Piracy has plagued musicians for more than a decade – and now the games industry is under attack. So what can it learn from the record business? David Crookes reports

Last year, four unassuming-looking men faced a courtroom in Stockholm charged with facilitating the distribution of copyright material. It was dubbed the internet piracy trial of the decade and for good reason – the four were behind the world's most notorious yet massively popular file-sharing website, the Pirate Bay. Fredrik Neij, Gottfrid Svartholm Warg, Peter Sunde Kolmisoppi and Carl Lundström operated a service used by 22 million people. Set up in 2003, the peer-to-peer service acted as a "middle-man", indexing film, music, game and software files – the vast majority of them illegal – thus allowing others quickly to find and download them direct from the person uploading.

Following a nine-day trial, an ill-fated appeal – and six years of numerous raids and countless investigations – the four men were eventually found guilty of assistance to copyright material and on 17 April, they were sentenced to a year in prison and fined the equivalent of £2,385,000.

And yet it hasn't halted internet piracy. The Pirate Bay's server, which allows users to communicate with each other – called a BitTorrent tracker – has been closed, but a similar one appears to have emerged on a site called OpenBitTorrent (OBT). That, however, is just one of thousands of websites sharing illegal content every day and keeping a track of them is near impossible. When one closes, another inevitably opens and there are groups of people who thrive on being able to get around copy protection and share their spoils.

It's a free spirit you would think that Feargal Sharkey, the rasping ex-vocalist of the punk rock band, The Undertones, would embrace. Yet Sharkey has since taken on a number of establishment roles and, as the current head of UK Music, the 51-year-old is very much concerned about the effects of piracy not just on music but on the entertainment industry in general.

For the past 18 months, he has been sharing the knowledge of the music industry's battle against illegal downloads. Although iTunes and the plethora of similar services from Amazon to Sky have made buying music online a simple process, file-sharing services and websites which offer punters illegally uploaded music are still prevalent.

The International Federation of the Phonographic Industry reports that 95 per cent of music available online is still being illegally downloaded. In hard numbers, that equates to 40 billion files being illegally shared in 2008 and estimates now suggest that more than £1bn will be lost to the music industry by 2012. It is why music has been keen to explore fresh avenues including deluxe CDs, track giveaways, streaming services such as Spotify and the "pay-what-you-like" model initiated by the indie band Radiohead.

"The music industry is clearly five or six years ahead of everyone else when it comes to combating online piracy because we've been dealing with it longer than every one else," says Sharkey. "But, for some reason, a lot of people seem to think the music industry is the special case in this kind of thing. Ironically for us, there has been an interesting shift over the past year – really since the formation of UK Music – in the amount of dialogue we've been having with people who are not in the music industry. There are many talks going on between the music industry and film, games, sports, national newspapers and print media."

Last November, Labour published the controversial Digital Economy Bill which includes steps to combat online piracy on peer-to-peer sharing services. Put forward by the Business Secretary Peter Mandelson, it warns that people suspected of piracy could have their accounts temporarily suspended. The aim is to reduce online piracy by a massive 70 per cent.

Sharkey welcomes the move as do many music companies, although internet service providers (ISPs) remain seriously concerned that implementing the measure may prove costly. ISP TalkTalk is already considering legal action should the Bill go through and the idea has also been attacked by many bloggers and web users who believe the proposals will do little to curb piracy and will instead lead to a more restrictive and controlled internet.

"I think the vast majority of people in this country are fundamentally decent," says Sharkey. "Let's be clear – the Government has never said it would entirely disconnect people from the internet. There will always be those who refuse to give up, though, who will point blank say they are not interested, and we have to then think about what we're going to do with this minority. What the Government is saying is that, if it gets to that point, if there is no other way, then do we look at temporarily suspending that person's internet account?"

According to Simon Watt, vice president of technology at Universal Music Group International, there are two distinct types of pirate: casual and hardcore. "Casual pirates do it because it's easy and convenient and it gets them what they want," he says. "Hardcore pirates do it for the kudos and bragging rights. It's the casual pirates we're looking to turn back into the legitimate framework and maybe we should ignore trying to convert the hardcore who won't move to legal downloading for whatever reason."

