Media Companies: Your Nightmare Piracy Scenario has Arrived, And Its Called Popcorn Time

Two years ago I said that the nightmare piracy scenario for the media industries would be when the pirates gave up trying to fight enforcement and turned their attentions to build great user experiences.  Now with the arrival of Popcorn Time that scenario has come to pass.  However bad piracy might have been for media companies, it is just about to get a whole lot worse.  This is the new era of Experience-First Piracy.

Popcorn Time is an open source interface that sits on the top of pirated video content on torrents.  Instead of downloading the video Popcorn Time streams them to the end user, with titles selected from a neat Netflix-like interface.  In fact one might argue a ‘Netflix clone’ interface (see figure) but with new releases that Netflix does not even have.  On top of all this Popcorn Time is open source, with installer and project files all hosted on developer collaboration site GitHub, and with the app built on a series of APIs.  With multiple development forks already this is an entirely new beast in the piracy arena.  Forget whack-a-mole, this is potentially a drug-resistant, mutating contagion.

popcorn time

In fact Popcorn Time looks exactly like what I envisaged two years ago:

“What if a series of open source APIs were built on top of some of the more popular file sharing protocols so that developers can create highly interactive, massively social, rich media apps which transform the purely utilitarian practice of file sharing into something fun and engaging?  If you thought the paid content market was struggling now imagine how it would fare in the face of that sort of competition.”

Piracy for the Mainstream Consumer 

Until now, piracy was largely the domain of youngish tech savvy males (69% male, 50% under 35). Popcorn Time and the inevitable coming wave of new Experience-First piracy apps will give piracy truly mainstream appeal.  It looks and feels just like the real thing, only for free and with even better content.  What’s not to like?  Worse still – for media companies, not consumers – these sites might – even have a legal defense as they do not actually host any of the files.  The emphasis there is on the ‘might’ as it is an argument that ultimately the Pirate Bay was not able to defend in court.

Three Ways to Hit Back at Experience-First Piracy

So what can media companies do to respond to Experience-First Piracy? Legal action will be the first port of call but ultimately it is a pain killer, not a cure.  The problem itself needs addressing with three key strategic focuses:

  • Windowing: Netflix can only dream of having the content Popcorn Time has, just as early licensed music services could only dream of having the catalogue Napster had in 1999/2000.  The movie studios need to learn that lesson fast, and treat Netflix and Amazon Prime etc. as tier 1 release window partners.  As soon as a release is ready for its first post-theatre window it should go straight onto the paid video services.  BlueRay and DVD are fading yesteryear technology, the media industries’ most engaged and valuable audiences are online and using online services.  It is time to treat them as first class customers, not second class ones.
  • User Experience: Before Experience-First Piracy, the retort to media companies was that all they needed to do in order to stay ahead of piracy was to create more compelling alternatives.  Now the ante has been well and truly upped.  There will never ever be the user experience gulf again.  That time has gone.  This means licensed services have to be continually pushing the user experience envelope, using their capital to hire the very best designers and developers.  Which means that content companies need to saddle them with as little up front rights acquisition debt as possible, freeing them up to spend big on development and design.
  • Pricing: The harsh reality of the internet economy is that when something is widely available for free you have to make your paid-for product even cheaper than it was intended to be.  For Netflix and Spotify et al, that means getting below $5 a month.  Ironically this happens at just the time that Amazon increases its pricing for Prime and Netflix is considering increasing its pricing in order to cover higher rights costs.  Media companies have a crucial decision to make: do they want to get more revenue per user out of a user base that will quickly lose share to Experience-First Piracy, or instead do they want to take a near-term revenue hit in order to shore up their digital service partners’ longer term future?

The fact that piracy has spent so long locked in a user experience quagmire is testament to the media industries’ counter measures: pirate sites were just too busy figuring out how to evade enforcement to focus on user experience.  But now that era has come to a shuddering halt.  It is difficult to over state the dramatic effect Experience-First Piracy will have on the paid content landscape unless media companies do everything within their powers to help the nascent licensed services respond in kind.  The smart companies realized long ago that content is not the product, experience is.  Unfortunately the pirate’s just figured this out too.

