The Dreamcast game system has been viewed as one of the most secure digital entertainment systems on the market, with internal copy protection and a CD that holds nearly twice as much data as an ordinary disc.

But late last week, a group calling itself "Utopia" released a set of copied games online--along with a software program that would trick the Dreamcast hardware into playing the games without any modifications to the hardware itself.

"Finally, though no one really expected it, we made your dreams come true: Dreamcast BootCD V1.1--boot copies and imports on a NON-chipped (!) standard consumer model," the group wrote in an information file distributed with the software.

Since that time, several games per day have been released into the wild, traded on underground networks such as Internet Relay Chat (IRC). Several Web sites are tracking the quickly growing scene, though they do not provide downloads of the games themselves.

The release is bad news for Sega and more broadly for digital entertainment companies, which are scrambling to find ways to protect their wares online.

Music companies, which are seeing their songs easily turned into compact MP3 files and distributed through services such as Napster or Gnutella, are at the front line of this war against piracy, with the most to lose in the short term.

Illegal copying has also been a thorn in gaming companies' sides for years, but the problem has grown worse with the advent of fast Net connections that allow gamers to trade huge files online. The industry's trade association estimated that $3.2 billion was lost to illegal copying of games in 1998, the last full year for which estimates are available, although not all of this was online-based piracy.

These issues have prompted some games firms to shift titles to a subscription model, where play actually happens online and revenues come from monthly fees rather than sales of physical product. Music companies, too, are mulling this move to subscription services, rather than having consumers pay by the song or album.

Unlike games that run on personal computers, console games such as the Sony PlayStation have at least minimal anti-piracy protection built in by the fact they need special hardware and software to run. Stealing these games involves several steps beyond downloading and uncompressing the program, such as designing and installing an unauthorized computer chip on the console.

The PlayStation has fought a running battle against companies and individuals that create "mod" chips allowing customers to play copied and imported games. The company has tweaked its hardware more than a dozen times to help thwart these traders, but the underground commerce has continued.

Sega hoped to avoid this problem by using a new technology it calls GD-Roms, which hold a little more than 1 GB of information on a disc instead of the standard 650 MB of a rewritable CD. This is compressed in a proprietary format that can't be read by ordinary drives.

The company now acknowledges, however, that there was a "loophole" in the original hardware and software anti-piracy protections. That has been fixed in new Sega-produced games, and the new development tools have been given to outside game companies, a spokesman said.

"As far as we're concerned, this is an issue that is no longer the case," said Charles Bellfield, director of communications for Sega. "We have made changes to our tool set to make sure it's no longer possible."

That may or may not be true for the most recent games. According to sites tracking releases, 18 pirated games had already been released in the week following the first appearance of the Utopia hack, with another underground group, "Kalisto," joining in the releases. Some of these games, such as "Evolution 2" and "Marvel vs. Capcom 2," hit retail shelves just a few days ago.

Some in the computer underground say that not all full Dreamcast games will fit on a recordable CD. But this is far from a significant hurdle, they add--unimportant game features, such as the background audio soundtrack, can be "ripped" out to save space while leaving the game itself intact.

These games are more than a point, click and play download, however. Finding them can be difficult, and even then it can take hours to make a copy. Both the games and the loading software must then be burned onto a CD, using often-finicky burning software.

CNET News.com was able to download a functioning version of the Utopia boot software and a version of the "Dead or Alive 2" game.

Sega says it will take action against Web sites and other venues that distribute unauthorized copies of its games, as well as make whatever software or hardware modifications are needed to block the copying process. Along with several other game companies, it recently sued Yahoo for allowing people to sell counterfeit games and illegal hardware on the company's auction site.

"Pirating software is illegal," Bellfield said. "We will vigorously defend our software and content."