Category: Piracy

Box Office Revenues Say Little About Piracy

Once again the MPAA has announced a profitable year for American motion pictures, and once again some of the usual suspects have seized upon this announcement to declare the studios hypocrites for ever saying that piracy causes real harm to the industry. Certainly, it’s easy enough to keep writing this same, careless article all the time. Cory Doctorow cobbled together a 100-word jab for BoingBoing; TorrentFreak reported essentially the same premise with a little less snark; and Ruth Reader managed to tap out this little sneer on Mic.com, complete with obligatory reference to SOPA, under the unforgiveably misleading headline The Movie Industry Just Admitted Piracy Isn’t Curbing Its Massive Profits.  

I know this may be hard to imagine, but the question of piracy’s harm to the filmed-entertainment industry overall is considerably more complex than a measurement of how the top-grossing motion pictures are doing at the box office.  But before expanding on this subject (again), let me repeat the following theme as a matter of principle:  Whether piracy siphons $100 or $100 million out of the legitimate market, it’s money that belongs to the people who do the work. Sadly, this is not a sufficient rationale for many, so we have this silly conversation instead, speculating about how innocuous piracy is or isn’t.

The annual report released by the Motion Picture Association reveals worldwide box-office sales of $38.3 billion, up 5% from 2014.  And that’s good news.  But the only thing we can actually  conclude from the information in this report is that audiences around the world—and especially in Asia-Pacific—are going to theaters in numbers large enough to make the big movies profitable regardless of piracy. This isn’t all that revelatory, of course—unless you actually thought nobody would go to the theater to see the new Star Wars—but to the the above-named pundits and their ilk, these revenues appear to make the studios out to be Chicken Littles.  How can they be so aggressive about piracy when they’re clearly doing just fine?  But if anyone took the time to look at the report and to learn something about the whole industry, they could not justifiably jump to the conclusion that piracy is fundamentally harmless.

Ruth Reader notes that MPAA CEO Chris Dodd, in an address to CinemaCon this week, stated that the industry projects a $1.5bn estimated annual loss at the box office due to piracy.  This number may seem negligible next to $38 billion, but it’s worth noting that this estimate applies only to US box office, which makes the number considerably more significant relative to the $11.1 billion in sales for the US and Canada.

But assuming the $1.5 billion is accurate and still seems trifling to some readers, let’s look at it from a slightly different perspective that considers all of the 708 films included in the report.  Of these, 561 films were non-MPAA member, independent features.  And let’s imagine that 10% of that $1.5 billion could have been divided among the best 100 of those indies. That would be $1.5 million per movie, which any independent filmmaker will tell you can be life-and-death money.  In fact, Adam Leipzig of CreativeFuture used exactly that expression in this article when he noted the conservatively estimated $1.83 million the film Boyhood lost to piracy last year.  Of course, we cannot definitively say where money not spent might have gone, but by the same logic, it doesn’t make sense to blithely assume that because Jurassic World and Inside Out did great, piracy isn’t an issue across the broader market.

The fact is we can’t know exactly how much is lost due to piracy, but we can conservatively project that a relevant portion of the illegal market would be recaptured if piracy did not exist. Out of a universe of hundreds of millions of pirate site visits every month, if just 20 million consumers worldwide were to switch from illegal home-viewing channels to legal ones and spend just $13/month on filmed entertainment, that would add up to about $8 billion per year. And to put that in perspective, the top 25 grossing films of 2015 earned about $6 billion at the box office.  Or spread $8 billion across 500 idependent titles, and it would be $16m in sales per title.  I’m not suggesting revenue spreads evenly like that; of course it does not. But that’s the point. The top-grossing products may consistently earn enough to overwhelm the effects of piracy, but the smaller products—indie features, TV programs, documentaries—which operate on smaller margins are naturally going to be affected more acutely by any loss.  In fact, producer Martha De Laurentiis recently made a pretty good case for saying that piracy may have played a role in cancelling the popular series Hannibal.

Still, I realize that the pundits’ main premise, however unexamined it may be, is that the studios are the big whiners who want to fight piracy, and the studios are the ones who seem to be doing well.  But even if that logic were sound, readers should not be fooled into thinking it’s exclusively the studio execs who have a problem with piracy.  They’re just the ones who make the headlines, the ones who have the resources to try to address piracy, and the ones who are the most frequently vilified in this context. The indie filmmaker who loses money to piracy feels quite strongly about the issue, too; she just doesn’t have the muscle to do much about it.  As such, the indie filmmaker’s best hope for mitigating large-scale piracy is the costly effort being made by the studios. This is one of many reasons why “fans” cannot presume to separate the individual filmmakers from the major companies; they are co-dependent in a variety of ways.

