1.2m Media jobs to be lost to piracy…and why Policy & Content Owners aren’t helping.

A study entitled “Building a Digital Economy: The Importance of Saving Jobs in the EU’s Creative Industries” was recently released by the International Chamber of Commerce, here in Europe. This study predicts losses due to piracy to reach as much as €240 billion in retail revenue and as many as 1.2 million jobs by 2015. The study reveals that the Media sector is already experiencing substantial losses. In 2008 the European creative industries most impacted by piracy (film, TV series, recorded music and software) experienced retail revenue losses of €10 billion and losses of more than 185,000 jobs due to piracy.

Scary figures and something to be concerned about.

However, what actually concerns me more are the points of view expressed in the press release that announces the study and suggests actions. The BASCAP’s suggested action to battling content piracy is made clear from the very beginning of the press release: “Strong EU legislation is required to tackle the problem of digital piracy and reverse current trends” and key members of the European Parliament are quick to endorse. For example Stephan Hughes (UK S&D) states: “I encourage my fellow parliamentarians to acknowledge piracy as a problem and to work towards strong IP enforcement to preserve European jobs.”

This made me reflect on how much trouble we may actually be in; not because the study is showing scary looking numbers that predict piracy ultimately killing the industry in which I work, but by the realization that those developing our policies here in Europe – those who are suppose to be making key decisions to support sustainable economic growth for the EU zone – actually don’t have a clue on how to tackle content piracy.

BASCAP stands for “Business Action to Stop Counterfeiting and Piracy”, but there seems to be no “Business Action” in this ICC initiative at all. Instead, they are looking at policing the internet. The ICC, together with the European Parliament, is convinced that a tougher restriction on use of the internet and blocking of P2P file-sharing services will help combat piracy. The UNI-MEI (Union Network International – Media Entertainment Industries) supports “the Gallo report in its original form” and they “call the MEPs to reject all amendments that try to legalize file-sharing…”

Fine, I can understand their reaction and their position; there is much merit in ensuring that a legal infrastructure exists to effectively deal with serious cases of content piracy, but in all their efforts towards combating piracy (creation of special committees with really long names, conducting studies, holding many meetings, organizing conferences, etc.) the ICC and EU seem to be suggesting nothing from as a “Business” solution perspective. Hold on now…what was the name of that committee with “Business Action” in its name? Here’s a real question for the ICC and the EU: Wouldn’t it be more productive and effective for the BASCAP to dedicate its efforts in helping P2P file-sharing services transform themselves into businesses that actually produce taxable revenues for the industry and content rights licensing fees via new business models that charge users a very reasonable monthly subscription fee to use a better version of their existing file-sharing services, where the quality of content is ensured? I’m not going to discuss the plausibility of this “crazy” concept further, but there are many things that the media industry can learn from illegal digital content distribution services, because clearly these services are addressing most of the digital media consumer’s needs. Unfortunately, with probably one exception (iTunes), I wouldn’t state the same for legitimate services. Why this is the case, will become clearer later in my post.

The notion of understanding the advantages of illegal distribution services, and I will demonstrate how free content is not the key advantage, is something the BASCAP should be doing and it is an important step in combating piracy. Another key success factor in reducing content piracy is in better understanding the pirate’s psychology. There’s a very important question that the BASCAP has probably never asked itself: What drives the consumer to illegitimate content consumption? In fact, I would argue that the BASCAP, EU Parliament members, and other policy makers have no idea of what factors drive piracy and of what they are actually up against. Not to imply that I do, but it doesn’t take a PhD to search the web for blog and forum posts from the source of the problem, the digital media consumer, and generate a better understanding of the real issues facing the Media industry.  An educated opinion on a content pirate’s psychology and the factors that most likely drive it to consume and share entertainment illegally can be easily obtained. And I would argue that the first step in fighting piracy is to try to better understand “The Pirate” – Without this knowledge, how does the Media industry expect to win its battle against piracy?

