MICROSOFT has sounded a dire warning to Hollywood studios that they must begin to offer films legally over the internet soon or risk an internet piracy explosion similar to that which has buffeted the global record industry.

The world’s biggest software company urged studios to open up their vast libraries of movies to legal download stores and adopt digital rights management (DRM) technology that protects their content from being pirated.

“It’s important for movies to be available legally over the net and soon, because if they are not then we risk a repeat of what happened in the music business,” Brad Smith, Microsoft’s chief lawyer, said.

The warning comes as the industry grapples with the arrival of a new technology that drastically cuts the time required to download films over the internet. The latest version of BitTorrent, file-swapping software created by Bram Cohen, a 28-year-old Seattle resident, allows full-length films to be transferred online in as little as two hours. This is a fraction of the current average and a potential windfall for bootleggers.

Mr Smith, who has been in Luxembourg this week opening Microsoft’s appeal against the European Commission’s record antitrust ruling against the company, said that a failure to put films on the internet for legal download would fuel the trafficking of movies on file-sharing sites such as Kazaa and Grokster.

He added: “The music industry took too long to reach the point of legal downloads. It took years. Let’s learn from lessons of music piracy and let’s not repeat the mistakes that we made in the past. The worst thing we could do is to wait another two years to move on this — we need to move far more quickly.”

The Motion Picture Association of America (MPAA), whose members include all the major studios, already estimates that between 400,000 and 600,000 movies are exchanged illegally every day over file-swapping internet sites. An explosion of this number would put the industry’s annual $17.5 billion (£9.7 billion) turnover from DVD sales in peril.

Rich Taylor, the MPAA’s head of public affairs, said that piracy “is already a very real threat. We’re taking enormous steps to address and combat online piracy, including searching for more robust technology protection and increased legislation.

“Obviously we need to provide alternatives to illegal downloading,” Mr Taylor said.

He added: “We’re excited about the promise that digital distribution offers.”

But the industry has yet to begin offering films for widespread legal download. That is partly because, as with the music industry, there is conflict over which technology should be used to protect copyrighted material.

Microsoft has a vested interest in encouraging the studios to adopt a DRM standard because it is pushing one of the available technologies, ContentGuard, through a proposed partnership with Time Warner.

The European Commission recently launched an investigation into whether the joint venture would give Microsoft and Time Warner an unfair advantage in the distribution of digital media.

Other companies are pushing alternative anti-piracy technology, such as InterTrust, a private US company that recently won a $440 million settlement from Microsoft following a legal dispute.

Mitch Singer, executive vice president of Sony Pictures Entertainment, summed up the industry’s concerns at a Digital Hollywood conference in Santa Monica: “We don’t want to be MP3-ified,” he said.