When Piracy is Easy, How Do You Compete?

Popcorn Time is something that I’ve been hearing about for a while now but I’ve never really looked into. Effectively it’s a tool that gives you an easy to use User Interface to find Torrents for your favorite TV shows and movies. Torrents, by the way are a type of file and download methodology. Effectively you get tiny bits and pieces from a large number of different users across the internet. This makes it harder to track the individual files, prevents it from easily being removed from the web, and helps manage internet usage across the multiple users. In the days of Kazaa, you directly downloaded from a single peer, now you’re downloading from multiple users, so if one goes offline or reduces the bandwidth they are sending the file to you it has minimal impact.

Torrents are what’s called “piracy” and are on the pirate bay and any number of other sites that share those files. Since they do not have to follow strict contracting like Netflix, Comcast, Hulu, HBO, and other streaming services you have access to the movies you want whenever you want them. For instance, Netflix recently lost access to the Avengers, probably because of the cost of keeping in their library and Disney trying to create artificial scarcity of the legal product. You can find extremely high quality torrents out there to watch it if you can’t get it for free. In fact I’m sure it’s on Popcorn Time right now.

Because of these difference and the historic complexity and risks of downloading a torrent, Netflix had positioned itself as a way to prevent piracy. Now this might not be the case, as Netflix is beginning to see Popcorn Time as a legitimate threat to their business model. I’m not surprised that Netflix sees risk here and I think that this is a good thing for Netflix. It means they are expecting their business to be disrupted and that they can take proactive steps to address it.

What can they do to keep their business afloat and continue to fight piracy? Well, since they are essentially seen as a cash cow on two fronts – ISPs and Content producers (MPAA and TV companies), they need to clearly articulate the amount of piracy that was reduced once the content was put onto Netflix and then show the increase in piracy after the content was pulled from Netflix for contractual reason. If Netflix can’t afford to keep it on their network, then with an easy to use app like Popcorn Time, the content will be pirated, which means that any revenue artificial scarcity was hoping to drive or to be extracted from Netflix at an elevated price goes out the window and the content will still be consumed.

In some cases piracy will happen regardless, but if the trend continues were people are switching back and forth between cord cutting and going back to cable because of rising costs of apps, then apps like Popcorn Time will become more popular because they can completely replace Hulu, Amazon Prime Videos, HBO Go, Netflix, etc.. You could be a cord cutter with this and pay for one app to get your live sports and be good to go. Content producers will begin to lose out again, because they are trying to squeeze the companies that provide easy, relatively cheap access to their content. I’d rather not go back to that, but if my costs keep rising because the companies I choose to support can’t afford the content that I want, then I’d have no choice.

Continued fall out from MegaUpload arrests

A few days ago I discussed some of the actions taken by the hacker community and the impression that the MegaUpload arrests were related to SOPA. After some time we see that this arrest didn’t happen over night, you could argue the announcement and the timing was done poorly. However, I think that we should be paying attention to the ramifications of these arrests. Torrent Freak is reporting that there has been a massive response from the Cyberlocker companies. These cyberlockers were similar to MegaUpload in that a user would be able to upload a song and then anyone would be able to download it or stream the video. Now these companies are removing the search capabilities from their website and are restricting users to only their files.

While, what MegaUpload may have done may be illegal, the impact of the arrests is a foretelling of the impact of a law like SOPA. Internet companies argued that SOPA would be a job killing bill that it would kill innovation and break the internet. I think that this action clearly demonstrations that they are correct. For instance, Torrent Freak mentioned that several companies are shutting their doors and others are changing their services. Since it’s space based service, it is likely that each of these companies only has a few employees. However, they make a good chunk of change. MegaUpload was making several million and their competitors were likely making millions a month.

All of that money is going to be gone by next billing cycle. Not a single one of those companies where users were paying a premium will pay them another dime. Ad revenue will dry up, MegaUpload made almost a million alone since 2007 on ads. All of this money was getting put back into the economy through the purchase of servers, software and other equipment. It allows employees to buy stuff and was making a positive contribution to the economy.

From the different companies there was obviously innovation occurring. MegaUpload never allowed duplicates on its servers and when a duplicate was uploaded it would find another version of it and supply the link to the end user. Infringing content would just have the link removed, not the actual content. This would make searching for the real version difficult for copyright holders as it would be a game of wack the mole where the content would appear here, then with another link and so forth.