There are many clues out there on what I like to call “Digital Pirate Psychology”, but let me begin by sampling material from an article I tweeted earlier this month, where an actual consumer states his reasons for turning to piracy. Meet “ManCat”, a 25-year-old software pirate. In reference to PC game content, ManCat states: “I’d buy more shit if the system wasn’t so stupid,” ManCat has been illegally downloading movies, music, and games for more than 10 years, claiming restrictive DRM policies are his primary motivation for theft. “If I download something legally from iTunes or Steam, I don’t have full control over my own purchase; I’m not allowed to transfer my music between machines or loan my game to a friend. Perversely, if I pirate a game or a movie I can do whatever I want with that file…I like buying games to play with friends and earn Achievements, so I only download cracked versions of single-player games with ridiculous DRM. The sooner they [game publishers] start respecting their fans, the sooner I’ll pay for Assassin’s Creed II” – Can some of the issues facing the Media industry be more obvious than this?

Okay, now let’s actually look at an expert Gamer’s blog…probably not a pirate, but someone who best represents the needs of the media industry’s key market segment. Meet Mr.Evans and here are some of his thoughts (full blog): “Valve [game publisher and owner of Steam, a digital games storefront] is showing that there’s a right way to offer digital distribution, and it’s working.  It’s valuable to the customer.  They promote games like World of Goo, Zeno Clash, and others that would have had a quick death at retail.  They’re working in the customer’s interests and not the company’s interests, and it’s benefiting the company…Companies really, really want consumers to adopt digital distribution since it’s in the companies’ best interest.  However, they refuse to lower prices on their games even though it’s cheaper to provide digital distribution than retail distribution”.

So what should these two samples from digital consumer thoughts be telling us about the potential psychology of the pirate? To me, a media professional with over 7 years of expertise in the digital space and a solid understanding of today’s entertainment distribution network, it’s plain and simple. The Content Pirate exists because:

  1. Strict DRM is often imposed on legally purchased content, limiting content use and flexibility…so, users look to other sources for their digital content, whilst others strive to just “beat the system”;
  2. There are few digital content storefronts out there and most are a bad and restrictive user experience…so, users look to other sources for their digital content;
  3. A consumer‘s willingness to pay for digital content is lower than that for a physical version, yet most content owners are not willing to lower digital format pricing points in an attempt to retain the perceived high brand value of their products…so, users look to other sources for their digital content;
  4. Policy makers & content owners are striving to a) eliminate distribution channels, such as P2P file-sharing services, that are most convenient to many digital media consumers and b) impose strict control over the internet…so, consumers who value the concept of the free Net fight back;

And this last point should be obvious to Mr. Hughes of the European Parliament and to the EURO-MEI (another of the many committees with really long names, and not to be confused with the UNI-MEI committee) even without doing their research. They should understand the implications and real risks of what they are suggesting. The more control and restrictions you impose, the more certain individuals will be inclined to resist and to make it their mission to undermine protective measures…and this applies to many of our content pirates. So no matter how many restrictions you impose, how strong you make your DRM, or what access you block, some pirates will always find a way to hack through. But worst of all – and here is the real problem – they will then make it their mission to share their breakthroughs with the community at large; all in the name of undermining efforts to “control” their actions. It’s not rocket science – Just simple psychology. Digital consumers should be driven away from piracy and encouraged to consume content legally, not blocked or policed by external bodies who do not understand their psychology and needs.

With the exception of this last point, it is my opinion that content owners are mostly to blame for the existence of piracy and they are not helping their situation by keeping digital product prices, minimum guaranteed fees payable by their distributors, and DRM standards so high. In the long run, this is negatively impacting the entire digital entertainment ecosystem resulting in a small number of legitimate digital storefronts, where content prices are too high, and where flexibility on content use is too limited. And this is helping to catalyze the rapid growth in content piracy.

Many would argue that digital pirates are mostly hiding behind “moral” outrage and the poor flexibility/quality of existing digital stores as an easy excuse to not pay for content, and this maybe a valid point in some cases, but I am arguing that piracy would be reduced by not only making content more widespread and easily accessible in digital format, via DRM free and user friendly services, but by also reasonably reducing the digital version pricing point with respect to that of the same product’s physical format. Additionally, if you read the numerous P2P file-sharing site forums available on the net, it is clear that the content distributed on these services is often not the best quality. So, there would be an added advantage to the digital media consumer to avoid illegal sources and to obtain their content from legal storefronts, where the quality of the content would be certified and ensured.

