With Rupert Murdoch's News Corporation still reeling from the phone hacking scandal in Britain, the last thing the embattled media giant needs is yet more scandal but last week the BBC's Panorama program aired a story claiming the company had been involved in another hacking enterprise that resulted in the collapse of a corporate rival in the pay TV business. News Corp has strenuously denied the allegations accusing the BBC of gross miss representation and Rupert Murdoch himself has used his Twitter account to defend his company against what he calls lies and libels. The claims and counterclaims are flying fast and it.s likely there will be more debates to come. Tonight we bring you in full the documentary that has sparked the controversy.
REPORTER: Vivian White
The phone hacking scandal which started at the 'News of the World' has already humiliated Rupert Murdoch.
RUPERT MURDOCH: This is the most humble day of my life.
And his son, James Murdoch, has been forced to give up the chairmanship of News International. But their whole British newspaper business is a small island in the Murdoch Empire. The commercial heart of News Corp is Pay TV worldwide. In the UK that means the hugely profitable Sky TV.
Sky is vital to the Murdochs - James Murdoch still chair it is - News Corporation owns 39% of BSkyB, the company that runs it. Sky dominates British pay TV. But it did once face a serious commercial challenger, ITV's On Digital.
STEVE HEWLETT, MEDIA ANALYST: Potentially it could have been quite revolutionary, had ITV Digital On Digital as it was called at the time, had that managed to establish itself as an effective pay TV platform, which is what the ITV company was attempting to launch it as, you would have had potentially another major player in pay TV in the UK.
Hundreds of millions of pounds were invested in ITV's On Digital but from the out set the company knew that this was the key. The smart card that subscribers put into their set top boxes - Its security so that only paying customers could get their channels was vital.
SIMON DORE, FORMER CHIEF TECHNICAL OFFICER, ITV DIGITAL: Without it there is no business. You can't charge for the programs you're selling to the public. You can't turn people off when they don't pay. You can't give them additional subscriptions when they do. It's absolutely central to any pay TV business.
So pay TV piracy, hacking into cards and then offering pirated copies that would work for free can spell financial disaster. At about the same time as ITV's On Digital was preparing to launch its business the business of TV piracy was growing too. Lee Gibling was a leading light in this world.
LEE GIBLING, COMPUTER HACKER: We were looking very much at how to get certain aspects of entertainment for free. Late night adult, nothing too risqué, but something a bit better than just the boring channels that we had in the UK.
Lee Gibling moved his base into remote house in Cornwall. He set up a very successful website for hackers with a very clever title, The House of Ill Compute - THOIC for short.
LEE GIBLING: This is the master key that opens up the whole card.
He has been involved in hacking into sky TV and come to the attention of a security unit working inside the company making their smart cards. The unit tracked Lee Gibling down but they didn't prosecute him. Instead they secretly hired him.
LEE GIBLING: They were offering me a way of taking the House of Ill Compute to a much wider community. I started to wonder why they had this motive for a site that had principally evolved as a hacking site to become part of their portfolio.
The security unit was part of a Murdoch company called NDS. Sky jointly funded the unit but say they didn't run it. In charge in the UK was a former senior policeman, Ray Adams, formerly the Met's head of criminal intelligence. His number 2, Len Withall had been a chief inspector in Surrey, they would not give interviews but did agree to met us. We secretly recorded them talking about their work with the THOIC website.
LEN WITHALL: THOIC was a forum when we, when the investigations are looked at there were quite a lot of good pirates on there.
LEN WITHALL: So it was decided let's see whether or not this could be a good source of information.
REPORTER: How did you go about that?
LEN WITHALL: I didn't do it at all. It was nothing to do with me. It was set up by Ray Adams.
According to Len Withall it was Ray Adam's work but according to Ray Adams it was Len's.
RAY ADAMS: Len on a day-to-day basis was running THOIC. He was meeting and discussing with him. I was in charge of the unit so I technically was running THOIC, but on a day-to-day basis absolutely not.
NDS was founded in Israel and its global security HQ was there. NDS made the smart cards for Sky and all Rupert Murdoch's companies worldwide. Both Murdoch sons, Lachlan and James have served as non-executive directors of NDS. James is still on the board.
