New business models alone can’t stop piracy

Ernesto at TorrentFreak (a BitTorrent and P2P download enthusiast website) had an interesting discussion about the positive effect that Netflix is having on reducing piracy.  Ernesto wrote “Movie piracy is not quite gone yet, but Netflix shows that people are willing to pay for access to movies online, even when plenty of pirated copies are available.”

That’s a great point, and it follows a similar theme to a story that Nate Anderson wrote about a new video streaming service that specializes in Japanese animation reducing Japanese anime piracy.  But there is a limit to these solutions.  Not all content producers can give their content away for ad revenues to “compete with free”, and the vast majority of American cable TV content is not available on free streaming sites like Hulu.  Many television shows are very expensive to produce, and even re-run Internet streams of “Mad Men” are worth up to $100 million to Netflix.  Even when the shows are free to watch on legitimate sites, there are still plenty of people pirating the material, denying even ad revenues to the producers.

Ernesto goes further to suggest that studios should get rid of “artificial delays” on release dates.  However, Netflix accepts such delays in exchange for much lower rates on re-runs.  Based on what Netflix is charging subscribers, the company would not be able to afford the content without the delays.  If the studios eliminated the delays while offering the low licensing rates, they would have to provide other first-run content distributors the same rates, completely harming the business model.

Dying business models are sometimes the result of true innovation and creative destruction, but theft and piracy are neither innovative nor creative.  New business models are necessary to help combat and reduce some of the piracy, but they alone can’t stop piracy.  No one should expect a new business model to be priced so low that it destroys the economic value of the products they it is meant to protect.