Cracking Down on Internet Piracy

In April 2009 the defendants in the trial against The Pirate Bay (Sweden) were found guilty and sentenced to one year in jail and fined $3.6 million in damages. Seriously, if you name your business/operation “The Pirate Bay” you leave little room for imagination. Yes you could argue the service is only a tool and therefore has no direct ties to the illicit content, but really, do you honestly think with a name like that you aren’t at the very least encouraging piracy? That would be like Craigslist having an “erotic services” section and not expecting illegal sexual activities to ensue…oh wait they did? I digress, but at least Grokster left room for interpretation – such as… it was a great service for sending digital letters/documents to other users…oh wait, don’t we have something called email? Yes, this and many other supporting claims are mostly specious arguments and if the primary business model (or even parts) supports or fosters illegal activities, irrespective if the primary party is an “active” participant, they should be held accountable and/or required to find a new model.       

 

On the other end of the spectrum, just recently the French government announced it’s poised to implement what some are calling a “three strikes and you’re out” law, whereby Internet users who infringe on copyrights by downloading illegal content could have their broadband connections cut for up to one year after at most two warnings. Coordinating all of this will be a governmental agency that will monitor Internet users to identify illegal trafficking of content. Privacy issues aside, with legal actions against both the “infrastructure” and end-users does this mean we are quickly approaching the day when piracy will no longer be an issue and the recording industry will reverse its misfortunes? 

 

Of course not, and while these are proactive steps towards that general direction, in all likelihood the issues plaguing the music industry extend well beyond the realm of piracy alone. The real issue from the “Napster Era” isn’t so much that users “stole” content, but rather, consumers started to embrace a different business model. Don’t get me wrong, I certainly don’t condone thievery, and piracy has undoubtedly impacted both the top and bottom lines of the recording industry, but this isn’t the entire story. I’ve espoused the idea countless times before and it’s still true today. The MP3 didn’t just open the floodgates for piracy it also unbundled the primary cash cow, the album or CD. And irrespective of how many lawsuits they win the recording industry isn’t going to put the pieces back in the bag (or jewel case), as it were.

 

While lawsuits against operations like The Pirate Bay are necessary steps, more experimentation is necessary. In other words users will find a way to get the content and despite these legal efforts the industry continues to fail to address the real issue that the times have changed. Even if we could envision a reality where piracy was nonexistent, the sales of physical media (read CDs) would not likely rebound and continue on its growth pattern pre-Napster. Rather the industry has to find new avenues of extracting that coveted consumer surplus. Apple for instance has started differential pricing of individual tracks – something long past due. 

 

In a related story I had a marketing professor who believed the future business model for music would not center on the song or album but rather the label’s entire catalog (a rebundling if you will). At the time I scoffed at the idea of “subscribing” to the entire catalog of songs, choosing to believe most consumers would prefer to pick and choose the individual tracks, relishing in the “unbundled” environment. However his insight might prove to be far more prescient than I originally surmised. 

 

No, there haven’t been any announcements, rumors, or any mere mention of this strategy, however as we move forward in this increasingly connected and “on-demand” society this may very well be an eventuality. Granted there are online music services that make a large array of titles available to the end-user, but in this case we’re talking about an entire label’s music catalog that reaches any device without a restrictive DRM scheme. Again if we reference online video, one of the criticisms brought up time and again, particularly those catering to episodic content, is the lack of a comprehensive library. While there might be contractual/licensing roadblocks in some cases, it seems to make little sense otherwise to keep said content off the Internet. The older episodes or even songs often have less value than what is current and “hot.” But with episodic content in particular, and depending on the nature of the series, past segments could hold a significant level of intrinsic value as well.

 

The catch-up (or time-shifted) services have done quite well here in the US and abroad and primary research conducted by ABI Research supports these trends. And, it makes sense. Having the back-story makes current episodes more meaningful and it creates enthusiasm for the series – not to mention the ability to “relive” favorite moments. The latter part is especially critical. Unlike movies, where it is often one and done (sequels aside), a televised series/show is renewed on a daily, weekly, monthly, and/or seasonal basis. By opening up the library you also create more opportunities to engender additional “avid” fans, which ramps up the excitement for new episodes. Yes, here too there are concerns over piracy, but that would likely be an issue regardless if the content was made available online or not – at least in this case the content holders have control and generate revenue through whatever business model they implement. If the users can easily get the content from an approved source, why risk the chance of downloading malware from a “sharing” site? This still supports the broadcast medium as most new shows will air first via traditional channels. And as I intimated, music too might one day find this path alluring. 

 

Each consumer, has their own innate “customer lifetime value” and likely that value has diminished some since digital music went online and with the growth of substitutive services, but that does not mean it’s impossible to capture some if not all of what value is left , it may just require rethinking the bundle. All of this will take time and require adjustments, but change is necessary – consumers are certainly willing to pay for content, but their expectations and demands have markedly evolved, and those companies that address these needs best will thrive; it doesn’t get much more Darwinian than that.