But don’t take it from me. If you are still not convinced with my reasoning and suggested solution to the piracy problem, take it from the most successful entertainment industry ever to hit the market…take it from the industry that drove the VHS, and later DVD, format revolution to mass market consumer stardom…take it from the adult entertainment industry. An interesting article reports on how this industry is exploiting free content sharing for its own commercial benefit. Here are some interesting quotes:

  • Mr. Hymes of AVNOnline, an adult content distributor, states that the salvation for the content industry “would come not from laws or lawsuits as much as from bits and bytes. Technology is going to solve the problem that technology has created,” he adds: “The people in this space are seeing it as an opportunity to change habits and to create new opportunities.”
  • Titan Media, an adult content owner, states that the company is coming to realize that “the key is to make a product available that’s reasonably priced and reasonably easy to obtain.”
  • And lastly, an entrepreneur from the industry believes that “Free is very anarchistic and hard to deal with, and you don’t know what you’re getting…Cheap is more convenient.”

The adult entertainment industry is therefore testimony to the success that such a strategy can have on reducing piracy and on increasing digital content revenues. By making content more easily available digitally, and at a cheaper price than physically, you stimulate its consumption, reduce your loses from illegal trafficking of content, and generate increased growth in digital revenues. This same notion could become the great hope of the mainstream entertainment industry. And it’s already working for the music industry. Besides the adult content industry, recent developments in digital music are a great example of how digital distribution should work: Low pricing points, user friendly storefronts, and more flexible DRM. Granted, there is a large difference between the pricing point of a music track and that of a movie, and the music industry is still losing millions a year to piracy, but it would have been much worse if they had stuck to the protective behaviour currently plaguing other mainstream entertainment industries. By embracing and facilitating the expansion of digital entertainment the music industry has tapped into a new source of revenue that is also rapidly growing. It has also reduced the number of consumers turning to piracy by delivering what the customer wants, and they have given the impression of listening to their key target segment.

If mainstream content owners, European Parliament, BASCAP, EURO-MEI, UNI-MEI, etc. would only invest more time in listening to, understanding, and addressing content pirates’ and digital media consumers’ points of view, then perhaps they will succeed in reducing the risk of a 1.2m job lose crisis apparently facing the Media industry in the near future. And in doing so, I believe that they will need to loosen their planned grip on the internet and P2P file-sharing services, reduce their content’s digital format pricing points, and liberate their content from restrictive DRM constraints. Only then will a money-making digital distribution ecosystem flourish with numerous legal options for consumers to get their content from. And only then will we be able to beat content piracy.

Advertisements

7 Responses

  1. Agree that it`s crucial for us to understand the motives of pirates and the consumers of pirated content. I think that the main point here is that people wouldn`t ever buy something that they have at least a slightest chance to get for free.
    See for yourself: let`s imagine somebody offers you to buy a candy for 1 euro, while you know that some fool on the nearby street gives away the same candies for 10 cents. Will you think of saving your money or will you pay extra 90 cents to support the legal economy of your country? Right, you will think about yourself!
    To compete with pirates we need to evolve and to offer something that pirates simply can`t offer. They can`t use advertising model, because it takes making legal arrangements with advertizers. Ok, let`s use advertizing model. They can`t offer bonuses, because it`s too boring for them to do. Ok, let`s offer our customers bonuses. Drag people into your world by making your service something continous – thing that file-exchange servers can`t do, they can only let you download a file. For example, if you sell software, make sure that it needs maintainance. If you make a computer game, divide it into parts, so people would have to come back to you again and again to purchase one more little piece of it. Etcetera. I think this should be our strategy.

