Nelson Woss - who is preparing to shoot a sequel to the hit film set in Western Australia's Pilbara region - says the illegal downloading of movies has made it harder to attract finance to produce feature films in Australia.

"If we get to the pointy end where we as filmmakers get everything right, produce something entertaining, which people love, but the film cannot expect a decent return because pirates steal it – then it's over," Mr Woss said.

"It's not a viable business and ultimately quality Australian films won't get made."

Mr Woss' comments follow the federal government releasing a discussion paper last month aimed at curbing online piracy. The paper highlighted the need for entertainment companies to make their content more affordable and internet service providers (ISPs) "ensure the systems aren't used to infringe copyright".

The government estimated Australia's copyright industries employed about 900,000 people and was worth more than $90 billion.

Mr Woss called for ISPs, copyright holders such as Village Roadshow and online giants including Google and Yahoo to work together to combat a surge in illegal downloading.

"We are never going to completely eradicate piracy," Mr Woss said. "But what I think is sad is that in 2011, the level of piracy was x, now is x³.

"That's really distressing because it absolutely has a bottom line effect and it makes future productions difficult to mount and stage.

"If we do nothing now then the only movies that will get made will have the same production quality as a cat video on YouTube. If that's ultimately what you want to watch and what you want your kids to watch, then keep on pirating."

But ISPs and rights holders have differing opinions of how to stop online piracy.

Village Roadshow co-chief executive and chairman Graham Burke called for the government to adopt a similar strategy to South Korea, which has been able to significantly limit illegal downloading.

The centrepiece of the Korean strategy is a three-strikes policy. After receiving three warnings, the government can order an ISP to suspend the illegal downloader's internet service for up to six months.

But Mr Burke said rather than ban the internet, a cyber pirate's connection speed should be slowed after three strikes.

ISPs, however, maintain that's not their job. Their role is to simply provide the "carriage way" for people to use the internet and they have high court backing, with a 2012 judgment saying they are not responsible for what their customers do online.

Solicitor Michael Williams - who represented the Australian Federation Against Copyright Theft in that high court case against ISP iiNet - said ISPs were therefore not compelled to negotiate a solution to crush the rise of cyber piracy.

Still, iiNet chief regulatory officer Steve Dalby said ISPs have tried to work with rights-holders to quell the problem, but have had little success (Mr Burke said the ISPs have refused to co-operate).

"It would be nice if we could all smile and work together, but the content industry is not interested," Mr Dalby said.

"They want us to take the role of the policemen and we are saying that's not our job."

Mr Dalby said the bigger issue was that the business model of entertainment companies was flawed because the cinema had become too expensive and legal content should be cheaper to lessen the attractiveness of illegally downloading movies.

He is concerned the federal government's discussion paper could lead to a change in legislation that would force ISPs to start issuing infringements, which he said could set a dangerous precedent.

"That principal of making a third party responsible for your rights would then extend into the rest of the economy.

"That's a very dangerous direction for the government to go, to start making it an obligation for an unrelated party to look after someone else's private property."