Finally, while the temptation to bash the studios on the piracy issue will remain SOP for the lazy reporter, at least the peanut gallery might consider its own hypocrisy when criticizing these companies for producing exactly the films that consistently top the Most Pirated lists year after year.  Of the few words Cory Doctorow could be bothered to share with us on this subject, he spent some of these accusing the studios of clinging to “high-risk tentpole economics”.  In other words, the studios’ making money with tentpole films is grounds for calling them hypocrites about piracy, but then the studios should also be lambasted for making tentpole films, which is partly a response to piracy.  I know I’ve raised this issue before, but a threat of any loss in value to any commodity will drive investors to safety.  So, if you promote piracy and at the same time blame investors for producing the kind of big-spectacle fare that can earn revenue in spite of piracy, you kinda sound like you don’t know what you’re talking about.

Why Does Google Love Piracy?

In yesterday’s post, I referred to the Android-based service called Google Now, which is about as close as your mobile device comes (so far) to reading your mind and anticipating your wants and needs.  By gathering data from contacts, emails, destinations visited, searches made, etc. the algorithms applied by the Now service essentially learn a user’s interests and then prompts him with what Google calls Cards, containing information or recommendations that may be either general or timely.  As Andy at TorrentFreak reports, “Google Now and its ‘Card’ notifications often pop up at the most opportune times, offering advice about things that haven’t yet happened in a users [sic] life – but are about to.”

As stated yesterday, I cannot personally imagine the benefits of this type of service outweighing the utterly invasive ickiness of it, and Andy also acknowledges that Google Now may be getting too close for comfort for many users.  But the headline reason TF was citing the service is that one of their regular readers noted that Google Now had recognized his interest in the character Deadpool and so delivered a Card recommending that he can view the recently-released feature film on a major torrent site. Andy writes, “Obviously there isn’t a team at Google hand-crafting Google Cards designed to promote unauthorized torrents. However, this does appear to show that Google’s algorithms are smart enough to put together interesting advice based on multiple and diverse information sources.”

Right.  Google surely is not “hand-crafting” Cards to promote piracy; but as usual, it isn’t making any effort to mitigate it either.  I know. I get it.  If the user shows an interest in Deadpool and also regularly visits torrent sites, Google’s algorithm is going to cross-reference these data and somewhat blindly produce the result described.  But that doesn’t mean the search giant doesn’t have the capability to limit or even stop themselves from pushing infringing sites like mints at the drug store register.  We know they have this capability.  In fact, I bet a user could read dozens of articles about human trafficking all day long without ever once receiving a Google Card suggesting where he can buy a slave.  (Please let me be right about this.)

Google is apparently addicted to pushing mass copyright infringement at every opportunity.  The difference between a search yielding legal and informative results about Deadpool and a search yielding a list of infringing sites offering the film hinges on whether or not you put the word “watch” in front of the title.  And even if nobody cared about the fact that this multi-billion dollar company is effectively pushing content theft, it also happens to be offering really crappy search service. I mean heaven forbid a user who isn’t attuned to the darker aspects of the Web simply wants information about a movie, and Google has decided that if he uses the word “watch” in his query, he gets to be vulnerable to links that are increasingly loaded with malware.  That’s cracker-jack service from the biggest search engine in the world.  But Google Now takes the problem a step further.  Rather than the user explicitly searching for information, and then navigating around useless and predatory results, Google Now can actually push a recommendation that is not only illegal, but potentially hazardous to the user.

More broadly, what does this story say about the larger promise of these platforms to create new opportunities for commerce and entrepreneurism?  Because an interest in a hot new film like Deadpool is an opportunity to drive a consumer to comics, merchandise, fan sites, or (call me crazy) any number of legal platforms to watch the movie! So, any prompt that would send the consumer to a torrent site is pure opportunity cost for the legitimate market.  Considering how leading-edge applications like Google Now really are, it seems like a one hell of a precedent for the company to set given all their pretensions to be great innovators.  Then again, this is SOP for Google, isn’t it?

