Shares in Choices Video chain owner Home Entertainment have fallen by 3% after operating profits were hit by widespread piracy of DVDs.
DVD pirates take a cutlass to industry profits
Although the firm said annual pre-tax profits rose 1.8% to £4.4m ($7.9m), rentals slumped by 10.6% as DVD pirates robbed the company of rental revenues.
Home Entertainment said that it was alarmed at the flood of counterfeit DVDs into the UK.
"Piracy has become a very major problem," said chairman Iain Muspratt.
The company said it was concerned about the activities of criminal gangs who used illegal immigrants to hawk pirate discs around pubs and restaurants.
However, Home Entertainment said that a lack of new blockbusters over the year from Hollywood was also to blame.
Earlier this month, US rentals giant Blockbuster warned that the spread of counterfeit DVDs had helped to push it into the red during the second quarter.
Moving forward, the slowdown in consumer spending and the heatwave in June has made for sluggish trade in the new financial year, it said.
Home Entertainment operates 228 Choices Video stores in the UK. It also distributes videos and DVDs to individual retailers through its Video Box Office arm and owns Choices Direct, which supplies mail order firms with entertainment products.
Shares in the group closed down 4 pence, or 3.3%, at 118.5 pence on Tuesday.