The Problem of Piracy

For the past six weeks, I’ve been creating a new business plan for a platform that legally aggregates, distributes, and monetizes movie scenes.   We’re calling this new company AnyClip and you can read about it here and here.

Today YouTube is providing a  valuable service to consumers by hosting a massive number of movie clips.  Type in a line of dialogue and there’s a pretty good chance you will find the clip you want.  Sure, the quality varies, the clip length is fixed, and the scene you’re looking for might not be there, but according to our internal anaylsis YT alone is showing  1-2 billion movie clips a month.  Demand is there.  Obviously, we think this vertical on YT could be better or we wouldn’t try to do what we’re doing.  Studios make more or less nothing in revenue from YT and one executive told us they are so scared of union litigation that they escrow the trickle of legitimate revenue they receive.  I really believe YT will be AnyClip partner one day, but what really worries me is the proliferation of piracy.

Clips are  proliferated throughout the various torrent sites so it’s possible to find more or less whatever you’re looking for provided you don’t mind inconvenience or sacrificing on quality. In my anecdotal conversations in Israel, Sweden, the UK, and more recently,  United States more and more people are finding illegal downloading to be the preferred method of media consumption.

Consider the company I visited in Sweden where the employees laughed when I mentioned the idea of buying a DVD.  Or the lunch I had  in Jerusalem this week with a 30-something woman who was stunned to know I didn’t know the brand of the biggest piracy service for Israelis.  In our office and among colleagues throughout my professional life exists a rich understanding of the free content sites and services that host stolen content.

The healthy box-office numbers have obscured the deteriorating DVD revenues this Spring, but there are real problems with the movie business models as the classic revenue windows give way to the highly disruptive cocktail of globalization, broadband, piracy, and a generation of consumers who see no connection between free downloading and theft.

Recently, I spent time with a Big six Hollywood studio executive who told me that he was preparing to fight the Obama administration on Net Neutrality.  His argument was that we need government intervention to stop piracy and that TARP resources were being deployed to increase broadband access with no preferential treatment to the companies who “do the right thing.”  An investment in broadband, he argued, was an investment in piracy.

The conventional wisdom in the Internet industry is to wax rhapsodic about free and  open platforms and to be all-in supportive of net neutrality to encourage innovation.  Truthfully, this is my own belief as well.  In general, I think it’s as foolish to believe that broadband regulation will stop piracy as it is to believe anti-marijuana laws stop people from getting baked.

However,  “there’s nothing wrong with Piracy,” is morally bankrupt.    If you are excited to see Star Trek this week you should think about whether this film will make a $100mm in profit $200 or $500mm in profit.  The smaller the amount, the less Paramount will have to invest in the next film.  Unlike musicians Hollywood directors and special effects mavens cannot simply go out and tour to recoup their lost music revenue.

Consumers and Hollywood studios  are at an inflection point.    It’s vital that we find ways to create services that consumers love while simultaneously generating revenues for the people and studios who provide such magical content.

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3 Responses

  1. Does a consumer really care whether “Star Trek will make a $100mm in profit $200 or $500mm in profit.” Why should a consumer care about the profit a studio makes? And who is to say 100mm is not enough? (sounds like a great ROI even at the level for the studio)

    • Of course the consumer doesn’t care about profits, he or she cares about how those profits are invested. If there are no profits there will be no sick action films. Then the consumer will find that the new movie ticket costs $100 bucks like today’s broadway shows. If what happens to music happens to movies we will have a very differeent movie landscape. It will include fewer tentpole high budget films and way more indies. At some level, this could be great for the art, but as somebody who appreciates the big budget action film I don’t want it to die because of piracy.

  2. The rights holders are so interested in ending piracy that they don’t seem to want to focus on creating a business. I would love to show them a model of how much money they have left on the table since, say, 2005, just because they have tried to kill all their content from YT.

    For the MPAA membership, compromise for $ (plus lots of consumer good will) has been out of the question; they have focused exclusively on small volume, $$$prices, and destroying consumer goodwill. It’s a shame, and to the extent that movies are a part of culture that is increasingly self-referential, they are just locking themselves out.

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