Cyberattack Effect in China Reveals Flaw in Piracy Logic

This month, computers around the world fell victim to what experts have called the largest cyberattack on record. Known by its name “WannaCry,” the ransomware* assault went global sending cyber-defense teams into hyperdrive trying to protect systems as vital as hospitals, banks, and telecommunications in Europe, Asia, and the U.S.  One notable consequence of the attack, as reported in The New York Times on May 15th, was that Chinese businesses, public institutions, and universities were especially stymied in responding to the threat for one simple reason:  software piracy.

Paul Mazour, writing for The Times, cites a 2015 study revealing that 70% of the software installed in Chinese computers is not licensed, noting later in the article that use of unlicensed software and other media is so embedded in the culture that many citizens don’t even know it’s illegal.  Clearly, when major institutions, including large corporations and one of three state-run telecom companies are implicated, we get the idea.

The “WannaCry” attack targeted older Windows operating systems, and because the Chinese make such widespread use of unlicensed versions of Windows, the unsupported software lacked the updates and patches that would have at least helped mitigate the effects of the assault. And because so many computers were unprotected, this facilitated a much wider and faster spread of the virus. Granted, there are broader aspects of this story, including China’s supposed desire to build a domestic alternative to Microsoft. But taken in isolation, this incident strikes me as a cautionary tale, albeit a stodgy and maternal one.

Imagine if everyone did it. 

Yeah, it’s an ancient, parental finger-wag; but it is also a basic concept that copyright advocates have been trying to explain to the pirating public for years.

In the same way that China’s high volume of piracy left so many users extra vulnerable in this security context, there is likewise a tipping point at which a certain volume of piracy in any market will end, or dramatically curtail, new production of the works being pirated.  Based on one very typical comment I read this week, though, it seems that people are still confused about the contrasts between a black market and a legal one.

The Verge published a story about the arrest and current status of alleged Kickass Torrents founder Artem Vaulin, and I won’t comment on that still-developing case at this time. But the reason I mention it is that the comments section, not surprisingly, shifts from the report itself to the broader subject of piracy and everything that’s wrong with Hollywood, and the usual litany of complaints.  This observation from one anonymous poster caught my attention, not because I want to pick on him/her, but because it is exemplary of familiar themes:

“As much as Netflix, Spotify, iTunes/AM etc. are combating piracy and being fairly succsessful [sic] at it I can’t help but feel it’s a sub-par experience. The constant exclusivity deals, every corporation with hit TV show pushing their streaming service, and the most ridiculous of all, geo-blocking, in their effort to get more out of consumer they end up being a great advert for piracy …”

So, here’s a simple truth in response to that:  no legal market will ever compete with a black market. Doing business legally, even making older libraries of works available, has costs considerably higher than running a piracy site.  If the piracy advocates are waiting for the day when every creative work ever produced is available worldwide for a single, low-price subscription before they’re willing to stop pirating, they might as well at least stop banging on about the subject. Because it ain’t gonna happen.

Maybe this fact alone seems like justification for many to pirate, but those who think this way need to remember that a black market doesn’t produce a damn thing. Pirates trade in illegally-obtained works that other investors, large and small, have spent trillions to produce.  Because legal consumption of works in many markets is greater than illegal consumption, the margin of difference is sufficient enough to mask much of the damage when viewed from a broad perspective. But that doesn’t mean damage doesn’t occur. It’s like a basic principle of ecology; nothing looks wrong for a while until suddenly everything is wrong all at once.

Smaller, independent creators tend to feel the effects of piracy more acutely than big, corporate producers who have the scale and depth to treat piracy (to an extent) as a cost of doing business; but this does not mean the effects are nil. The Chinese scramble to protect systems running unsupported software reveals that there is always a tipping point when self-interest becomes self-destructive.  If enough consumers opt for a black market because, as the cited commenter says, the legal market is “a sup-par experience,” the truly lousy experience will come when production of new works grinds to a halt.

Yes, there is competition among producers. That’s what happens when people invest millions of dollars hoping to make something the market will like.  This competition necessitates exclusive deals, windowing, marketing, and even the dreaded geo-blocking.  This last item may seem incomprehensible to many consumers, but it is actually a manifestation of the way in which many independent film productions are financed.

In fact, eighty film directors in Europe (i.e. not Hollywood executives) just signed a petition urging the EU not to adopt a digital single market approach because this would adversely disrupt the way in which their films get made. The petition, published this week ahead of a forum to be held at the Cannes Film Festival next Monday, contains the following statement:

“More than ever, the territoriality of copyright needs to be maintained: this principle ensures high level support for artistic creation in Europe, helping the most fragile filmmakers and European co-productions. Enshrining this principle underwrites the exclusivity of rights and the financing of works.”  [Emphasis added]

It’s all well and good to sit at a computer, know exactly nothing about how products like motion pictures are financed and produced, and pontificate on the theme that “Hollywood should learn from the pirates, and until they do, I’ll keep pirating.” But this is untenable logic, not only in Hollywood, but especially for the thousands of works that are produced far from Hollywood. And the only reason these delusions persist is that—for now anyway—the legal market remains larger than the illegal market.  But there is always a tipping point, even if nobody can tell you exactly where it is.


*Ransomware locks up files on a computer and demands that the user pay the hacker(s) to restore access.

© 2017, David Newhoff. All rights reserved.

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