An underground market of pirated films is growing fast on the Internet, with some experts saying illegal downloading could top one million movies a day by the end of next year.

"Film piracy has been around for two plus years,'' said Bruce Forest, a director of media and entertainment for Boston-based Viant Inc, a developer of digital businesses, at the `Herring on Hollywood' conference here hosted by Red Herring magazine.

Film and music piracy was a major topic of the conference. Millions of computer users are using the Internet to share everything from music, movies, software and even needlepoint patterns, often without paying for the privilege, via mp3, Napster and other technologies, experts say.

"The Internet and entertainment are on a collision course,'' said Red Herring events Editor John Mecklenburg. "The copyright case against Napster, and recent mergers like the AOL deal with Time-Warner are showing how the Internet is changing the entire entertainment landscape.''

Viant, which develops digital businesses for many blue chip companies ranging from Sony to Hewlett-Packard, estimates that 150,000 films per day were illegally downloaded last year, rising to about 350,000 per day this year, he said.

"This kind of piracy can't be controlled using traditional enforcement or litigation. You have to combat it and co-opt it," he said.

The proliferation of such piracy is forcing new business models to be forged, Forest said. Viant has been working with some of the world's largest record companies and movie studios to solve the problem, he said, declining to elaborate.

Much of the illegal transfer of films starts on file transfer protocol, a network of private servers accessible only by invitation, and Internet relay chat (IRC), a protocol based around real-time conversations via computer keyboards, which is popular among serious programmers and computer hackers, forest said.

"The FTP and the IRC are where the black market begins. This is where most of the films appear first,'' he said, noting that the IRC and FTP are of course also used for many legitimate purposes. Forest said that film piracy primarily occurs through a `theatrical' window as well as a `home video' window.

Through what Viant refers to as the `theatrical window', an individual may, for instance, get an early post-production version of a filmsuch as the hit slasher spoof `scary movie' from a studio.

A user then puts the video into his videocassette player and using a device called a capture card, transmits the film to his hard drive, where it is compressed by Divx, a format that allows films to be reduced in size while retaining original quality, and can be easily downloaded.