When the Media Industries Really Need to Start Worrying About Piracy (and it’s not yet)

I’ve been a digital media analyst pretty much as long as mainstream music piracy has been around.  I’ve tracked the rise and fall of many sites, services, networks, applications and protocols, including MP3.com, Napster, Music City Morpheus, iMesh, Audio Galaxy, Bear Share, eMule, Gnu Network, Kazaa, Limewire, Pirate Bay, Rapidshare, Megaupload etc etc.  The point I’m trying to make – other than my career’s slightly concerning alignment with the rise of music’s grey market – is that the sector is built upon reinvention.  And that power of reinvention is the key reason why the music industry has a bigger piracy now than it has ever had before.

Of course there are statistics that suggest the file sharing is on the wane in a few markets – notably Germany – but overall the problem is getting bigger because:

• Non-network piracy is in the ascendency. P2P is declining in importance as a medium for piracy.  Non-network sharing (hard drive swapping, darknets, Bluetoothing, mini-nets, digital lockers, forums, binary groups, Instant Messaging, music blogs) are collectively more widely adopted than P2P in many major markets and are growing fast.  All tactics of course which are much more difficult to track and police than P2P
• P2P is getting smarter.  And for those who still do use P2P there is an ever growing array of tools at their disposal that make it harder for their activity to be tracked, ranging from encrypted versions of mainstream P2P apps through to the Pirate Bay’s current shift from Torrents to Magnets

Of course media industries are upping their game too, with major legislative efforts in the US, UK and France, though all with mixed levels of success.   The lesson of the last decade plus though, is of course that whatever actions the media companies take, the piracy problem will be more than a step ahead.  Legislation, judiciary process and enforcement are all slow moving beasts.  Typically by the time media industries catch up technology and consumer needs have moved on.  For example the Pirate Bay looks like it could be blocked from consumers in the UK but a quick search on Google for the name of your content of choice followed by the word ‘torrent’ will serve you up an exhaustive list of alternatives.  Pirate Bay simply isn’t needed anymore.

Do we have the right services?

All of these dynamics are probably familiar to most, but I think we may be on the verge of something very different and of far greater concern for rights holders.  One of the key reasons – some would argue *the*key* reason – piracy is still growing is because the $0.99 cent download and the heavily delayed movie release  simply don’t appeal to most digital consumers.  US VC Fred Wilson recently stated in a Paley Centre debate that ‘we are all pirates’ and that if ‘99% of people are breaking the law then it is the wrong law’.  My twist on that statement would be that if ‘99% of people aren’t using the services that they are the wrong services’. (Of course more than 1% use legitimate services but we are still talking about a nice minority).

Don’t get me wrong, we have some absolutely fantastic services out there for the current installed base of digital music customers, but they are patently not the right services for majority of consumers who account for the 95% of total downloads which are illegal (according to the IFPI).  Regular readers will know that I have been building a case for a music format revolution (you can download my Music Format Bill of Rights report here for free).   There are some really promising first steps happening from some promising start ups but rights complexities are acting as a major decelerator on innovation in this space.

What happens if digital piracy starts to learn from the mobile App revolution?

Of course the grey market has no such problem.  They only ever concern themselves with rights issues if they get taken to court or decide to try to go legit (Napster, Limewire, iMesh, Kazaa etc).  To date the focus of piracy technology has been evading the music industry.  But now, with the revolution in high quality user experiences that the App market has created, there is a very real risk that much of this ethos will bleed through to the grey market.  Indeed there is undoubtedly some direct overlap between the App developer community and the piracy developer community.

The nightmare scenario for media companies is that the pirates turn their attentions to developing great user experiences rather than just secure means of acquiring content.  What if, for example, 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 though the paid content market was struggling now imagine how it would fare in the face of that sort of competition.

In the longer term one could hope that such a scenario would act as an accelerator for liberalization and innovation of rights owner practices, but in the nearer term it would be a death knell for many of the current services that have worked so hard to get achieve what they have within often suffocating confines.

Content monetization strategies need reworking too

I’ve said it many times before and I’ll say it again now, and many times again: fighting piracy requires a big fat carrot to go along with the stick.  More than 300 $0.99 download stores in Europe and North America alone is not a carrot.  Now is the time to give the legitimate sector the tools, licenses and support to innovate like never before.  It is also time to recognize that just because piracy users don’t always spend money does not mean that they are not spending.  In the digital age consumers transact in three equally valuable currencies:  Money, Data and Time. Those currencies however are not equally valuable to all industries (e.g. TV broadcasters value time more than record labels, online newspapers value data more than book publishers etc) But it is time for those three currencies to be equally tapped by digital content strategies across all industries (regardless of whether that currency is valuable to them), with supporting ‘virtual commodities’ trading marketplaces in the backend to ensure that all stakeholder ultimately end up getting paid in the currencies they value most.

Unless user experiences and monetization strategies are innovated beyond recognition then the grey market will do it instead, creating a wave of digital piracy that will do for media revenues what the iPhone did for Nokia’s smartphone business.

Three Strikes: Two Strikes Out and Counting…

Today the French Constitutional Court threw out the controversial Hadopi bill, better known as the ‘Three Strikes’ bill due to the provisions for terminating Internet accounts of repeat file sharers.  The bill already fell at the first hurdle of the Parliamentary vote, requiring a redraft and revote.  Now with this development you could say it’s Two Strikes Out and counting for the Three Strikes bill.

This isn’t the end of the road by any means.  In fact there’s every chance it will end up implemented….some time.  And there’s the rub.  By the time this bill has cleared the successive challenges of domestic legislature, domestic courts, European legislature, European courts etc. the very nature of online piracy is likely to have morphed to such a degree that the Hadopi provisions could be left looking hopelessly outdated and insufficient.  This is in microcosm the history of file sharing: every time the industry finally catches up with file sharing via courts and legislation the problem has moved on.  This was exactly the process with Napster and Kazaa.

The danger with relying upon legislation and the courts to drive your business ends is that you lose control and become subject to others’ priorities and agendas, which are not always complementary to your own.  The bottom line is that it is always preferable to solve business problems with business solutions.  It is in the interests of music companies and ISPs alike to reach commercial solutions to their common-interest problems.

At last week’s Music Week conference the then Culture Secretary Andy Burnham (who is now tackling NHS waiting lists as Health Secretary) advised the labels not to rely up government to do their work, but to find common ground with the ISPs and push ahead with solutions.  His exact words were:

Don’t wait for the heavy hand of legislation, just do it.

The experience of the much maligned Hadopi bill to date is evidence that legislation alone cannot be relied upon to solve the problem.  It simply isn’t agile enough.  I will say that there remains a strong case for revising legislation to better protect intellectual property in the digital age.  So the legislative process is important, but it should be the foundation and the framework for commercial solutions, not instead of them.