NDS began to expand the House of Ill Compute. They invested in tens of thousands of pounds worth of computer power with secure server notice US. Lee Gibling was paid up to 60,000 pounds a year as a consultant.
LEE GIBLING: Money was not a problem. It was merely a question of ringing up Mr Ray Adams saying we needed more and the money was always there.
Ray Adams says it was Lee Gibling's initiative.
RAY ADAMS: Gibling developed it and developed it himself. They were told that he didn't develop it himself, that NDS put thousands of pound into financing it and equipping it and making it secure, into paying for him. Paying for him came out of my budget. He was a money grubber and kept on saying he needed new servers and computers, he needed this and he needed that. We were involved on a bit of a treadmill so you keep going.
The House of Ill Compute, THOIC, grew into the biggest website in the world for pirates, who used it to exchange information about how to defraud pay TV. THOIC got hundreds of thousands of hits a day.
REPORTER: Did NDS know everything going on in the site?
LEE GIBLING: Absolutely. Everything in the closed area of THOIC was totally accessed by any of the NDS representatives.
Internal emails that we have seen show that NDS knew the THOIC website could present a legal risk. One to Ray Adams from Avigail in the security unit in Israel says: . ..if he Lee ever gets exposed (god forbid, knock on wood) . does it put NDS in any legal bind.?.
REPORTER: So to all intents and purposes even though it was registered in your name still, whose was the House of Ill Compute?
LEE GIBLING: It was NDS. It was their baby. It started to become more their baby as they fashioned it to their own design.
The NDS security unit jointly funded by Sky now controlled the biggest pirate.s website in the world. And that wasn't all. NDS had recruited one of the best, perhaps the best, hacker in the world. Someone who had shown that he could crack open the secrets of pay TV smart cards.
He was a young German called Oliver Kommerling, who taught himself how to unlock smart cards in his garage at home. Pay TV piracy made him very rich very quickly. We found him living in the tax haven of Monaco. Back in 1996 he had hacked into Sky's latest card and Ray Adams from NDS security went to see him.
OLIVER KOMMERLING, HACKER: Adams made me a proposition. He looked at me and said, "Could you imagine working for us?" This was really after half an hour and I said to him, "In principle, yes, but what do you really want? What do I have to do?"
Oliver Kommerling was secretly hired as a consultant to head up a team in NDS's own laboratory in Haifa, Israel, a facility financed by News Corporation. But first he worked on testing the security of NDS's own smart cards to improve their product. Then he was set of task of unlocking the secrets of their competitors' cards.
OLIVER KOMMERLING: There was some requests from the marketing department, because that kind of looking into the competitors' product.
REPORTER: So you attacked or analysed the secrets, the encryption systems, the security systems of your competitors' products now, of NDS.s competitors, correct?
OLIVER KOMMERLING: Of NDS's competitors, yes.
And ITV's On Digital had picked one of those competitor systems. It was made by a French company called Canal Plus, their smart cards had never been hacked.
SIMON DORE: Canal Plus Technologies were so confident in their ability to supply us a secure system that they stated openly that it was unhackable.
FRANCOIS CARAYOL, FORMER CHIEF EXECUTIVE, CANAL PLUS TECHNOLOGIES: The people were selling us the micro processor in which we embedded our software, were telling us and talking about the largest companies in the world, that it cannot be broken. Your software cannot be extracted.
But it could. And NDS had the resources to do it. Oliver Kommerling did crack open the Canal Plus Technologies card. NDS now possessed their competitor's greatest commercial secret.
REPORTER: Did people from the team in Haifa, your team, reverse engineer, get a read-out, understand the secrets of the Canal Plus Technologies encryption system?
OLIVER KOMMERLING: Yes.
Finding out how a competitor's system works is perfectly legal. But then these codes cracked by NDS in their high security facility in Israel somehow got out onto the internet. Canal Plus Technologies's most secret information was published on a Canadian pirate's website.
REPORTER: This was the secret code from Haifa? There wasn't any question about that?
