NEW YORK (CNN/Money) - Can the Supreme Court help Hollywood put an evil genie back in the bottle?
On Friday the country's top court agreed to hear a high-profile court battle the entertainment industry is waging against online services that allow computer users to swap flicks for free.
The decision was a big victory for the entertainment industry, which has been racing to battle technology that makes it easier for pirates to steal movies off the Internet. So far, however, lower courts have refused to shut down most Internet sites that enable illegal downloads.
Despite Friday's win, the entertainment companies still have a long way to go in the war against piracy.
And for giant movie studios in particular, the fight has only begun.
Convincing the court to rule on the case "is tremendously important in the propaganda war," said Eric Garland, the president and CEO of Big Champagne, which tracks use of "peer-to-peer" sites that allow consumers to swap movies, music and other computer files.
"Practically speaking," added Garland, "I don't know that it makes any difference to the kid in the dorm room. That genie is already out of the bottle."
Industry data show that peer-to-peer file-sharing is on the rise.
Worse, Grokster and Morpheus, the two peer-to-peer file-sharing sites at the heart of the case before the Supreme Court, are considered has-beens in the world of online piracy.
In their place: more advanced software that can help pirates download music, movies, and even television shows, at much faster rates.
One such program, called BitTorrent, is now the most popular peer-to-peer program on the Internet, according to CacheLogic, a market research firm that tracks Web traffic.
And that's making Hollywood very nervous. Instead of taking 12 hours, downloading a movie using BitTorrent takes two hours. What is more, the program is built so that the more users who try to access a file, the easier it is to download.
"It's the latest and greatest technology, which is not to say that it's going to be the last and best technology," acknowledged John Malcolm, director of worldwide anti-piracy operations for the Motion Picture Association of America (MPAA).
Waking up to the threat
For years, movie studios have been caught up fighting black market DVDs, which the MPAA estimates will cost the industry $3.5 billion this year.
So far, illegal movie downloading has not been a major scourge because it requires a high-speed connection, is incredibly time-consuming, and the quality can be bad. What is more, consumers haven't been all that interested in watching movies on a small computer screen.
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Today the Yankee Group estimates that only 4 percent of the 70 million U.S. households with Internet access download movies, compared to 20 percent that get music online.
Still, said Yankee Group senior analyst Michael Goodman, 4 percent is a "pretty significant number."
And it's going to grow.
"Three years from now, Internet piracy is going to be a bigger problem," said the MPAA's Malcolm.
Searching for solutions
To combat the threat, Hollywood has been exploring various options, including development of a new DVD format that would make piracy more difficult.
The problem there, however, is that the industry is now split on two competing technologies -- one called HD DVD and the other called Blu-ray -- and there are no signs that either one or a compromise format will be on the market before 2007.
Another key challenge: studios have been dragging their feet about making the movies consumers want available online because they're afraid of cannibalizing the revenues they get from pay-per-view, cable, rental and other stages in the life of a movie title.
Only now is the movie industry beginning to address the looming threat of illegal downloads: in November the industry launched the first of what it promises to be a wave of lawsuits against individual users for allegedly stealing movies off the Internet.
There's also the possibility the MPAA could go after BitTorrent. Malcolm would only say that MPAA members are "considering what we're going to do. BitTorrent certainly presents challenges for us."
By suing individual users, Hollywood is taking a page from the playbook used by the recording industry to slow illegal music swaps, with one key difference: they're not going after just the heavy downloaders, but also the sporadic offenders with just a few hot stolen titles on their hard drives.
"If you have one file on your system, you are within our litigation sights," warned Malcolm.
Analysts were split on how smart the litigation route is.
Some argued that going after Web thieves early will go a long way toward slowing the growth of online piracy -- and buy the industry needed time to come up with a better solution.
But others were skeptical, noting that online song swapping has recovered after tumbling when the music industry first started suing scofflaws.
Andrew Parker, chief technology officer at Cambridge, England-based CacheLogic, thinks a loss in the lawsuit would actually give the movie industry a much-needed wake-up call.
"It would force Hollywood to find a way to work with new technology rather than against it," said Parker.