Hollywood’s Anti-Piracy Effort: Preparing for Internet
TV?
Fellows and Associates’ independent correspondent Samuel Ali muses over the real motives behind recently proposed anti-piracy measures.
Could it be that the current Hollywood-led campaign to
clamp down on online piracy has less to do with present piracy-related revenue
losses and more with an eye for the emerging market in online TV content? That
is, is it less a pest control initiative for the most important but in decline
DVD revenue stream and more the preparation of a new field?
If this hypothesis is true then the primary motivation of
content providers in trying to push through tough new anti-piracy law, such as
the scuttled SOPA/PIPA in the US and the ACTA international treaty, is not
about DVD sale losses but securing the growing digital sales and rentals
market. The Financial Times reported, last year, that Hollywood was facing a
crisis as its most important revenue stream, DVD sales, was in clear decline
(25% drop between 2006 and 2011) and digital sales of online content were not
rising enough to compensate.
In campaigning for the SOPA/PIPA bills, supporters such
as the Motion Picture Association of America (MPAA), inevitably, cited
prominently DVD sales losses as a major cost of piracy. Digital sale and rental
sales, whilst growing, are still very small in comparison. Apple, the largest
digital film retailer, only started selling films online in countries such as
Japan, France and Spain, in 2010.
However, it is not clear that SOPA/PIPA would have done
much to address Hollywood’s falling DVD sales which are said to contribute the
industry’s overall claimed $6.1 billion annual piracy loss. SOPA, if it had
been passed, could not have recovered that alleged total figure because SOPA
proposed the US blocking of foreign pirate sites, not their taking down. So
whilst US users would have been barred from downloading pirate copies from
these sites, foreign users could still access them. This means SOPA, in an
ideal world where it was 100% efficient, could only have stopped US users
making illicit downloads, which is a piracy cost estimated by the MPAA’s
studies to be closer to $446 million.
Furthermore, studies show that the majority of illegal
downloaders, if prevented from the illicit practice, would not purchase a legal
copy. For some, the download is not a choice between legal and illegal but an
opportunist grab of a ‘freebie’. Therefore, the measure of online piracy loss
to rights holders is not as simple as assuming that every illegal download is a
loss of potential revenue.
Whilst online piracy is a loss for corporate right
holders, the true cost, certainly in DVD sales, is a lot less than the headline
figures bandied around. Moreover, as the recent US Justice Department takedown
and indictment of Megaupload.com shows, powers exist, at least for US
registered sites, to be seized and disabled, along with assets, arrests abroad
and criminal prosecutions. The Digital Millennium Copyright Act also provides
right holders in the US to give notice to ISPs to take down infringing
material.
The campaign for stricter legislation on this matter,
therefore, appears to be more concerned with the future than the present. The
future of commercial entertainment is digital sales and rentals for video on
demand Internet TV. The Hollywood studios that the MPAA represent have seen a
change in the origins of their revenue. When once it was box office sales, the
home entertainment division now produces over two-thirds of the major studios revenue.
This is the division that sells DVDs and pay-per-view/video on demand rights.
The evolution of technology, in terms of broadband,
handheld tablets computers, cloud computing for large file storage and
internet-connected TV is conspiring to make the Internet the most attractive
and, potentially, lucrative source for direct sale of content, paid for by the
online distributor. Selling rights has a higher profit margin than selling
content via multiplexes or DVDs.
As recently as 2008, The Economist reported that
Hollywood was still in denial and suffering paranoia about the Internet, which
was, it said, “its best hope for future revenue growth.” However,
tentative experiments of providing legal downloads had taken place and been
rather disappointing, due to, amongst other reasons, long download times and
limited title selection.
However, 2012 is predicted, by some, to be the boom year
for Internet TV. The technologies have matured and internet-connected TV
platforms will be readily available. It is here that serious content providers
will converge. Time Warner Cable, which earns most of its revenue from Pay TV,
has indicated that they view broadband as the future of their business and have
seen growth in broadband subscribers compared to a drop in Pay TV users.
The key point for content providers is that broadband can
only be a lucrative new business environment if the general Internet user
expectation of free content, created by sites such as YouTube, as well as
accused sites, such as Megaupload, is not changed. One way, then, that this can
be done is to encourage the implementation of strict new takedown laws. By
clamping down hard and removing sites, user attitude is forced to change. This
is not so that they buy legal DVDs instead – the market is in clear decline,
sales falling 7.2% just in 2011. Instead digital online purchases and rentals
is the future for content providers and it is this land of plenty that content
providers pushing for tough legislative change are currently seeking to plough.
This article reflects the opinion of the author only. If you have any comments or feedback, drop us a line at [email protected].