Why Full Albums Need to Go from YouTube Right Away

YouTube has long been the digital music anomaly: hugely successful, almost free of criticism but with a pitifully small pay-per-stream rate (below half that of Spotify, who does get criticism, and some).  YouTube is now on the verge of launching a subscription product and this will hopefully go some way of addressing the fact it has made the marketing journey the consumption destination.  But the music industry should keep its aspirations in check, not just about the potential impact of the service, but also – and perhaps most importantly – because of YouTube’s intent.

Google is a rights frenemy.  Rights frenemies strike a careful balance between maintaining good relations with rights holders on one side of their business but testing the limits on the other side. They pursue a do first, ask forgiveness later strategy.  Thus all the while Google is launching two music subscription services (Google Play Music All Access and the forthcoming YouTube offering) it is also lobbying for copyright reform and posting a link to chillingeffects.org for every successful copyright takedown.  In other words Google talks the talk but only reluctantly so and it does the absolute minimum of walking the walk.

Nowhere is this approach more apparent in YouTube and the presence of user uploaded ‘full albums’.   A coherent argument can be made that 383 million views of Miley Cyrus’s ‘Wrecking Ball’ Vevo video delivered clear benefits to the artist and her team (both though direct Vevo advertising and the vast exposure).  Full length albums ripped into YouTube by users have no such benefit.  In fact labels in the main do what they can to remove them using YouTube’s takedown process.  If Google was a rights ally rather than a rights frenemy it wouldn’t solely wait to be told to take stuff down, at least for the really obvious and high profile stuff, but it doesn’t.

yt1

Take a look at these top search results for Adele, U2, the Red Hot Chili Peppers and the Beatles (see figure 1).  The full album results are high lighted in red, many of which have hundreds of thousands of views each, in the case of Adele’s ‘21’ it is more than 1 million, and some have been live for more than a year.  In the case of the Beatles all of the top results are full albums.  I doubt that the Beatles spent the best part of a decade not licensing to iTunes in order to suddenly throw it all straight up on YouTube.

yt3

There are also endless ripped live DVDs and recorded TV broadcasts of live concerts (see figure 2). It’s pretty hard to see why somebody would want to buy a live DVD of a U2 show when they can get the entire show in 1080p HD on YouTube.  And of course because it is a continual 2 hours and 22 minutes of video the viewing experience will be virtually ad free, save for a 30 second pre-roll and the odd pop up which can easily be clicked off.  The only winner here in business terms is YouTube.

Not all the blame can be laid at Google’s feet though: these examples were found immediately, with no effort, so it is inconceivable that someone somewhere in each of the respective labels doesn’t also know about this.  Thus someone has taken the decision in some of these instances to take the benefit of the ‘exposure’ in return for cannibalizing sales of the exact same music the exposure is supposed to drive sales of.  It is this conflicted view of YouTube (i.e. ‘we couldn’t sell as much music without it even though we lose sales because of it) that needs to be fixed.  Google can hardly be blamed for having a schizophrenic approach to the music industry if the industry does exactly the same back.

But relationship issues notwithstanding, full albums need to disappear from YouTube right now. They need to do so if for no other reason than to level the playing field for those music services that pay back at higher rates to rights owners and that actually try to get consumers to pay for music.  Labels and Google, bang your respective heads together!

‘Plug In, Tune Out’ with David Byrne, Mark Mulligan, Dave Haslam

I’m excited to announce that next week I will be with Talking Head David Byrne and pioneering DJ Dave Haslam, discussing Byrne’s new book ‘How Music Works’ and many of the issues covered in it, including how digital consumption patterns are fundamentally changing both how music is listened to and how it is made.

It is going to be a great event and a fantastic opportunity to hear David Byrne talk about his views on making and performing music, the evolution of the music business and changes in music culture.  And if you haven’t read ‘How Music Works’ yet I recommend you go out and get yourself a copy, it’s a great read.

The full details of the event and ticketing can be found here, and a synopsis of the event is copied below.

Plug In, Tune Out; Does Music Matter Less In the Current Era?

Join Dave Haslam for a special event featuring David Byrne and Mark Mulligan discussing Byrne’s new book, ‘How Music Works’, in which the Talking Heads co-founder explores the joy and the business of making music, and analyses how profoundly music is shaped by its time and place.

Byrne and Mulligan will discuss the changes in the consumption and production of music in the digital age.

Doors 6.30pm. Event starts 7.30pm prompt (running time approx 90 mins).