    • Aleksey – Thanks for your input and you do have some good points. One question for you related to your “candy” metaphor: If you had the choice between a genuine bar of premium Lindt chocolate (for a reasonable price and just how you wanted it) and a free copy of that same chocolate (but you don’t know where it comes from), which would you choose? In the majority of cases, I’m willing to bet that people would choose to pay for the real thing because this ensures a certified quality of product. This of course changes if the real Lindt chocolate is not available (or very difficult to get)…most people with a chocolate craving will turn to imitation versions to feed their needs, where quality is at risk – You don’t know what you will get. The same could apply to digital versions of filmed content…the simple lack of good distribution platforms offering reasonable prices and the flexibility with product rights that the digital consumer is looking for, may be pushing more people to illegal sites and forms, such as Torrents. Even if the quality of the product offered by these sites can be limited, many people don’t have much of a choice, if they want a product with all the flexibility they are seeking. So, what you are proposing would help fill a need of a certain digital consumer not interested in owning content but in only viewing/consuming it. If advertising is used, such a consumer would also not be too bothered with viewing advertising, just as long as he/she does not need to pay to view/consume the content – Essentially, a typical hulu.com customer. If it is a model where only certain parts of content is given for free, then there would need to be a purchase for the remaining content to be made available – Essentially, a typical on-line gaming business model with a “try before you buy” concept. I don’t believe that this latter approach would help resolve current issues with illegal content consumption while the former “advertising supported” model addresses a niche market.

  2. ADDITION TO ORIGINAL POST:

    I came across an interesting article on one view that Content Piracy in certain countries is considered a cultural phenomenon: http://www.latimes.com/business/la-fi-ct-spain30-2010mar30,0,2736328.story

    This article argues that in Spain, people view the free digital download of films the same as sharing films (similar to sharing books), which is not viewed as being wrong or illegal. Additionally, if you read the comments, some Spaniards see this form of media consumption as their right since they already pay a tax to a form of IP copyright protection society, when buying digital media players. This seems to suggest that this “tax” should cover any rights payments to content owners for consuming their content via these devices, so they are not bothered with the legality of Torrents and file sharing – Especially in a country where it is only considered piracy if the non approved digital exploitation of content generates income for the exploiter.

    Conclusion: Local laws, copyright protection infrastructure, and general cultural attitude need to be carefully evaluated for each new market, when rolling out “paid for” digital distribution services. In some cases, such as Spain, a different approach/model is required for new services to work.

    Additionally, here’s a recent public admission from the US Government that their studies on the negative impacts of content piracy on the US media industry are inaccurate (at best): http://arstechnica.com/tech-policy/news/2010/04/us-government-finally-admits-most-piracy-estimates-are-bogus.ars. Perhaps the International Chamber of Commerce, who also released findings from their own European study, should take note?

  3. ADDITION TO ORIGINAL POST:

    Interesting recent research supporting my claim that non-availability of reasonably priced and functionally sound legal download services is one of the main reasons for the dramatic increase in content piracy.

    “MOST people who illegally download movies, music and TV shows would pay for them if there was a cheap and legal service as convenient as file-sharing tools like BitTorrent.

    That’s the finding of the most comprehensive look yet at people who illegally download TV shows, movies and music in Australia, conducted by news.com.au and market research firm CoreData.

    Respondents said they turned to illegal downloads because they were convenient and not because they were free, when it came to all three types of media covered by the survey — TV shows, movies and music.

    The most popular prices for legal downloads chosen by respondents were $1 per TV show, $2 per movie, and 50 cents per music track.

    People aren’t just looking for a free ride. They’re living in the modern world and expecting business models to keep up with them,”

    See full article here: http://tinyurl.com/23jvclo

  4. First of all, thanks for the shout-out! Also, it should be noted that if you scour torrent sites for games from GOG.com, a well-known purveyor of inexpensive, DRM-free games, you’ll barely find any.

    GOG, along with Steam, is making the right calls. Content prices used to be high because of the high cost of packaging and shipping. Bandwidth is less expensive than ever and the infrastructure is easier than ever to implement, and yet content providers INSIST on charging the same prices as before. It doesn’t work that way, it hasn’t for a long time, and it will continue not to work.

    And, for the record, now that I have a little bit more scratch (and know where to buy things) I don’t pirate games anymore and have a pretty substantial Steam library. Take that as you will.

  5. […] impediment to the growth of TV on the Web, on Hulu and elsewhere.” Read my in-depth post on the real issues behind Piracy for more […]

  6. Some proof from France on how policing the internet does not get the content industry what it wants: Increase in content sales.

    Full article here: http://econsultancy.com/uk/blog/9484-france-s-three-strikes-piracy-law-hasn-t-helped-music-or-movie-sales

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: