Murdoch's new problem: Accused of hacking Sky TV peers

Rupert Murdoch is facing a new threat to his global media empire, as a BBC documentary has alleged a Murdoch-owned company hired hackers to break the security, and thus the business, of his pay TV competitors in the UK and Australia.

BBC’s flagship investigative journalism programme, Panorama, has revealed what it calls “the biggest Murdoch hacking scandal of all”, the cracking of pay TV smartcards by a Murdoch-owned company, NDS.

In an episode titled, Murdoch’s TV Pirates, the BBC revealed “how a secret operation inside a Murdoch company hacked down” ITV’s On Digital, a competitor to Murdoch’s hugely profitable Sky TV.

[caption id=“attachment_258561” align=“alignleft” width=“380” caption=“Sky TV is chaired by James Murdoch and News Corp owns 39 percent of BSkyB, the company that runs Sky. Getty”]  [/caption]

Sky TV is chaired by James Murdoch and News Corp owns 39 percent of BSkyB, the company that runs Sky.The British broadcasting regulator Ofcom had already launched a unit to investigate whether Sky meets the ‘fit and proper’ test that must be met for a broadcaster to operate in the UK. These allegations will only add ammunition to News Corp’s and Sky’s critics that say that the global media group fails this test.

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Prior to these revelations by the BBC, allegations of illegal activity were confined to the Murdochs’ newspapers in the UK, and had not involved Sky.

Murdoch company hires hackers

The alleged hacking could have dramatically undermined the business of Sky competitor On Digital. When On Digital launched in 1998, it used smartcard technology from French company Canal+ to control subscribers’ access to their TV channels. Without a working smartcard in the set top box it was impossible to watch TV.

Enter the pirates. Lee Gibling, who was interviewed at length by Panorama, ran a website called ‘The House of Ill Compute’, or THOIC, where people could share information on pay TV hacks. When Sky found out about Gibling they hired him and he became an employee of NDS.

Run by two ex-policemen, Ray Adams and Len Withall, NDS was partially funded by Sky and made the smartcards for all Murdoch’s pay TV companies worldwide. Both James and Lachlan Murdoch have been non-executive directors, and James is still on the board of NDS, which has now been sold to Cisco.

Gibling alleges that NDS funded the THOIC website with the intention of broadening its community. Indeed, it became the biggest pay TV piracy site in the world.

NDS also recruited hacker Oliver Kmmerling, first to test NDS smartcard security, then to unlock competitors’ smartcards. Canal+ thought their technology was “unhackable”, but Kmmerling cracked it within just a few months of On Digital’s launch.

Gibling says he was sent these codes by Adams, “the keys which would enable pirates to manufacture counterfeit smartcards, with instructions that it should go to the widest possible community. Software to activate OnDigital cards, giving a full channel line up without payment.”

THOIC distributed codes and software, enabling widespread piracy and soon counterfeit On Digital cards were being openly sold by pirates. Attempts by Canal+ or On Digital to strengthen their software’s security were broken and updated codes distributed through THOIC.

However, when pirates discovered that Gibling was working for NDS, and published emails to prove it, THOIC was “dismembered”. Said Gibling:

“Len Withall […] came to my house and we sledgehammered all the hard drives and everything else, all the computers.”

Gibling fled the UK. But by then, On Digital, now rebranded ITV Digital, was on the verge of collapse. It went under in 2002, losing more than 1 bn, and although there were other issues at play in the disintegration of ITV Digital, the scale of smartcard piracy was something it simply couldn’t recover from.

In 2002, Canal+ sued NDS in the US, but the case never came to court. News Corp did a deal with Canal+’s parent company to buy assets, and Canal+ Technologies itself was broken up.

NDS, Adams and Withall deny wrongdoing, claiming that they ran THOIC simply as a way to investigate piracy. NDS has issued a statement refuting the BBC’s claims. But internal emails obtained by the BBC show that both Adams and Withall did have the codes, as well as links to the software for download.

And now a new stash of emails from Adams, who was NDS’ head of operational security at the time, has been released by the Australian Financial Review. These emails show that such tactics were not restricted to the UK:

A secret unit within Rupert Murdoch’s News Corporation promoted a wave of high-tech piracy in Australia that damaged Austar, Optus and Foxtel at a time when News was moving to take control of the Australian pay TV industry. […]

Their actions devastated News’s competitors, and the resulting waves of high-tech piracy assisted News to bid for pay TV businesses at reduced prices - including DirecTV in the US, Telepiu in Italy and Austar.

BBC’s report and the Australian Financial Review’s publication of NDS emails will undoubtedly be of interest to the UK broadcasting regulator Offcom, which is currently investigating News Corp after it bid for BSkyB. Says the FT:

Tom Watson, the opposition Labour MP who has led British parliamentary investigations into Mr Murdoch’s group and the UK phone hacking scandal, said he had written to the broadcasting regulator Ofcom, asking it to include the Panorama allegations in its inquiry into whether News Corp and its executives were “fit and proper” to own a broadcasting licence. To date, 22 people have been arrested in connection with the phone hacking investigation at the News of the World newspaper.

It seems that there’s more than one bad apple and News Corp and many will be watching with interest to see just how far the rot goes.