Venue: Royal Northern College of Music, Manchester, UK

Waterstones will be providing a bookstall. Pre-signed books of ‘How Music Works’ will be available for sale at the event (there will not be a public book signing).

On Sale from Friday 5 October 2012 at 11am (maximum purchase of 4 tickets per customer).

Bruce Willis and the ‘When Owning Doesn’t Actually Mean Owning’ Conundrum

Bruce Willis is reported to be considering legal action against Apple to enable him to bequeath his sizable iTunes music collection to his children.  Whether there is basis in the story or not it shines an unforgiving light not so much on Apple’s terms and conditions but the role of copyright in consumer music products as a whole.

Analogue Era Copyright Restrictions Rarely Left the Realms of Small Print

The issue at stake is that iTunes terms and conditions prevent the original purchaser from giving the purchased music to someone else. But this is not something unique to iTunes, it applies to virtually every single piece of music product that you have ever bought (assuming you have bought some at some time or another).  And not just to downloads, but also to CDs, vinyl, cassette, MiniDisc and just about any other physical format you care to throw into the mix.  With each and every one of those music product formats that you have purchased, all that you actually own is the physical packaging and media, and a license to play the music inside it.  You do not own the music.  And the licenses come with pretty specific restrictions, often including the number of people that are in the room when you are playing it, though the exact number of people who are allowed to listen to music in your living room is defined by national statute.  The restrictions also cover copying, lending and selling.  Of course (personal) copying, lending, listening at parties, gifting and buying used albums have all been integral parts of the music experience for decades.   People simply enjoyed the music how they wanted to regardless of the restrictions, many of which they simply were not aware of.

Take a look at the small print on the back of a CD album – if you still have any – and you’ll see a copyright notice.  The exact wording will vary according to the label and the country of origin or sale, but the same underlying principle applies across all of them: you don’t actually own the music on the album, instead you have bought a license to play that music.  In the physical era people rarely bumped into these restrictions, but in the digital age labels and other rights owners have the ability to enforce them through technology.

So should Bruce Willis really prove to be tilting at iTunes’ windmills, it will be decades of global copyright convention and practice that he will in fact be facing, and any potential judge will be made keenly aware of this.  Which raises the stakes in quantum leap proportions and builds a case for the industry to come up with common sense business solutions before the entire music copyright edifice is challenged.

It is Time for a Business Solution to the Copyright Problem

Copyright is the critical tool for monetizing content and ensuring creators and originators are fairly compensated.  But copyright is at its best when it serves those purposes without placing impractical and unreasonable restrictions on consumers.  Paying music fans are becoming an increasingly self-selective group.  In the analogue era most music fans were also recorded music buyers.  In the digital age music fans often opt out from music purchasing entirely.  Thus when analogue-era copyright legacies affect digital music buyers, it is the valuable, opted-in part of the population that is being penalized, not the freeloading opted-out portion.  A situation which of course has already happened once before online, with rights owners’ earlier insistence on all downloads being shackled with DRM.

 

The indies, and then EMI and iTunes finally broke the DRM hoodoo and one would hope that a similar outcome could be achieved here.  Changing the underlying copyright frameworks and agreements is not going to happen either soon or quickly, but just as DRM was solved with business decisions, so could the issue of transferring ownership of purchased music.  Rights owners and digital music retailers could create a framework agreement to permit certain behaviours within specific parameters or could simply agree to turn a blind eye in certain scenarios.

It would be copyright suicide to suggest that a music customer could ‘give’ their music to anyone they so choose, because a single digital copy can always be legion.  But a ‘fair use’ approach which supports a number of scenarios, such as Willis’ desire to bequeath to his children, would be an eminently workable solution.

Copyright should protect rights but not at the expense of penalizing legitimate customers over those who don’t bother to pay at all.

Blocking the Pirate Bay: A Tale of VPNs, Proxy Servers and Carrots

Today the UK’s High Court ruled that UK ISPs must block access to the Pirate Bay on their networks.  The idea isn’t a new one, Wippit’s CEO Paul Myers first touted the idea of UK ISPs voluntarily blocking access to P2P sites nearly a decade ago.  In some ways it is intriguing that it has taken so long for media industries to come round to the idea of enforcement via domain blocking rather than going straight after file sharers themselves.  The Sopa / Pipa legislation had many faults but it was markedly more forward looking with its focus on blocking domains than the old school French Hadopi bill which opts instead for the ‘punish your own customers’ approach.

