A Better Way to Combat Piracy: Accept That It's Here to Stay and Adapt

By Sarah Lacy , written on January 16, 2012

From The News Desk

The message couldn't have been more clear at TechCrunch's Disrupt Beijing last fall: Sure you've got several $1 billion-plus public companies, China. And, yes, you have more people online than any other country. But the Chinese Web scene will have really come of age when you stop copying and start leading on features and products.

We're mostly still waiting on that to happen. But in the mean time, US companies are copying what the Chinese have done well: Business model and monetization innovation. We've already seen this with the flood of Valley companies building online games paid for by mobile micro-payments and virtual goods-- all multi-billion industries in Asia well before Zynga was born. China's largest Web company, Tencent, became one of the largest companies on the planet charging users ten cents at a time via mobile phones as early as 2000.

That trend is starting to play out in online video too. Today, Hulu is announcing its first original show along with speculation that it may raise a barrel of money to produce more. YouTube recently made a push towards professionally produced original content too.

It's not a shock that the two are looking for new ways to be relevant. Both sites have been run-away user successes, but have struggled to meet greater business ambitions. YouTube has never become the big money-maker some Google analysts expected it would back in 2006, meanwhile Hulu has called off a planned IPO and struggled to find a buyer at the right price.

Interestingly, this original content strategy is what Chinese online video players YouKu and Tudou have been working on for years. Although these companies are typically called the "YouTubes of China," neither has ever been very bullish on user generated content-- all the rage in the early days of online video's resurgence.

Part of the reason are cultural differences: Victor Koo of YouKu said in previous interviews that the Chinese culturally don't like to turn the cameras on themselves. Another reason is simply market demand: There's not as much good TV in China. In the old battle between content and distribution, the distributors are now trying to own both...again.

I've long wondered if a market like China might be the one to break the mold on old media business models. That idea may seem crazy given the censorship and copycat issues, but the latter is exactly the reason why Chinese companies might be the ones to figure it out.

Industries are developing in parallel in China and many other emerging markets. In other words, the local film and music industries are coming of age at the same time as the Web, not decades before. They're born into a world where piracy is a reality, so their business models will never be dependent on some silly bygone era, nor will they waste billions trying to recapture it.

The ultimate example I've seen of this is Nollywood-- Nigeria's film industry. It is the second largest movie ecosystem in the world by volume and third largest by revenues. But its distribution hub is located in the exact same market as its pirates. You literally have to walk past pirates to buy Nigerian movies legally. To make money in such a hostile world, Nollywood directors aren't dithering much about cinematic releases-- the smart ones are making far more reaching the Nigerian diaspora online via a company called Iroko Partners.

I'm not necessarily holding Nollywood up as the model. As I wrote last spring, the intense lawlessness of Alaba can lead to machetes. But I'm still betting the answer to the modern media business model comes out of these markets and the US follows. Or at least new media companies will follow. The old stake holders will likely continue to do what they always do: Waste billions trying to stack the deck in their favor, bitch-and-moan about competition and eventually die a long, slow, noisy death.