Online piracy, along with illegal DVD copying, is wreaking havoc in Hollywood and across the entertainment industries. First it started with cheap and readily-available DVD and CD copying technology, putting a few unscrupulous individuals in a very lucrative position, copying music and films – sometimes directly off the screen – for sale to individuals who were willing to take the risk of buying pirated content.  These individuals weighed the sometimes nebulous risks against the benefits of paying less and often owning the content before the actual release of legitimate copies of the same material became available. 

In the old days – when the internet was a more primitive place – relatively few people opted for illegal downloading. It still had that shady feeling to it – that it was something dark, something dangerous. Hours had to be spent to find a free movie or game that was good quality and downloadable – the slow downloading process akin to droplets filling a large bucket. Now, with the proliferation of broadband service, this technological hurdle has been overcome, and illegally obtaining copyright material online has become an everyday occurrence for many consumers.

The advent of BitTorrent (BT) technology (which streams ‘torrents’ of information from thousands of users simultaneously to an end user to re-collate and form a unified file) and the subsequent creation of legitimate-looking search websites for torrents (files that BT programmes run to download files), such as The Pirate Bay, Mininova and Warez, to name a small few, meant convenient and fast downloading of high-quality product. Piracy instantly transformed into a common, casual pastime. Those droplets turned into raging torrents, with sweeping consequences across a landscape of industries. 

It may spell torrent for users, but it spells torment for industries, with illegal downloading devouring revenues. An alarming statistic from the Los Angeles Times highlights their claim: in China last year, bootleg copies of DVDs of films created a hefty US$6 billion industry, compared to box office receipts of US$1.5 billion.

According to Howard Ballon, Managing Director of Media & Entertainment of Synovate North America, losses to the local film industry had long breached the billion mark. “In the Motion Picture Association of America’s 2007 study conducted by PricewaterhouseCoopers, the estimate in losses to the six major United States studios was US$8 billion,” he says.

Ballon also cites a brief from Paramount Pictures in October 2009. “In the weeks following the worldwide theatrical release of Star Trek on May 6, 2009, Paramount Pictures counted more than 5 million IP addresses downloading localised versions of six camera-recorded copies of the movie.” 

In other words, red alert, shields up. In addition to the lost revenue, creativity can take a stifling hit. “The billions of lost revenue make it more difficult for companies to invest in new intellectual property and impact the kinds of risks that companies are willing to take,” says Ballon. 

Put simply, the industries’ loss in revenue from piracy reduces potential returns and has a chilling effect on the flow of capital to support movie production.  Always a risky business, the risks have increased and the search for sure bets has intensified.

Many downloaders, however, claim that they are willing to pay for value; The challenge for the entertainment industry is how to enable this. “The business model is the area of great experimentation to determine how best to optimise industries’ revenue over the life cycle/distribution cycle of their content across platforms,” says Ballon. 

A movie industry study commissioned in Great Britain states, “[The question is] ‘how best to maintain the value, or manage the decline of traditional revenues and simultaneously develop sound consumer propositions and business models in the digital world... New business models are about pricing and windows [distribution strategy] and understanding consumer reaction to different configurations and formats’.”

Ballon says that the studios are evaluating and experimenting with their business models. “Shortening the window between a movie’s release in a theater and its availability both on video-on-demand and DVD and investing in 3D movies are viewed as having potential to work against illegal activity while appealing to consumers.”  

Tying free content with advertisements could also be an effective formula, with ad fees the main source of revenue, although, as is the case with online content provider Hulu, this strategy hasn’t seen the gains the industry had hoped for. Moviemakers and music artists might also consider selling to online streaming providers such as Netflix that attract consumers with low subscription fees and a wide choice of content.  However, NetFlix has found itself in conflict with Time-Warner and other entertainment companies, who feel the model further reduces the perceived value of their investments in innovative entertainment.

The subscription model, which has been tentatively explored by music publishers along with companies like Netflix, might look to how the gaming industry has adapted to an online world. Publisher Blizzard, creators of the popular massively multiplayer online role-playing game (MMORPG) World of Warcraft, racks up revenue through monthly subscription fees. Pirated versions are effectively unplayable due to the necessity of an internet connection and verified login information. 

Film and music industries remain plagued and are still searching for viable answers. Whatever anti-piracy measures specific industry players have taken, the overall picture is not pretty. While game producers have found effective and widely applied defenses, no two industries are alike and many affected by this spate of illegal content acquisition are resigned to the fact that there will never be a perfect model. Containment, not eradication, seems to be the goal using a combination of law enforcement, education, technological advancement and experimentation with their business model. Until industries hit upon a viable solution, the torrent rages on. 

For more information, contact Howard Ballon, Managing Director of Media & Entertainment of Synovate North America.