Of course domain blocking itself is beset with challenges and moral dilemmas, but of the tools available to media companies domain blocking can make a pretty compelling case for being the best blend of effectiveness and consume friendliness.  After all, the aim of any piracy enforcement is not just to stop the activity but also to persuade illegal downloaders to become paying customers.  It is much easier to try to convert a file sharer who is getting frustrated not being able to find free unlicensed downloads than it is one who you have just taken to court and sued for damages.

There are however two key technical challenges surrounding domain blocking:

  • VPNs: Virtual Private Network (VPN) applications can enable a user to tunnel out of their ISPs’ network, bypassing domain filtering systems such as BT’s Cleanfeed system which will be used to implement the Pirate Bay ban. Although VPNs have well established legitimate business uses, a number of VPN providers, such as BT Guard, are positioning themselves explicitly as tools to evade piracy enforcement. VPN providers may become the next front in the war on piracy, with media companies likely to start subpoenaing their user activity logs.  Some providers have already started putting anonymity systems in place, such as not tracking IP addresses and deleting logs after 7 days.  Proxy servers – which can be used to circumvent domain filters – are another option, often used in conjunction with VPNs.
  • New domains: the most challenging aspect of domain filtering is keeping track of all the new domains.  Earlier this month in Belgium the Antwerp Court of Appeal imposed a Pirate Bay domain block on two Belgian ISPs, a band which covered 11 associated domains.  Within days the Pirate Bay had registered a new domain depiraatbaai.be though that was swiftly added to the ruling and Belgian users now get this message if they try to access any of the Pirate Bay domains.  The Belgian example illustrates how easy it is for new domains to come into play.  Effective domain filtering is an iterative and continual process that can only work well with willing cooperation from ISPs.  Going to the High Court to secure a new ruling every time there is a new domain is simply not viable.

The aim of domain blocking, as with all piracy enforcement measures, is not to turn off the tap entirely but instead to make it so inconvenient for mass market consumers that the activity will become unappealing.  So the technical challenges need not be fatal flaws in domain filtering strategy if the net result irritating inconvenience for most users.

The Pirate Bay has had the unusual effect of creating a centralization of activity for decentralized file sharing.  As networks went decentralized to evade enforcement, the Pirate Bay pulled the Torrent diaspora together to create a nice big juicy target for media companies.  Removing the Pirate Bay from the UK web will have a significant impact on file sharing, at least in the short term.  There are only a handful of other public sites that index torrent files and have a working tracker, though there is a longer list of sites that have indices but not trackers.  If the music industry acts quickly and puts something new and compelling in place to capture the demand of frustrated Pirate Bay users then there is a strong chance that a host of new digital music customers can be won.  But that means a new generation of product.  The 99 cent download and 9.99 subscription have proven patently uninteresting to the majority of digital music consumers (by which I mean people who listen to music digitally and / or access it digitally).

The alternative is the risk of some of those users simply falling out of the music consumption arena (as appears to have happened in the US) with the rest soon being catered for by a host of new unlicensed alternatives filling the demand vacuum.

A carrot and stick approach is always going to be an evolving strategy.  But when the stick changes, so must the carrot.

Why the ‘Music As Free’ Argument Just Doesn’t Hold Water

Regular readers of this blog will know that I take a pretty hard line on the idea that music can ‘just be free’ and that I take a fair share of flak for my position  (see my previous post here for background).

Numerous sites, forums and discussion boards pride themselves on their ‘everything should be free stance’ and argue that only money grabbing cynical artists would ever take the side of record labels in the piracy debate.  This is patently not the case.  Last week’s statement on tackling piracy from a 100 UK artists illustrates that artists care about this.  They understand that if people stop buying their music and download it for free that they simply won’t be able to be professional musicians anymore.  I for one used to be a struggling recording artist, many years ago.  I never made enough money from music sales to give up the day job, but I would have loved to be able to.  Not so that I could be rich, but so that I could spend more time doing the thing I loved: making music.

