August 15, 2010

Online Digital Piracy: Threat and Opportunity

There’s a stand-up comic who’s routine pokes fun at the sometimes-clever Motion Picture Association of America (MPAA) trailers that run in advance of movies warning against content privacy (and, for what it’s worth, there are countless YouTube videos doing the same in various manners). The stand-up’s routine focuses on a trailer that suggests: “you wouldn’t steal a car, why would you steal a movie?” The stand-up jokes: “Well, if I could select whatever car I wanted off the street, point at it, and after 30 minutes or so it would be mine, and the original owner would also still have a copy, why wouldn’t I?

And everyone laughs, notwithstanding that such a scenario would doom the global auto industry, and, frankly, given the quality, integrity and security of the digital content the stand-up is referencing, if the same were applied to “copies of cars,” our highways and byways would become just a tad more dangerous. After all, who hasn’t heard a “found” tune skip a beat, or stop abruptly, or received a special bonus bit of malware along with the tune that otherwise compromised your computer – imagine the skipped beat or the virus resulted in, oh, I don’t know – no brakes, loose lug nuts?

And yet, since the advent of young Mr. Fanning’s original Napster over a decade ago, there has remained a persistent mindset among a certain segment of the digerati that continues to drive online theft of digital content, based on the blithe perception that no-one gets hurt, everyone benefits, and, well, all those studios and labels are and have been ripping us off for decades in any event – so let’s stick it to the ill-if-ever-defined “man.”

The music industry was caught unawares – unforgivably in my opinion – by the peer-to-peer revolution led by Napster, Kazaa, Limewire, Frostwire, etc., etc., and since then, carried on largely in the more efficient, faster, and arguably slightly less malware-friendly multi-peer to peer BitTorrent universe (including also The Pirate Bay, ISOHunt, Demonoid, etc.). Notwithstanding some fruitful, more often less, and sometimes absurd lawsuits filed by the music industry, and lots of noise and limited (very) success with Digital Rights Management solutions, it was Apple and iTunes that stepped into the breach to save – and suckle from – what was a hobbled, floundering music industry. Streaming services like Rhapsody have further bolstered legit consumption of music.

The video and movie industry were largely spared in these early days, largely due to bandwidth limitations, with piracy limited to snippets and/or ueber-poor quality full-length copies of video shared over P2P networks, YouTube or otherwise. Quite simply, the file sizes were just too large to move over pre-broadband networks. Video piracy was largely defined by Asian and other-market cottage industries built (and still thriving) around bootlegging and street-selling.

But, in today’s world of increasingly ubiquitous high-speed broadband – cable, fiber, WiFi and up-and-coming 4G wireless networks (LTE and WiMax) - the threat is real and the BitTorrent libraries are jam-packed with full-length, including recently released, films and full seasons of network programming.

And yet, unlike the seemingly hapless music industry, and borrowing from now well-entrenched consumer comfort with iTunes-like experiences, a host of services have emerged that make legal, online, on-demand video consumption a viable commercial proposition – Netflix and Amazon are great examples. And, moreover, anticipating the phenomenon of Internet video streaming to the big screen, Boxee, Hulu, Kylo (Hillcrest Labs) and others have built relationships with video and film content owners and created unique browsing solutions for delivering licensed content to stand-alone PCs or, increasingly, PCs integrated into home theaters and big screens.

Is torrenting a thing of the past? No, not at all. And the cost to the industry of such activity is staggering: While somewhat dated, a 2005 survey conducted by the MPAA, relying on a consumer survey conducted in several countries, found that U.S. motion picture studios lost $6.1 billion to piracy (notably not limited to online piracy) in 2005.

But, there is a generational change underway. Today’s torrenters are yesterday’s P2P pirates – 20-somethings that grew up file-sharing and for whom the concept of buying a CD or paying for a tune from iTunes borders on alien – this is the lost generation, the behavior of which will be challenging to change, until and/or unless they simply grow out of it. The good news, however, is there is a ‘tween and teen generation that has grown up with the reasonable price points, spontaneity, and utter simplicity of iTunes, Rhapsody, Amazon, etc. This generation is more accustomed to playing for content, and, moreover, since they have been weaned on simple, easy-to-use UI’s and online experiences – they are less likely to dive into what remains the somewhat arcane and still-dangerous world of BitTorrent.

The challenge now for the studios and networks is to nurture this generation, and to introduce services of their own to compete with the aggregators and resellers (Netflix, Amazon, etc.) lest they suffer the same fate that the music industry and artists continue to struggle with – low-to-no margins on traditional product (music tracks) shared across multiple stakeholders, and the resulting challenge to create all new experiential products to drive new revenues, new successes.

In short, online digital piracy, at this very unique moment in time, is as much opportunity as threat. The latter must be addressed, and organizations like the MPAA are well-equipped to continue the good fight. The former, however, is the greater imperative, and will require quick, creative, innovative and perhaps risky new investment and initiative from the motion picture, film and television industries.

‘Should be fun to watch (as it were)…