OLIVER KOMMERLING: Yes. The time stamp is like a fingerprint. It's not really physical proof but by statistics you can say it's so small that it is not coming from us.
REPORTER: So you had no doubt that it was yours? It was NDS's? No doubt at all?
OLIVER KOMMERLING: No.
NDS declined to be interviewed but in a statement they told us they never authorised or condoned the posting of any code belonging to any competitor on any website. ITV's On Digital had been launched only months before, but their future was now at risk. The security of the Canal Plus Technologies smart card, critical to their business, had been compromised.
FRANCOIS CARAYOL: We were informed by our own surveillance of internet sites that that software was existing. But the software in itself doesn't give you anything. It just gives you a vision of how the system works. It's like the plans of the safe. But it doesn't give you the key to the safe. But in fact what it did, it gave the hackers a very precise idea of where to drill to open the safe.
The secret of the Opposition's security system had been cracked open. The next crucial step was to turn that hack into full-scale piracy and to make counterfeit cards freely available. And that was launched from here, at The House of Ill Compute.
LEE GIBLING: There was a meeting that took place at a hotel. Mr Adams, myself and other NDS representatives were there and it became very clear that there was a hack being worked on, which I was quite surprised at, at the time. This came from conversations from Mr Adams.
REPORTER: So he Ray Adams told you he had knowledge that a hack against the system that On Digital were using was being prepared?
LEE GIBLING: Yes.
REPORTER: He told you that before it ever happened?
LEE GIBLING: Oh, yes.
What happened next helped to seal the fate of On Digital. Ray Adams, the head of NDS's security unit, sent him the codes, the keys that would enable pirates to manufacture counterfeit smart cards.
LEE GIBLING: They delivered the actual software to be able to do this, with instructions that it should go to the widest possible community. Software to be able activate On Digital cards giving a full channel line-up without payment.
NDS say they have never been in possession of any codes for the purpose of promoting hacking or piracy. They say it's simply not true that NDS used the THOIC website to sabotage the commercial interests of On digital/ITV digital or any rival. Both Ray Adams and Len Withall denied to us that anything of the kind took place.
LEN WITHALL: Absolute rubbish. I can't speak for anybody else but it was run correctly. There is no way that something that's associated with NDS, that we would allow anything like that to go on THOIC that has a connection with us.
RAY ADAMS: I never, ever had the ON digital codes. I.ve never touched an ON digital card, ever once. I have never seen them on a ON digital pirate card. I.ve never ever had any codes.
REPORTER: If you had become aware that material damaging to On Digital was being published on THOIC, your website, what would you have done?
RAY ADAMS: I would have arrested him.
But Ray Adams and others in the NDS security unit did have the codes. An internal email shows that. A technical expert writes to Ray Adams and Len withal about ON digital stuff. .I.m sure you must have had the July key as it was posted ages ago on Usenet but just in case you don.t it is. : And it includes the codes.
In another email Lee Gibling keeps Ray Adams up to date with the spread of the hack on the internet. This is better: a UK link for the On Digi software."
We have spoken to former pirates who used THOIC, who confirm the codes were there. Carl Davison was one. Later on he was convicted and jailed for running the pirate website of his own. We have agreed not show his face.
CARL DAVISON: How they described my website was a one stop shop for pay TV hacking. This place wasn't a shop, it was a supermarket, it was the biggest website of it.s kind.
We showed him some material that was downloaded from the THOIC website at the time of the hack.
CARL DAVISON: This was the original gold card file which was for On Digital. You add the keys to it. Program it on to a card and you basically opened up the encryption system. Those codes, that file, basically opened it all up. There were people openly selling cards, offering cards for sale for On Digital. You're talking about thousands of cards if not tens of thousands of cards. It was a big thing. Everybody was doing it.
NEWS BROADCAST: Seven people have been arrested as part of an investigation into an alleged multi-million pound conspiracy to defraud ITV digital.
Fraud is now costing TV companies millions of pounds a year.
SIMON DORE: It grew and grew and grew until cards were freely available everywhere, in marketplaces all over the country, you could pick up ITV digital smart cards.
REPORTER: And there you were trying to staunch the flow?