It is easy to argue that if consumers want music for free that the industry will simply have to adapt and develop free business models. But we don’t like our favourite artists because they or their record labels are good business people.  If the music industry proves inflexible enough to adapt to a free model and many professional artists go back to their day jobs who has won?  If the music business (in whatever guise it may evolve – i.e. it doesn’t have to be record labels at the centre of it) locks into a race to the bottom, ultimately less money will filter back to the artists.  That means that fewer artists will get contracts, and artists will have shorter careers.  Many more aspiring artists than today will never make it out of their MySpace page or their day jobs.

One of the counter arguments used by commentators is that having a MySpace page is an ends in itself these days.  No, it is a means to an end, and the VAST majority of artists see it that way.  If an aspiring artist doesn’t get signed to a label / publisher / agent they’ll remain one of those many tens of thousands of artists struggling to stand out from the crowded pack on MySpace.

The majority of artists just want to play their music to their fans and to be able to make a living out of doing so.  Most artists with record deals won’t and don’t make much money out of it, but they get to do what they love, and we get to enjoy their music.  But that model breaks down if people stop paying for music, whether that be buying CDs, downloads, gig tickets, ring tones etc.  And yes, of course, ‘feels like free’ models can pick up the slack, but they won’t do the job on their own, and they certainly won’t do enough whilst illegal free services continue to dominate.

But rather than try to persuade you with my words alone, please take the time to read this blog post from an artist that just felt the impact of file sharing (note this was recently reprinted in the UK’s Guardian by UK Music).  This is the pain of a real life artist and reveals the fallacy of the music ‘must be free’ argument

http://blogs.myspace.com/index.cfm?fuseaction=blog.view&friendId=62653487&blogId=485944356

PRS and YouTube Settle Their Differences

Finally, the PRS and YouTube have agreed a deal that ensures music videos will be back up on the site in the UK until 2012, following their licensing spat. (See my previous post for more details).  The only real surprise is that this took so long to happen.  It was patently in the interest of both parties to get the videos back up.

I’ve been asked a few times today who will be most happy with the deal. Given that both sides took very public, very strident positions in the debate, they were never going to make public details of a settlement.  By definition such an agreement would leave egg on the face of one or both parties.  But I would argue that YouTube needed this settling sooner rather than later.  In the age of Hulu and iPlayer, YouTube is no longer the same dynamic force of online video that it once was.  2 minute clips were the centre of the early days of online video, but full length TV shows are now the sweet spot.  YouTube is going through an identity crisis, where its core differentiated asset that it has left is music (and skateboarding dogs).   So music is more important to YouTube now than at any stage before.

And this makes YouTube highly important to the music industry.  Online music video consumption is now a core element of the digital music experience, and as an ends in itself rather than just as a discovery mechanism.  Which is what makes it ironic that the PRS could prevent the record labels utilizing the resource for a period of time.  Many people I have spoken to who are at companies that are outside the music industry are amazed that there can be such dysfunction on what should effectively be the same part of the equation.

The fact that YouTube got a single fee agreement rather than a fee per stream settlement is important.  This assigns YouTube a similar position as the BBC has in the UK.  In effect this is YouTube’s blanket license.  The downsides of this are:

  • No opportunity for the PRS to participate in any significant upturn in Youtube music activity over the mid term.  Though the settlement will include calculations around future growth, any bet on future activity is a gamble.  The flip side of this of course is that PRS secures guaranteed revenue and (depending on the payment schedule) bank deposit interest revenue.
  • The polarization of the streaming market.  Other on demand music providers will be wondering what it takes for them to get a blanket license rather than pay per stream.  Currently the likes of Spotify have the pain of every stream beinig cost to the bottom line.  The bigger their audience gets and the more they listen, the higher their costs.  YouTube is now partially immune to that dynamic (record label fees still need to be considered of course).  So does this set a precedent that if you’re big enough you get preferential treatment? And if so, what does that do to the dynamics of a competitive marketplace?

Future Business Models for the Pirate Bay and Historical Revenues

Yesterday evening I spoke with Hans Pandeya, CEO of Global Gaming Factory, the company that bought Pirate Bay.  I asked him a few specific questions about his plans for the Pirate Bay.

The plans revolve around building a new  peer-to-peer network from scratch, with a new application that uses smart peering technology to ensure bandwidth usage is as local as possible.   The intention is then to sell this localized peer based distribution capacity to ISPs (though I’m not quite sure why ISPs would buy back this bandwidth when it is theirs in the first place).

