In Dongdaemun market, named after the Great East Gate that surrounded Seoul in the Joseon dynasty, South Korean shoppers are spoilt for choice. It is a round-the-clock throng of 30,000 stalls selling everything from clothes to electrical goods and office supplies. Locals sometimes browse while munching boiled beetle larvae, a favourite snack.

There are also racks and racks of pirated DVDs on sale within days of a film’s cinema release. Copyright infringement is nothing new in Korea but these days the contraband laid out on market stalls is only the tip of the iceberg.

The unintended consequence of becoming the world’s most wired country, supplying consumers with the fastest internet connections, is that Korea is also home to the most virulent online piracy. The problem is so severe that even out-of-pocket Hollywood studios have been forced to rethink their business models and the fear is that the same thing could happen in Britain.

Broadband over fibre-optic cables, the type promoted by communications minister Lord Carter and Ed Richards, Ofcom’s chief executive, to boost Britain’s digital economy, has exacerbated the problem.

“They got very keen on a statistic that said they were the fastest in the world, without considering the consequences,” said Janice Hughes, a director at Spectrum Value Partners.

The South Korean government promised in 1995 to turn the country into a leading knowledge-based economy. It pledged £1 billion of funding for a new backbone network to begin the roll-out of high-speed internet, plus soft loans to companies that promised to invest. It was phenomenally successful and held up as a shining example for countries hoping to transform their fortunes with technology.

With speeds of more than 100 megabits a second — typically 10 times faster than Britain — it takes only two minutes to download a full-length movie in Korea. That will shrink further if plans drawn up by the Korean Communications Commission to boost speeds tenfold by 2012 come to fruition. Such ambitions will have the online pirates rubbing their hands in glee.

“Asia Pacific has always had less respect for copyright laws — it’s not just Korea,” said media consultant Chuan Wei Lim in Hong Kong.

It is hard to keep track of how much revenue the media companies have lost through piracy. The International Intellectual Property Alliance (IIPA) estimates $462m (£322m) was lost in 2007 alone on American-copyrighted computer games. In a recent report on Korea, the IIPA does not hazard a guess at the losses for movies and music, but quotes statistics from the government’s own Copyright Protection Center that recorded a 52% increase in pirated music last year and a 312% leap in pirated movies.

Much of it is housed in so-called “web-hards” or “cyberlockers” — closed files of pirated material whose password is sold to downloaders. That makes it harder to track down than peer-to-peer file-sharing that has done such damage to the music industry in Europe.

Warner Brothers was the last of the big studios to pull out of DVD distribution in Korea, opting to license rights to a local agent last November. Marc Gareton, executive vice-president for Warner Home Video and Warner Brothers Digital Distribution in Asia-Pacific, said DVDs did not take off there in the same way as in Britain. Only 20% of Korean homes adopted DVD players, compared with 80% in Britain, in part because local manufacturers Samsung and LG kept the price of a machine three times higher than in other countries.

Even so, revenues collapsed. DVD sales tumbled from 773 billion won (£401m) in 2002 to 328 billion won five years later, said the Korean Film Council. Gareton remains hopeful that digital offers a route to growth. He forecast that in three years Warner’s DVD plus online film revenues will be higher than DVD sales alone ever were.

“Long-form video is probably the killer application to upgrade a consumer from dial-up internet to broadband to the next stage,” he said. “Broadband is absolutely required for the development of our industry but that will only happen when there are the same rules in place for all the players.”

Warner and others are pushing for the introduction of a “three strikes and you’re out” regime that involves internet providers sending letters of warning to repeat offenders before downgrading the speed of their internet package and eventually terminating it.

Something similar is on the cards in Britain, although internet providers such as TalkTalk and Orange — are not keen on legislation.

The industry hopes a free-trade agreement with America in which Korea has pledged a crackdown will make the difference.

“It is a country which initially turned a blind eye to piracy because it thought it wasn’t a problem but it has come to understand it does need to be addressed,” said John Kennedy, chairman of the music industry’s global trade body, the International Federation of the Phonographic Industry. He says the turnaround has been stark. “They are probably in the top six or seven countries in addressing it now. I couldn’t have put up that defence for them a year ago.”

A bill in the National Assembly next month proposes to suspend the internet accounts of serial offenders. The trade agreement promises to prosecute those who “profit from developing and maintaining services that effectively induce infringement” — suggesting that the bosses of internet service providers could be in the line of fire. It seems clear that rampant piracy has pushed the entertainment industry to a tipping-point of selling its wares for less and making them available more quickly. Warner’s attempt to bring the pirates onside has been to price aggressively at $2 to $3 a movie download and making them available sooner after cinema release.

“Is broadband forcing us to do it or is it just the right thing to do, to give consumers what they want when they want it?” Gareton said.

The same principle is taking hold in the music industry. Research from music consultant The View found the combined retail value of digital and physical music sales in southeast Asia rose last year, by 14% to $1.24 billion, as digital music began to offset the long decline in CD sales.

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