In what is a shock for watchers of The AFR, Neil Chenoweth’s cracking feature on Rupert Murdoch’s alleged global pay-TV piracy conspiracy has been freely available on its website for four straight days. Check it out while it lasts.

The $US1 billion EchoStar writ against News Corp’s NDS division throws up a host of corporate governance questions, including the following: when a publicly listed division of the world’s most global media empire funnels $8 million to fund one of Europe’s most infamous hackers, how does it report this in its accounts?

At this point we should remind you that this dispute is all about smartcards – microprocessors mounted on plastic cards which regulate who gets access to data. They’re used in a wide range of industries to protect information, but most widely with pay-TV, where the card that fits into your Foxtel box is there to make sure you have paid your subscription and are not stealing the signal for free. Around the world smartcards protect some $25 billion a year in revenues for pay-TV companies. Understandably, there is a thriving black market in cracking these smartcards to mass produce pirate cards that can offer you free television viewing. Pay-TV companies claim pirate cards cost them $5 billion a year.

The first question is how do you hack a smartcard? The textbook article that explains step by step how to do it is Design Principles for Tamper-Resistant Smartcards written by Oliver Kommerling and Markus Kuhn (now a Cambridge academic) based on this presentation they gave in Chicago in early 1999.

After its own codes were cracked, NDS had already secretly put Kommerling on its payroll in 1996 and this was how they explained a joint venture they set up and then disbanded in the 2003 NDS annual report:

In December 2001, we formed ADSR Limited (“ADSR”), a company in which we held a 40% equity stake. Through a mixture of equity and loan finance provided by NDS, ADSR set up a specialist laboratory facility in the UK and incurred capital expenditure of approximately 2.6 million pounds. During 2003, we terminated our relationship with ADSR, purchased the laboratory facility referred to above, obtained full repayment of the loan financing we had provided and sold our shares for a nominal sum. We now use this laboratory facility for our own research and development activities and we also sell services which make use of the facility.

And why did NDS terminate the joint venture? Because Kommerling had become the star witness for French pay-TV company Canal Plus in its $1 billion writ against NDS.

The Kommerling affidavit has fallen off the back of a truck and can be viewed in this package. Amazing stuff.

Lindy Burns and I interviewed Bruce Dover, author of “Rupert’s Adventures in China: how Murdoch lost a fortune and found a wife”, on 774 ABC Melbourne yesterday. Go here for the discussion which includes the inevitable questions about ethics and morality.

Peter Fray

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