It has been the setting for many a spaghetti western, but now Hollywood has warned that Spain could be facing high noon over its appalling record of movie piracy, with a future devoid of DVDs.

The unauthorised downloading of films from the internet is so rife, with film-makers complaining that a legal void makes people think movies are free, that Spain could become the first European country to be abandoned by Hollywood studios.

"People are downloading movies in such large quantities that Spain is on the brink of no longer being a viable home entertainment market for us," Michael Lynton, chairman of Sony Pictures Entertainment, told the Los Angeles Times.

Sony's threat, which affects DVDs but not cinemas, would put Spain on a par with South Korea, which most studios have abandoned because of a similar free-for-all internet culture.

While cinema audiences have declined slowly in Spain, sales and rentals of DVDs have plummeted as high-speed broadband make streaming and downloading easier. As a result, three out of four video shops in Spain closed in the five years to 2009. Spending on DVDs can be as low as 10% of the level in the UK or Germany.

"It is very sad and very shameful for Spain that we should reach the stage where companies are thinking of leaving," said Octavio Dapena of the Spanish film rights association Egeda. "I hope it doesn't happen and that Spain reacts in time."

But Antonio Guisasola, of music rights group Promusicae, said he was nor surprised Hollywood was considering pulling out. "There has never been a clear message here that downloading is piracy.

The statistics show that 30% of the Spanish population uses file-sharing sites, against an average of 15% in the rest of Europe."

A recent report by the Paris-based TERA consultancy on internet piracy in Europe warned Spain had the highest piracy rate and that spending on DVDs had fallen six times faster than in the UK .

The report estimated that the film and television industry lost about €900m (£801m) in Spain as a result of piracy in 2008 – almost twice as much as the music business lost. Internet piracy was causing some 13,000 jobs losses a year in Spain, the report said.

There were 2.4bn unauthorised downloads of music, movies, video games, software and other copyrighted works in Spain– or some 50 per Spaniard – according to Joan Navarro of the Coalition of Creators and the Content Industry. Oscar-winning Spanish film director Pedro Almodovar's 'Return' was subject to 4.3 million download attempts over a twelve month period — with 85% of the downloads coming from Spain, according to his production company. Spain's culture minister, Ángeles González-Sinde , today sent a new internet bill to parliament that would allow the government to close down those sites that illegally sell films or music.

"The idea is to act against those websites that try to make money out of other people's creativity," a culture ministry source said. "There is no attempt to impose any control on what internet users themselves do, unlike in France or England." Internet activists are already circulating a manifesto against the law. "Internet should function without interference from politicians acting for those who want to perpetuate outdated business models," it said.

González-Sinde said that film-makers and other artists needed protecting. "People who create culture, also create jobs," she told journalists after a meeting of EU culture ministers in Barcelona.