SIMON DORE: Yes, it's like a bad dream, it.s one of those dreams where everything keeps going wrong.
ITV's On Digital tried electronic counter measures, changing the codes to try to defeat the hack but THOIC was ready for that as well. Lee Gibling was promptly supplied with new codes to pass on to the pirates.
LEE GIBLING: We sent them out update codes. We wanted people to be able to update cards themselves. We didn't want them buying a single card and then finding they couldn't get the channels. We wanted to stay on to it flogging it until it broke.
REPORTER: Flogging it until it broke?
LEE GIBLING: Yeah.
By the summer of 2001 On Digital's business was draining away. The company spent millions more relaunching itself with a new name, ITV Digital and a monkey was hired in to help. By then the House of Ill Compute faced a crisis. Some pirates discovered that Lee Gibling had been running THOIC for NDS. They published his betrayal on the internet, including an internal email about his expenses from NDS's Len Withall
LEN WITHALL: Somebody got into THOIC.s site and found emails that they published.
REPORTER: What did you do?
LEN WITHALL: Nothing at all.
REPORTER: What did NDS do?
LEN WITHALL: Nothing at all. It just folded up.
REPORTER: What happened to THOIC? The House of Ill Compute?
LEE GIBLING: THOIC was dismembered. Mr Len Withall, who was number 2, came to my house and we sledge hammered all of the hard drives and everything else, all of the computers.
REPORTER: You physically sledge hammered the hard drives?
LEE GIBLING: Yes.
REPORTER: And the software evidence, the evidence in terms of codes on the internet and emails on the internet and stuff like that, what happened to that?
LEE GIBLING: That had been totally wiped.
The House of Ill Compute where the hack had been launched from was shut down in a hurry. Lee Gibling did a runner and left the country. But the dramatic end of the House of Ill Compute had come too late for ITV Digital.
NEWS BROADCAST: The future of digital television is in turmoil tonight with one of the industry's key players on the verge of collapse. ITV digital today applied .
ITV Digital went under in 2002. The collapse cost its shareholders more than a billion pounds. 1,500 employees lost their jobs. The football league lost 180 million too. The company had made its own mistakes but the hack was different.
SIMON DORE: The business had its issues aside from the piracy - no question. But those issues I believe would have been solvable by careful and good management. The real killer, the hole beneath the water line was the piracy. We couldn't recover from that.
NDS told us that they are a global leader in the fight against TV piracy. They say they never used the THOIC webs for any illegal purpose and they paid Lee Gibling for his expertise so information from THOIC could be used to track and catch hackers and pirates. The man who headed up the NDS security unit retired just as ITV Digital collapsed. Ray Adams now lives in Windsor. We met him there and afterwards I openly challenged him about his dealings with the world's biggest pirate website.
REPORTER: Mr Ray Adams I'm Vivian White from BBC Panorama.
RAY ADAMS: I have spoken to your journalist in there and I have given him my responses and I am not giving you any.
REPORTER: You have repeatedly misled us haven.t you? You have repeatedly miosled us about THOIC, the THOIC website and your involvement in it.
RAY ADAMS: I have never spoken to you before and I'm not going to speak to you now. Thank you.
Lee Gibling might have faced awkward questions, too, but he disappeared.
REPORTER: What has happened to Lee Gibling?
LEN WITHALL: He went on the run.
REPORTER: Have you any idea at all where he is?
LEN WITHALL: Yes.
REPORTER: Where is he?
LEN WITHALL: I am not telling, it has nothing to do with you.
REPORTER: When did you last see him?
LEN WITHALL: Don't know.
Lee Gibling had made himself scarce abroad and kept his secret for 10 years until after a long search we tracked him down. He then took several days before he agreed to talk to us
REPORTER: Did they say to you - you must go abroad. Is that why you are here?
LEE GIBLING: Yes, it was the easy option out for both parties, for my self and NDS at the time, when if I can be frank, the shit hit the fan.
After Lee Gibling went abroad Len Withall became NDS's head of security
REPORTER: Would you have paid him and looked after him or anything like that?
LEN WITHALL: No.
