In the wake of SOPA, PIPA, and the protracted MegaUpload court proceedings, it seemed worth discussing Internet piracy and what lessons can and should be learned about how to deal with what appears to be dwindling viewership numbers and the increasingly difficult task of monetizing content.
Movie and television studios show a pattern of declaring the sky is falling with every change to the status quo of their distribution model. An example of this is their reaction to the arrival of the VHS. Movie studios were convinced that the ease with which consumers could record to VHS tapes would cause rampant copying and sharing of their intellectual property. Despite these fears, VHS basically created the home video market, allowed rental companies like Blockbuster to come in to existence, and, most importantly, funneled huge sums of money into the studio’s pockets by creating an after market where one didn’t exist before. This same pattern can be seen again when VHS began to give way to DVDs. Many studios resisted the change, fearing that digital technology made copying even easier than before, and that since anyone with a PC could rip, burn, and share their intellectual property, they were teetering on the edge of ruin. Like before, this turned out to be a lot of worry over nothing, since DVD’s convenience, durability, and portability made them sell better than VHS ever did. In every case, adapting to the new technology turned out to be a major boon to the industry and not the end of world as was predicted. And then the Internet came along.
Limited bandwidth and lack of high speed Internet kept movies and television relatively safe from Internet piracy for many years, even as the music industry struggled with Napster. However, the Dot-Com boom and the subsequent proliferation of better Internet infrastructure made downloading video from the Internet quick enough that video piracy had finally became practical. Around this time, a study also came out that suggested that people on the Internet have very short attention spans, including an unwillingness to watch any streaming video content over five minutes, presumably a carry over from the dial-up era. This gave studios the impression that there was no reason to put their shows online since no one would watch them, a worldview they clung to even while streaming was getting incredibly popular by letting people watch network TV shows and feature length movies. So a false feeling of security, this study about viewer behavior, and several other factors, such as an unhealthy attachment to the now outdated Neilson rating system, made television and movies reluctant to enter the Internet space, and inflexible and half-hearted when they did.
At the center of television piracy is a simple question: if TV is already free, why watch it online on a piracy site? There is obviously something that piracy sites do that TV simply doesn’t offer. In my observations, this falls into three main categories: convenience, depth of content, and timeliness.
There are so many ways that piracy is more convenient than watching on a legitimate source. The biggest reason, however, is that pirating allows you to watch on your own schedule. People simply don’t schedule their lives around live TV airings anymore because the Internet and DVRs have made every program on-demand. A modern TV watcher does not care about counter programming or missing their favorite show because they went for a night out. They can just go home and catch up on what ever they missed, on their schedule, from any number of prerecorded sources. While DVRs are still very popular, the young, who either live with their parents (and have therefore have no control over the DVR) or have moved out and are poor (most DVRs require a monthly fee of some kind), turn instead to the Internet, where content is freely available for less money. Hulu might have been able to fill this role, except that it failed in a number of other ways that allowed streaming sites and other forms of piracy to maintain their hold.
Another major factor is the limited content on any given legitimate website. Big sites like Netflix and Hulu attempted to become landing pads for video content, but they are hamstrung by their relationships with the studios. Netflix has a history of strained relations with the studios and has had major deals fall through because of it. Hulu, due to its affiliation with NBC/Universal, Fox Entertainment, and ABC/Disney, often struggles to get shows from competing networks, as well as basic cable programming, on the site. This means that while most NBC shows appear on Hulu, if I want to watch the latest episode of Conan, it won’t be there. As you might imagine, it is incredibly inconvenient, even maddening, to have to keep track of the laundry list of sites needed to watch the shows you want to watch, even if they are there for legal, free streaming. Conan episodes are on Conan’s site, Community on Hulu, Mythbusters on Discovery Channel’s site, and so on. It’s like if you had a different TV for every channel or every show you want to watch, and every TV had a different remote. Why go through all that hassle, when just a few clicks away are sites that catalogue every major show currently airing, and often plenty that aren’t, in one easy to access, easy to search, easy to use portal? Not to mention, these sites often have shows from all around the English-speaking world too, so if you want the latest episode of Quite Interesting from England or Continuum from Canada, they are there also. While these shows may eventually end up on Netflix or Hulu, using shows like Top Gear, Doctor Who and Sherlock as a gauge, it takes at least a year for that to happen. Which leads me to my next point, timeliness.