Mr Pandeya stressed his commitment to supporting rights holders’ interests and incentivizing users to download legal content.  The direct implication of incentivizing users of course is that they’ll get to chose from unlicensed content also, which suggests that the commitment to rights holders will fall far short of what they’ll need.

Besides likely rights holders problems, the other challenge will be to convince Pirate Bay users to download a new application to run on a new  and unproven network that at outset will have minimal content.

He also explained that he expects to generate strong ad revenues from the Pirate Bay website.  Yet the site, which he positions as a ‘search engine’ is a massive series of links to torrents which have been established in the Swedish court to contain extensive unlicensed content.  So either he removes these and loses his traffic, or he retains them and puts himself on a collision course with the rights owners.  Basically it looks like the Pirate Bay site could just be continuing as is with stronger and more robust financial backing.

My Pandeya was very bullish about the ad revenue potential of the site (though he insisted the peering business would be the main revenue source).  Based upon his calculations of Pirate Bay impressions and page views he expects the site to generate €40 million a month.   (FWIW those numbers feel high to me, but I’m not an online ad expert).  When I asked him what he though the Pirate Bay was currently earning he said he didn’t know because it had been ‘illegal’.  I found it hard to believe he will not have done the due diligence.  Indeed, to have such a strong sense of the inventory and audience of the site suggests he has in fact delved deeply.  So I pressed further, and eventually he said he thought that the Pirate Bay “probably” generated about €3 million a month in ad revenue, but that he “couldn’t know because it was illegal”.

Even if we say that Pirate Bay was earning a third of that, it still gives the site an annual income of €12 million, which doesn’t sit very well with the founders’ claims that it was not a strong revenue generator.  Indeed if you consider the upper end of Mr Pandeya’s estimates the Pirate Bay was a €66 million business.  Not shabby at all for a bunch of Robin Hoods, and far above the $1.2 million estimated in the trial.

Why Would Anyone Buy the Pirate Bay?

A small Swedish company Global Gaming Factory today announced the acquisition of the Pirate Bay.  The acquisition poses far more questions than it does answers.

The acquisition was for $7.7 million, which the founders described as “great bit underneath its value”.  Which is kind of interesting considering that they argued strongly in court that the Pirate Bay was not a cash cow.  Of course the fee neatly covers the fines $3.6 million handed out in the trial with over $4 million on top.  And it comes hot on the heels of the ‘bias’ claim against the judge being thrown out and the bid for a retrial being refused.  It isn’t clear whether GGF have acquired the liabilities of the Pirate Bay.  (When Roxio bought the assets of Napster it pointedly left the liabilities with Bertelsmann who then went on to face settlement fees with major record labels.)

GGF claim that they intend to launch “new business models that allow compensation to the content providers and copyright owners.”  This appears to involve some sort of supra-distribution model and GGF are at pains to stress they intend to compensate copyright owners.  Of course it is one thing to argue this and another to do it.  Normally in such situations there is a massive gulf between content owners’ valuation of their own content and that of software companies seeking to build business around it.  Also why buy a site that is diametrically opposed to copyright if you want to build a service which upholds copyright?

The history of file sharing networks and sites ‘going legit’ isn’t exactly a vibrant one:

  • Napster sold its brand and mailing list to Roxio.  As a file sharing network it peaked at over 20 million users, as a subscription service it has less than 5% of that.  And really the new business has nothing to do with the old one, nor its user base.
  • Grokster closed down in 2005 following legal action, stating that it would be back ‘soon’ with a legal alternative.  We’re still waiting.
  • iMesh re-launched, again after legal action, as a licensed service, with modest success.
  • Kazaa owners Sharman Networks settled with the music industry $100 million including provisions for launching a legal music service, which we still haven’t seen any sight of.

The trend is clear, and in many ways it is important that the message is clear that you do not get to the content licensing table by building an audience with unlicensed content.  (Though to be fair imeem did push the boundaries).

So why have GGF bought Pirate Bay?  All that Pirate Bay is is a list of locations of files.  It’s not a network, it doesn’t have content per se.  But it does have an audience. If they at some stage want to launch a licensed music service they have a number of problems:

  • I can’t see them getting licenses from the majors for a file sharing service (Play Louder have been admirably fighting this battle with little success for years)
  • If they do get licenses for some other form of music service they’re unlikely to be able to monetize that successfully with advertising given the current malaise that ad supported content finds itself in.  Not to mention the fact that Pirate Bay users are not the most attractive audience for many advertisers.
  • If they intend to charge they’ll have a minimal conversion ratio: Pirate Bay users are there for finding free content, plain and simple.

