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.