle of TEPAL that each member would have to be a legal operator. "They allowed pirate operators to attend once, and if they had stopped pirating they could attend a second time," she says, adding that Cable Onda 90 had always been a legal operator.

"At a meeting I attended in Costa Rica a pirate Guatemalan operator attempted to attend," she relates. "They literally shut the doors on him. He was outside begging, 'let me in. I am embarrassed. Somebody might see me and know what's happening.' They told him, "That's your problem. Pay for your programming.'"

Now that Guatemala is becoming legal, the pressure is on cable operators in Nicaragua and other notorious pirates. "The worst country now is Nicaragua," maintains the MPEAA official. "There has been absolutely no movement for change. They are pirating even on over-the-air stations."

To put TEPAL's efforts in context, they are the latest round in a continuing battle between American programmers and Latin American pirates. Even the U.S. Government gets in the act.

Under a threat to exclude Guatemala from the U.S.'s Generalized System of Preferences, two years ago the Guatemalan government passed a law requiring all local cable companies to apply for appropriate retransmitting licenses from U.S. firms. But passing a law is one thing, and enforcing it is another.

The Trade Act of 1988 calls for trade sanctions against countries with ineffective intellectual property protection. Venezuela is on the so-called "watch list" of violators because of widespread piracy of satellite signals and other infractions. The U.S. Government is also pushing for the General Agreement on Tariffs and Trade to contain clauses committing all GATT members to respect intellectual property rights.

Led by Mexico, Latin American countries are beginning to realize that they must adopt strict intellectual property rights protection to participate fully in the world economy. Mexico's law, which went into effect in June 1991, has been generally well received, and other countries are beginning to follow.

Recently Honduras enacted a similar law. "The day they enacted international property laws in Honduras we had a half dozen operators in our office signing up for the service," observes GEMS Television Chief Operating Officer Alex Berger.

Scrambling the signal is the next weapon in the broadcasters' arsenal. "Scrambling does make a big difference now," declares President Charles Hewitt of the Satellite Broadcasting and Communications Association. While the initial encryption system was broken in the first 12 months, he says that the newer VCRS or Video Cipher Renewal Security system "to this date has not been broken."

"When it is not broken you see a big change in, shall we say, attitude," Mr. Hewitt observes. "If you go into Mexico right now, you have many cable systems negotiating to get rights from programmers here in the United States."

But just as pirates can get around laws that are not enforced, they also have a way around encryption. "On the international scene, as the technology continues to hold on scrambling, suddenly a gray market is being created," Mr. Hewitt declares. "If you live in a country like Mexico and don't have access to programming, you can buy a legal decoder and subscribe to a programming service with a U.S. address."

A big part of the problem is the fact that cable operators can't buy much of the programming they steal no matter how much money they would pay. Broadcasters don't have the right to sell some of their programming to that part of the world.

That's one reason why the Univision Network "hasn't rushed to the table to try to solve this problem," declares Stuart Livingston, Univision's vice president and director of affiliate relations in Miami. "Right now Univision has the rights to its programming only in the United States."

The MPEAA created its quitclaim program to begin to address this problem. "Because of the way that U.S. programming is licensed," explains the MPEAA official, "even if cable operators wanted to buy these channels, there simply wasn't any way to buy them. The rights did not exist for Central American and the Caribbean. If you told them to stop pirating, they would say, 'Give me something to buy.' So it was an impasse."

The quitclaim program allowed cable operators to retransmit some U.S. programming "while taking off that programming that was most damaging to our member company interests," she explains. "We went to virtually the known universe of program pirates. Then we said to our member companies that we were going to collect money from cable operators for their programming. We asked them to accept some of that money and agree not to sue these people."

"The slow legalization of the market enabled program suppliers to view the region as a profit center and to invest in package programming," she continues. "HBO Olé was the first to do that. Between 1987 and 1990 we did almost 130 contracts with cable operators for the retransmission of basic programming. This led to the complete legalization of several countries. Panama wasn't difficult, because the cable operators there had initiated their operations legally. Costa Rica initially was a pirate country. With legalization, however, the rest of the region knew that it would be viable, and that they could make more money."

She says that TEPAL "grew out of this wider process of cable operators entering the market legitimately." So did the MPEAA foster TEPAL?

"No, sir," she responds. "As a matter of fact, when they started, we were not sure whether their purpose was to create a buyers' cartel. When they called and said they wanted to negotiate quitclaims, we were concerned about what they wanted."

Those concerns have now been put fully to rest at the MPEAA.

Broadcasters agree. "TEPAL is a great solution for Latin America, because they themselves are pushing the others to become legal," declares Eduardo Vera, SUR's vice president for Latin America.

"TEPAL is a wonderful thing to have, because it has made the pirates realize that they don't want to be on the outside anymore," maintains Stephanie Fleisher-Pacheco, director of international sales for CBS Broadcast International in Miami. "If you are a cabler in Latin America, you are expected to join this new and powerful organization to be considered in high regard and legitimate."

Because of TEPAL and others successes in legitimizing the region, the MPEAA is bringing its quitclaim program to an end. "We think the job is done," says the MPEAA official. "TEPAL is able to carry on the work of organizing the industry in a legitimate way."

An edited version of this article appeared as "The war on piracy," International Cable, February 1994, pages 52-53

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