So what other revenue models are left?  There are a number of possibilities:

  • GGF’s CEO is doing this as a philanthropic act because he believes in the cause.  Though he asserts that he sees this as a viable business proposition.
  • Pirate Bay has other (cash?) assets that were not revealed in the court case.  The experience of Sharman Networks shows us that owners of file sharing properties tend to have incredibly opaque and convoluted business structure to obscure accountability and ownership.  I have no evidence that this is the case with Pirate Bay, instead I’m simply making the case that this has happened before elsewhere.
  • The last, and probably the most likely, option is that GGF will launch an adware business, building a client that tracks users’ behaviour and serves up ads based on context and behaviour, typically superimposed on publishers’ inventory.  This pretty much the Kazaa model.  The fact GGF have additionally bought a peer-to-peer technology company Peerilism points to this also, as does their current internet café ad business model.  The big issue here is around whether the application will run on other networks or a proprietary one.  If it is the former they simply won’t be able to meet content owners’ requirements and if it is the latter, do they really intend to block out all non-licensed content.

Returning to where I started, this acquisition leaves a lot more questions than it does answers.  The only thing that is clear is that the Pirate Bay owners, despite claiming to be modern day Robin Hoods have now become multi-millionaires, making them more like the rich Sheriff of Nottingham than the swashbuckling archer.

Why It’s In Everyone’s Interest to Get Music Videos Back on YouTube in the UK

YouTube have announced that they will block access to music videos for UK viewers due to a dispute over licensing terms with UK collection society PRS for Music (formerly known as the MCPS-PRS Alliance).

This is the almost inevitable result of two long-term strategic courses which have ultimately been on collision path:

  • On the one hand you have PRS becoming increasingly assertive  of its remit and licensing position, right from the level of policing small business performance licenses. PRS sees a digital world in which numerous start ups build their businesses around music but that publisher and performance rights seem to be much further down the agenda than record label rights.
  • On the other hand you have Google still desperately trying to figure out how to make YouTube ‘work’ as a business. More effective innovation in video advertising is needed on the one hand, whilst better relationships with content owners are needed on the other. Ever since Google bought YouTube, numerous content owners have come in for their share of the pie. In many instances unsatisfactory licensing negotiations have seen content owners opting to take legal action against YouTube instead (e.g. Viacom, The English Premier League etc). Others have started playing hard ball by other means (e.g. Warner pulling their music videos). With revenue from advertising needing to grow more strongly, YouTube can only cede so much ground in rights negotiating and also needs to be seen not to be a soft touch. Otherwise all content owners will seek aggressively better terms.

So with both parties set to fiercely fight their corner, a conflict was always a strong possibility. The action does have the air of a PR stunt about it and certainly ensures that dirty laundry is now washed in full public gaze. PRS’s Steve Porter said

This action has been taken without any consultation with PRS for Music and in the middle of negotiations between the two parties

Whilst YouTube’s Patrick Walker said

[PRS was seeking a rise in fees] “many, many factors” higher than the previous agreement.

UK consumers needn’t worry too much. The music videos will be back. Once the grandstanding is over both parties will hit upon a compromise. Music video is too important to YouTube not to reach an agreement, just as YouTube is too important a revenue stream for PRS. Until they do UK music fans have plenty of alternatives, such as Daily Motion and of course file sharing networks. And there’s very strong reason why the labels, PRS and even YouTube don’t want YouTube’s loss to be Bit Torrent’s gain.

EDIT:  One very important additional element I missed off has just been pointed out to me: Google are also arguing that PRS cannot give them an exhaustive list of which artists they represent.  Historically this would have just been because of the many very small artists, often without label deals.  But now, with some major publishers withdrawing their online rights the publisher collection market is becoming highligh fragmented.  This raises the stakes for PRS and may well be an astute negotiating tactic for Google.   If push came to shove PRS would probably sacrifice significantly higher rates in favour quoshing the dispute over catalogue reach.  If they don’t their position as a one stop licensing body will be weakened.