Growth in Legal Platforms for Film & TV Continues

In a recent post, I alluded to a statement by the Copyright Alliance, which emphasizes that Section 1201 of the DMCA supports the development of multiple distribution channels for premium content, giving consumers and producers more choices in the digital market.  This section of the DMCA prohibits circumvention of Technical Protection Measures (TPM) used to ensure that, for instance, if you want a Netflix account, you need to subscribe in order to acquire log in credentials for the service.  This legal framework creates a competitive market for investment in the various types of subscription-based, and ad-driven on-demand models, which is increasingly how consumers choose to view filmed entertainment.

A new report conducted by SNL Kagan for the MPAA demonstrates continued growth in the availability of filmed-entertainment titles across multiple, online platforms.  Since the last report of its kind, conducted in 2013 by KPMG, SNL Kagan’s study indicates steady growth of available works across the four types of online services studied in the previous report, as well as growth in TV Everywhere services, which was not included two years ago.  The service type that showed the most dramatic increase (23%) was in Subscription Video On Demand (SVOD) services, and this increase is largely attributed to new 2015 offerings from HBO, Showtime, and SlingTV.

The headline for consumers is that of the 47 online services reviewed, SNL Kagan found that 98% of the premium films and 94% of the premium TV series studied were available on at least one service and that 95% films and 85% of TV series were available on at least five of the services. The films and TV shows included in the research represented a cross section of commercially-successful and critically-acclaimed titles with the expected result that the more current (i.e. within the last 5-6 years) the title, the more likely one is to find it available, especially with television series.  Even among the category of Emmy winners, which naturally includes many older titles, the study showed an increase of 5% in availability since the KMPG study, suggesting that a steady increase in archival material is being made available as well as newer releases.

Suffice to say, there’s more filmed entertainment available on demand than anyone realistically has time to watch.  So, why does piracy continue to grow—even in North America—in tandem with growth in legal availability of films and TV shows?  Don’t all the net-savvy pundits continue to insist that “piracy is just a reaction to scarcity”? Yet as the so-called scarcity void continues to be filled, piracy continues to increase.

Now, I have no doubt that out of every million users who pirate movies and TV there are a couple hundred seeking obscure, hard-to-find titles; but we can’t pretend this is a significant factor when year after year, the most-pirated titles are always the mainstream hits that are the easiest to access through legal channels.  The bottom line is that if piracy were driven exclusively by fans of the avant-garde, quirky, and hard-to-find titles, it would not be a multi-million-dollar, criminal industry.  I think the only honest thing to say is that piracy probably continues to increase because free is an attractive price that no legitimate business can offer.  Meanwhile, the users of pirate sites are being subsidized by the fans who pay their subscription, rental, and purchase fees.

Despite this growing abundance of stuff to watch, though, it still seems that every unavailable title becomes an excuse to perpetuate the narrative that “Hollywood” is stuck in an outdated business model, clinging to mechanisms like copyright as a form of protectionism. But the growth in availability reflected in this report belies that narrative; and the deals among film producers and platforms like Netflix, Google Play, and Amazon ought to dismiss the premise. But more acutely, what consumers need to understand about the process of making titles available has nothing to do with a failure to innovate and even less to do with technology itself.

Unlike criminal organizations, legitimate owners of film and TV titles—whether they’re independent production companies or major studios—are not free to simply violate contractual arrangements that pre-date these new distribution models.  Sometimes called the “rights thicket”, the collection of licensing arrangements that may be attached to a given title has to be renegotiated for a new distribution platform or new market that was not included in the original deal; and these renegotiations run the gamut from affordable to very expensive, from relatively simple to nearly impossible.

Critics sometimes dismiss this challenge, suggesting that as long as there is financial incentive, producers will find a way to solve the “rights thicket” problem; but that’s easier said as a generalization than it is accomplished on a case-by-case basis.  If an indie film producer has to spend $200,000 in legal fees to make his 30-year-old title available on iTunes, the film is going to have to be rented or purchased quite a lot for that investment to have been worth it.  For some fans of this film, its lack of availability is a justification for pirating the title; but no matter what, this narrative that the producer is simply greedy or too myopic to innovate is a misconception. Meanwhile, even the availability of that more obscure title on the pirate site is also subsidized the by the illegal distribution of the major (otherwise easily available) titles that draw most of the traffic.  And of course, not one second of any of this material would be available without the legal frameworks that make investment in production and distribution possible in the first place.

Two years ago, when KPMG released its report, I pointed out that just the titles in their study amounted to about 6.5 hours of legally available content per day for a year.  Now, it’s about 3-4% more than that. So, when do we get to drop the “scarcity” rhetoric?