Pirates, because they are dedicated, hard-working providers of free content, upload the newest episode of a show within an hour of it airing. If Canadian TV airs it earlier in their schedule, like what happened with Avater: The Last Airbender, those pirates will often upload the show before it even airs on a U.S. network. By contrast, the quickest shows don’t arrive on legitimate sites until the day after the broadcast. This can also create confusion for the viewer, as each network has a different delay between broadcast and web availability. ABC shows don’t arrive until a week later. Some basic cable shows don’t hit the web until a month after airing. If you want to keep up with your favorite shows, be able to engage in water-cooler discussions, and the like, piracy can get you the episode you missed that night, instantly. Also, for most currently airing shows, Hulu and its contemporaries leave episodes up for a viewing window of only several weeks. Perhaps a friend tips you off to a great new story driven drama series where you need to see every episode, in order, or you will be completely lost; a show like Heroes or LOST. If the show is up to its eighth episode, the first three episodes have probably been removed. If you’re lucky they will be on Hulu Premium. I know they do this because they hope the front end delay will encourage more people to watch live, and the back end removal will drive sales of complete season DVD box sets, but it would appear it doesn’t work. People won’t buy the DVDs unless they are super fans, and they won’t watch it live for reasons I listed above, they simply don’t think about television that way anymore, as something you need to schedule your life around watching, even for your favorite show.
Movies are a little different from television in that unlike television, movies generally have a ticket price or purchase price associated with them, except when they are broadcast on TV for a prearranged licensing fee. However, if you look at the actual trends in Internet piracy of movies, you will notice that the most popular movies on streaming, torrent, or direct download sites aren’t new theatrical releases, but rather the most recent DVD releases. Low audio and video quality on “cam” quality movies makes them very unpopular, making most pirates willing to wait for the higher “DVD-rip” quality files that come later. While theater ticket sales are down, I think this has more to do with the flagging economy than the presence of Internet piracy. People are less willing to go to the theater for bad, or simply uninspired, movies but they are willing to show up in droves for well-made, spectacle movies like the Avengers or The Dark Knight Rises, because a giant screen with professional sound equipment is still the best way to see a big movie like that. With all of that in mind, a pattern emerges of piracy being more detrimental to the rental market than the theatrical market. So to preserve the rental market, it would behoove the movie studios to consider the same thoughts I discussed concerning television about offering a convenient, content rich, relatively cheap way to watch content online, in this case coinciding with their release on DVD. Netflix, Amazon Video and the iTunes store are a step in the right direction, but continue to struggle with the right balance between price, convenience, and rental vs. ownership after payment.
So what is the way forward? How do media companies tackle this new environment? At long last it is time to talk about MegaUpload. Kim Dotcom, in all his mad genius, created a moneymaking machine. You would think that a site promoting piracy, a service people use to get stuff for free, wouldn’t be able to generate a large amount of money. The trick was a variation on the freemium model. Basically, you give most, if not all, of your product away for free, but you do so in a way that is not quite ideal. Then you offer people the option to pay some amount of money for a premium version that eliminates those less than ideal elements. For MegaUpload, it was the presence of advertising, artificial limits to the file size on what could be uploaded or downloaded, filling in a Captcha box before downloading, a 30 second wait between requesting the file and being able to download it, and slightly slower speeds from lower priority in the bandwidth allocation of MegaUpload’s server farm. That’s it. And by getting large numbers of people to buy a premium account to overcome these rather trivial inconveniences, his company made over half a billion dollars.
So why couldn’t large media companies, like television studios, movie studios, or music studios, just cob his business model and make that money themselves off of legitimate content instead of piracy? Well, it’s already started. Functionally, that is what Spotify is for music. You have access to a massive amount of music for free, supported with limited ad block interruptions. In America the catalog is limited by license negotiations, whereas in Europe it is much larger thanks to consolidated licensing at a governmental level. Basically, it’s a radio station where you get to be the DJ, or Pandora where you get to pick the Artist/Songs instead of the Music Genome Project doing it for you. In America it’s integrated through Facebook, which lets them target their ads based on your social networking presence, and it makes a decent amount of money that way. However, the real earner is the premium accounts. These let you cache a set amount of music for off-line listening on selected devices, have access to Spotify on mobile devices, listen free of ads, and several other, more minor benefits, such as higher quality audio and access to new releases before other users.