What other solutions could have been reached? I think there’s plenty of space here for further innovation for a business model. As users are using sites like this for personal storage and for video streaming, users are paying for content as well as clicking and viewing ads. Clearly there should be a way for the content owners to make money off of it as well. However, I have yet to read an article or a comment about the content industry approaching any of these companies, other than through DMCA, about working to pay some sort of royalty or set up a license agreement.

I think that a way to bring the balance back from the power being exclusively in the hands of the RIAA and MPAA (I’m just going to type RIAA from here on out), companies like Pandora.com, Spotify, Last.FM, MegaUpload (or any of its competitors), Google/YouTube, Vemeo and anyone else that uses licensed content should form their own consortium. Let’s just call it Content Users and Managers of America or CUMA for sure (I couldn’t think of anything really witty there (it doesn’t have to be just of America)). CUMA would provide a counter balance to the RIAA in that it provides equal footing and a way to combine the might of the end users. There are demands for these products, but the products simply do not demand the price premium they used to demand. Since these products aren’t able to demand the premium and the RIAA thinks that it should, they are overcharging as there are freely available alternatives which people flock to. Essentially, the RIAA needs to realize that for the websites allowing people to access the are getting paid pennies (if that) for a single view on a website. So for most sites, they can make more money if they don’t pay licensing fees. Lowering licensing fees is something that CUMA would be able to work for, to put it inline with expected ad revenue. This would allow for broader innovation in the market and reduced piracy.

It’s obvious from the amount of money that MegaUpload made that people are willing to pay to be able to watch as much content as they can when they want it. I feel like a broken record here (ha HA!), but people are willing to pay for content if it’s easily accessible.

I expect additional fall out from this. If SOPA or some similar style bill ever passes, expect this type of reaction to occur in other segments of the online industry. Online content is one of the places with a great deal of innovation and killing it would be a shame when there are possible solutions to this problem without resorting to industrial policy making and picking winners.

Update: I just saw this article Looks like MegaUpload has figured out a way to allow musicians to make money off of free downloads for original works through their site. This is some seriously awesome innovation.

Did yesterday’s internet black out save the internet?

I’ve seen a lot of commentary about how the web may have been saved because of the internet’s “abuse of power.” How parts of the internet shut down for a day. I’m sure this impacted a great deal of people, may have actually hurt our economy a little bit. However, one day of action won’t save the internet.

I’ll agree it made a huge impact as support for SOPA/PIPA has plummeted. Yes, this round of attack by the MPAA and RIAA may have been twarted, but this is just the beginning of the fight for the internet. Ars Technica, has an excellent write up for a plan for how to address some of the concerns of copyright holders in a much better fashion. A manner which would not destroy the internet like SOPA/PIPA.

However, I think that this is a case of industrial policy legislation that is picking winners. In several blogs and posts at the Urban Times, I have written in favor of using some policies to enact changes of behavior. However, in these cases it’s because a novel technology isn’t being adopted that leads to benefits for the social good. In the case of copyright holders, these policies aren’t for the common good, but are being put into place to protect an aging business model that is not innovative. The policies I recommend are to help innovators compete against the status quo.

Data has shown that increasing the availability or decreasing the availability impacts the rate of piracy for television shows. Which indicates to me, policies should be striving to push companies to increase access to copyrighted material, not to go after pirating website. The responsibility for dealing with pirates should be with the copyright holder. They have the means to actually reduce piracy through reducing the amount of licensing fees and increasing accessibility.

We should be pushing our government leaders to put initiatives in places that require massive concessions from copyright holders, if they abuse their copyright position, including losing that copyright. Subscription services like Spotify and Pandora allow users to get access to content either free, with ads, or for a small price. However, these services don’t allow users to access everything. This leads to frustration. If I was able to listen to whatever on Spotify, there’d be no reason to pirate.

What does this mean? Well, we can celebrate the change in positions of congressional members, however this isn’t over yet. OPEN act may be the next step in this battle. Free internet should be our goal, free as in speech not beer. However, people are willing to pay and I think in this case, business models need to catch up with technology.