Entertainment wants to be accessible, not free
Remember a few years back when Hollywood studios tried -- and famously failed -- to ram the Stop Online Piracy Act through Congress? Well, two things have happened since a coalition of Silicon Valley companies, technology think tanks, and grassroots activists blocked passage of that draconian bill.
First and foremost, the Obama administration may be trying to quietly revive the same legislation. Second, we are learning that making Hollywood content more available online may be a far better way to halt piracy than simply putting more punitive statutes on the books.
If that sounds counterintuitive, that's because it contradicts the old assumptions about intellectual property and the Internet.
From the Napster years, one of the content companies' (music labels, movie/TV studios, etc.) big fears was that putting any content online would only increase the chances of piracy, thus (supposedly) eating into revenues. The theory undergirding this fear seemed to make sense -- once a piece of content is digitized and put into the cloud, the content can be copied, and obstacles (paywalls, etc.) to accessing that piece of content can be attacked, hacked or wholly circumvented. But, the theory goes, if a piece of content is never digitized or is extremely difficult to obtain online, then there's a pain-in-the-ass barrier for piracy as the individual pirate has to go through the more arduous -- and legally precarious -- task of digitization, uploading and hosting. And even then, for the the person consuming the pirated material there's no guarantee that it will be uniformly acceptable quality.
This theory is based on the perception of friction, the idea being that when it comes to any kind of sharing - legal or illegal - the entire online world is basically a frictionless place. But there may be another kind of friction factor that plays an even bigger role in the piracy economy: accessibility.
Such is the takeaway from a new National Bureau of Economic Research study conducted by experts at Wellesley College and Carnegie Mellon University. Evaluating what happened when ABC added its content to Hulu, the researchers found that the move "caused a nearly 20 percent drop in pirated downloads of the added content." According to the researchers, that finding is consistent with results from their previous study of NBC content on iTunes. The researchers consequently conclude that "delivering television content in more convenient, readily available channels can cause a substantial number of pirates to turn from illegal file-sharing channels to legal channels" - even though the former channels are free and the latter channels incur a financial cost to the end user.
Taken together, the numbers imply that demand for pirated content is driven as much by whether or not content is digitized at all as by whether it is available in a fast, current, up-to-the-minute and user-friendly form. When a piece of content isn't available in such a form, there's more incentive for piracy - and as NBC and Fox examples show, piracy subsequently increases. By contrast, when a piece of content is easily available at a legitimate outlet, there's less incentive for piracy, even with the associated user fees. To bring it back to the friction metaphor, piracy seems to be driven both by the friction of a particular form (digital vs. non-digital) and by the friction associated with a particular delivery system (crappy hard to use pirate site, vs. easy to use subscription portal).
In practice, this means that if studios make a piece of content really easy to get in a high-quality format online, a sizable segment of an audience that might otherwise be open to piracy may instead cough up some money for the legal version of that content. That shift is likely a mix of legal impulses (some people will pay a little bit if it authorizes them to do something legally) and convenience calculations (some people will pay for simplicity and reliability). Ultimately, when content is available in a legitimate fee-for-service channel, this segment of the audience comes to the same conclusion as Lifehacker's Thorin Klosowski, who said: "The main reason I stopped pirating is that now, piracy takes too many steps. It's now a better experience to download something from a legitimate source than it is to pirate it."
Of course, implicit in that statement is the fact that there are now myriad legitimate (read: legal fee-for-service) sources of high-quality content. That increase is no doubt being driven by two other concurrent market trends. First and foremost, as this week's big news about Hulu's earnings highlight, those legitimate sources appear to be generating real cashflow and revenue growth. At the very same time, Internet piracy seems to be declining. The NBER study suggests those trends may be related in a virtuous cycle: As more legitimate content comes online, more consumers are paying for that content and avoiding the pirates, hence driving down piracy, increasing revenues for the content producers and incentivizing those producers to put more of their content online.
All of this seems to augur well for content producers who are worried about the intellectual property implications of the mass cord cutting that's happening right now. Indeed, as more and more people (yours truly included) get rid of their cable service and rely solely on their Internet connection for content, consumers seem willing to pay a la carte for easy-to-access content rather than go through the rigmarole of finding a free version of that already-available content. It is more often when a piece of content simply isn't available at all (or isn't available in a timely fashion) at a legitimate online source that piracy becomes more of a draw.
None of this is to suggest that the rise of Hulu, Netflix and other high-quality distributors of digital content will fully end piracy - especially because, from an ease-of-use perspective, the pirate channels could become ever-more frictionless. However, the NBER data do suggest that reducing piracy does not automatically require SOPA-like bills that unduly threaten everything from journalism to entrepreneurial innovation to the presumption of innocence to basic free speech. It may just require more - and more up-to-the-minute - digital content than ever.