Watt says the industry has come to realise that, if you put up copy-restricting barriers like digital rights management (DRM), people will turn to piracy to get around them. "DRM makes legitimate files worth less than pirated ones," he explains. "People will then justify piracy as 'I can't get it from you in the way I wanted it so I had to do this'. The danger is it becomes a habit and that people continue to pirate because they know what to do and where to get it from."

At the heart of the matter, says Sharkey, is the safeguarding of people's jobs and livelihoods. Music, films and games can cost millions of pounds to create and promote and the creative sector is vital. It is worth an estimated £56bn and it employs more than 1.8 million people.

"The investment in a game or film is similar to that of an album," says Sharkey. "You may be pumping tens of millions of pounds into a project so you clearly have to try and control, to some degree or other, exactly how you go on to sell that. The internet, as it stands, has a lack of control but you must be able to recoup that £25m investment or however much you've spent otherwise there is no point in doing it in the first place."

One of the arguments put forward by pirates is that they are making a stand against the cost of buying an entertainment product. It is an excuse particularly used by gamers, given many titles can cost upwards of £30 and can be as high as £55. But even cheap games are being pirated, most notably the iPhone.

"I've been surprised by the amount of pirating of 59p iPhone games," says mobile-phone games developer Paul Carruthers. "Many people thought that the high cost of videogames was a major factor in the level of piracy but it turns out not to be that simple." To run pirated iPhone games, people need to "jailbreak" their handsets using software which enables the devices to run unofficial code. "This means the people who are pirating iPhone games are 'serious'," says Carruthers. "They are not of the same casualness you see with music peer-to-peer file-sharing."

The games industry is using ever more sophisticated methods to combat piracy. There was an apparent "glitch" in illegal copies of PC version of Batman Arkham Asylum which prevented the main character from gliding, therefore sending him plunging to his death. Microsoft took a stand by banning more than 600,000 Xbox Live users for having modified their consoles to allow the use of pirated games.

"Games are more 'intelligent' than music," says Philip Oliver, the co-founder of British games developer Blitz Games Studios. "They often need to communicate across the web so we, as an industry, have a great opportunity to curb piracy. Sadly, music files are dumb and they don't need to communicate so perhaps the answer lies in making files more intelligent, adding some enhancement that the customer will want from their music, whether it's album covers or links to lyrics."

Sharkey says the entertainment industry needs to look at how people are obtaining creative products online and ensure there are user-friendly, paid-for alternatives in place. "With music, you can download one track or an album, you can stream songs with adverts, or you can pay flat fees per month for downloads. We need to say, 'OK, you want this, you want to pay and you want it this way, so here you go'. With gaming, for instance, I think we'll see more online subscription-based offerings and films will most likely be ultimately streamed, but the key is to make sure people are getting what they want in the way they want it, and that they will pay for it."

In many ways, the entertainment industry is in the midst of an ongoing battle. As end-users become more sophisticated and tech-savvy, they will also find ways to discover new music. Some feel the threat of legal action or suspension from the internet combined with streaming will be the answer. There is a hunch, however, that keeping those pirates at bay will be far from easy.

Copy approval Digital rights management

Digital rights management (DRM) is an umbrella term for a range of technologies used to restrict access to copyright-protected digital media such as MP3 files, DVDs and software. The premise is to ensure that access, copying and conversion to other formats is done only on the terms permitted by the rights' owner.

If you have ever encountered an error message on your computer explaining that your request cannot be carried out because a file is read-only, chances are you have encountered a form of DRM technology.

The basic theory behind DRM technology is two-fold. Firstly, the material itself is protected by means of encryption and, secondly, a form of authentification system is employed to ensure only the authorised user – who has paid for the right – can unlock the file. DRM has become widely used in an attempt to address a major conflict between copyright law and the evolution of digital media. In the days of video and audio tapes, illegal copies would be of a lesser quality, and so made very little impact on the revenues generated by the companies and individuals who owned the rights. These days, files of identical quality can be copied using a variety of methods from ripping a CD to transferring a file.

Apple's Steve Jobs has been a long-time supporter of scrapping the use of DRM technology on songs downloaded online. Last year, all of the music available for download from the iTunes store was freed from DRM, thus providing access to users of all MP3 players. David Graham