Despite the success of developments like Spotify in the music industry, movies and television continue to struggle, trying to make old business models work in the age of 4G phones and cable Internet. If I were an executive at a studio, and I had to pitch a solution, it would be to let smarter people do the work. By that I don’t mean laziness, I mean media conglomerates are giant, hulking bureaucratic mega-companies whose unwieldy size and ingrained office politics make it difficult for them to adapt quickly or make sweeping changes to their operating philosophy that would allow them to fix this on their own. Instead, I think media companies should embrace a universal licensing system that would let anyone who could pay the fee have rights to display the content on their distribution network. In other words, create a variation on the syndication model designed specifically for the web. A network could create a tiered system for licensing the content it owns the rights to distribute, with each tier being how soon after an episode airs it can be posted online. These values would be readjusted annually, based on changes to the perceived value of the property. No more backroom deals over exclusive access to certain shows, no more removing shows from Hulu so competitors won’t benefit, just a simple system by which an online distributor can pay for the rights to display the show. This would let leaner, meaner, more agile companies be it established titans such as Apple, Amazon, Netflix, and Youtube, or completely new start-ups from Silicon Valley, Boston or New York tackle the problem, work out the economics, and get done what the media companies can’t get done on their own. Let me give you a few examples of how this might work, and be very beneficial to everyone involved.
Example 1: I want to create a place where people can watch really obscure old TV shows that nobody watched but were secretly good. Shows like Andy Richter Controls the Universe. I research who owns the distribution rights, call them up, and get a quote. Obscure one-season shows from almost 20 years ago will likely be inexpensive, so I just pay the low license cost and create my niche site for long-forgotten, quality shows that never got the mainstream attention they deserved.
Example 2: I just founded an Internet start-up that is designed to bring the enjoyment of sitting on the couch and watching TV with your friends to the web, by allowing users to use Facebook to connect with a friend, watch a TV show together with periodic breaks for ads, and has a chat feature so you and your friends can talk about the episode as you watch it. It’s like Spotify for TV shows, combined with Instant Messaging and Livestreaming. I want access to all of the shows currently airing on the major networks this season, to be posted same day, so I call up the licensing departments for each network, get a quote and use it to set the price-point for my service, knowing what I need to clear to make a profit.
Example 3: Youtube is constantly dealing with lawsuits, take down notices, and other annoying grievances because users keep posting episodes from TV shows, both old and new. For this example, let’s say there are a few extra pernicious shows that keep being reposted. I, as a Youtube executive, suggest that rather than constantly fighting this we simply pay the license and inoculate ourselves against the copyright violation claims, at least for a year, on these particular shows. I call up the networks, make the deal, and now it’s a win/win for both Youtube and the TV studios.
Universal licensing has one major weakness, which is that it gives the appearance of making the networks, formerly the sole distributors, a redundant middleman. While some shows are made and owned by the networks themselves, often the show is made, and at least partially owned, by an outside production company. For example, Community is distributed by NBC, but is actually made and owned by Sony Pictures. This fear of redundancy is not unwarranted, but networks should start to look at themselves more as curators than as creators. The barriers to entry on content creation are lower than they have ever been, thanks to cheap video cameras and free distribution services like Youtube or Blip.TV, but that also means there is more and more unwatchable garbage being put out there as potential entertainment. Television, thanks to its ratings driven history, has a reputation for picking winners. Obviously more niche or highbrow shows, like Firefly or The Black Donnellys may suffer in this environment, but on the other hand, channels like SciFi (I will never call it SyFy, sorry), FX, Showtime, and HBO are known for fostering such shows. In this mold, the original airings of many shows will act like a loss leader. The cost of airing the show on TV is part of the marketing of the show in that it gives it the TV stamp of approval, letting everyone know that it is of higher quality and potentially worth watching. I know that personally, while I watch some Youtube shows, I watch far more TV shows because, generally speaking, the scripted comedies and dramas from TV will have higher production values, better acting, and will just generally be more worth my time. This is something that TV studios should realize and understand is key to the future monetization of their product as the world goes increasingly digital.