REPORTER: Why not if he got himself into trouble
LEN WITHALL: You need something back for it. Why would you pay somebody if you're not getting anything back for it?
But what Len Withall told us wasn't correct.
REPORTER: So you cleared out. Did the cheques keep on coming?
LEE GIBLING: Yeah.
REPORTER: For how long?
LEE GIBLING: They were paid direct into my bank account from NDS up till the end of 2008.
After paying him for several years, in 2008 NDS made a sever reference payment to Lee Gibling of 15,000 pounds with a confidentiality clause attached to it. NDS, a News Corporation company, has faced a series of allegations of involvement in hacking and piracy, all of which it has denied. In 2002 Canal Plus Technologies sued NDS in a US court. Immediately the top lawyers from News Corporation itself took over the case.
FRANCOIS CARAYOL: We discovered there was a company which was one of our competitors behind the hack, NDS and we launched a litigation against them. The matter was clearly handled by News Corp in New York. The fact it is a large and powerful company makes it more difficult to fight against it.
The action never came to court. Rupert Murdoch did a deal with Canal Plus Technologies's parent company to purchase assets from them. Canal Plus Technologiess what was broken up and the legal case was halted.
Allegations of widespread hack are also the subject of a criminal trial now takes place in Sicily. The alleged pirates are charged with hacking into smart card systems including NDS's. But what led to the trial in the first place was a complaint to the Italian police by another commercial rival to NDS - a Swiss company.
REPORTER: Did you think this was piracy that could be carried out by amateurs just by ordinary hackers and enthusiasts?
PASCAL METRAL, KUDELSKI GROUP: No. State of the art technology requires high skills, professional tools and access to very sensitive data to perform a hack. So we believed back then already that some kind of organisation was behind the hack. But we were not thinking of any competitors back then.
But the police investigation has pointed to a competitor. One of the defendants in the Sicily trial is a Milan lawyer David Rossi who was working as a consultant for NDS. He is charged with paying and supplying material to an alleged hacker, which he strenuously denies. The case against him has echos of what we revealed in the UK. He insists all he was doing was gathering intelligence on piracy for Len Withall, the man he was working for at NDS.
NDS have told us they wholly refute the allegation that Mr Rossi acted illegally on behalf of NDS. The case continues. Back in Britain, the phone hacking scandal has already led to serious questions being asked about the corporate culture of the Murdoch Empire.
TOM WATSON, MP, MEDIA SELECT COMMITTEE: Mr Murdoch, let me just ask you again, did you miss lead this committee in your original testimony?
JAMES MURDOCH: No, I did not.
TOM WATSON: So if you didn't, who did?
James Murdoch was a non-executive director of NDS when ITV Digital was hacked, although there is no evidence that he knew about the events we have reported. He is now the Chairman of BSkyB. The television regulator is currently examining whether he and News Corporation are fit and proper persons to be in control of the company.
TOM WATSON: Clearly allegations of TV hacking are far more serious than phone hacking. Off come are now applying the fit and proper person toast Rupert and James Murdoch. It seems inconceivable that they wouldn't want to look at these new allegations. It also seems inconceivable that if these allegations are true that Rupert and James Murdoch would pass that test.
The judgment of those whose businesses were hacked down is clear.
FRANCOIS CARAYOL: It's outrageous. It's piracy. There are jobs at stake. There are huge amounts of money at stake. Obviously this practice has to be put to an end.
The man who was the king of the pirates has never told his story until tonight. What happened to the company that might have been Murdoch's major British pay TV rival is now exposed.
MARK DAVIS: There has been a very public response from the former News Corp subsidiary NDS to that story. They have taken out a full page ad in the financial review rejecting the program's allegations, claiming that the company's legitimate activities and emails have been miss construed and taken out of context. News Corp has made similar denials. For their part BBC's Panorama are sticking by their story. Although it should be noted that Panorama presents no evidence that any of the Murdochs knew of the alleged illegal activity. We asked representatives of News Corp and News Limited as well as NDS on to the program tonight to discuss the allegations. They all declined. All of their responses to the program as well as their background to the story can be found in full on our website.