Whose Business Model is to Blame for Internet Piracy?
ICYMI, there’s been a hot controversy for the past couple of days about claims made by Mercatus Center researcher Jerry Brito and Washington Post blogger Tim Lee to the effect that Hollywood is responsible for Internet piracy because it doesn’t make newly released movies available for legitimate purchase or rental right away. As Lee put it in a Tweet: “Hollywood should blame itself for its piracy problems.”
The debate started when Brito and his colleague Eli Dourado announced a new web site, PiracyData.org, intended to chronicle the extent to which the most highly pirated movies are (not) available for legitimate purchase (yes, that Eli Dourado.) Lee echoed Brito’s announcement with a blog post, and then the usual suspects weighed in, such as the piracy-happy Tech Dirt and Torrent Freak and anti-piracy Institute for Policy Innovation, MPAA, and American Enterprise Institute.
Brito and Dourado go on to argue that Google shouldn’t be required to suppress search results that lead people to copyright-infringing movie sites because, after all, they’re generally the only sites they could possibly index for the most popular, recently-released movies and TV shows because legitimate copies aren’t available:
…one implication of the early results may be that when movies are unavailable, illegal sources are the most relevant search results, so search engines like Google are just telling it like it is. That is their job, after all.
Also, while there is no way to draw causality between the fact that these movies are not available legally and that they are the most pirated, it does highlight that while the MPAA is asking Google to take voluntary action to change search results, it may well be within the movie studio’s power to change those results by taking voluntary action themselves. That is, they could make more movies available online and sooner, perhaps by collapsing the theatrical release window. Now, their business model is their prerogative, and it’s none of my business to tell them how to operate, but by the same token I don’t see how they can expect search engines and Congress to bend over backwards to protect the business model they choose.
As is often the case, there are some personal and financial connections in play: Brito and Lee are close personal friends and Google is a funder of the Mercatus Center; but so are the Koch brothers and ALEC, so take that with a grain of salt. I see no reason to conclude that Brito et al. are deliberately fudging data to help Google; in my experience, they genuinely believe the claims they’re making.
However, their initial data had some serious problems: they claimed that most of the top ten list of the most-pirated titles can’t be had lawfully, but a correction indicates that most of them can, in fact, be legally streamed, purchased, or rented. That’s a serious problem that undercuts the premise of Lee’s blog post. MPAA spokeswoman Kate Bedingfield explained to Lee after his post went live that the connection between availability and piracy doesn’t work the way he thinks it does:
The Walking Dead was pirated 500,000 times within 16 hours despite the fact that it is available to stream for free for the next 27 days on AMC’s website and distributed in 125 countries around the world the day after it aired. Our industry is working hard to bring content to audiences when they want it, where they want it, but content theft is a complex problem that requires comprehensive, voluntary solutions from all stakeholders involved.
This observation raised the ire of piracy apologist (enthusiast?) Mike Masnick and forced him to raise the bar of culpability from “available and free” to something else:
Now, if you’re not the MPAA and so tied up and confused by unauthorized access, you might look at that information and realize that putting it on AMC’s website was probably the mistake. That’s not where people look for stuff these days. Yes, they made it free, but they didn’t make it convenient, meaning they didn’t put it in a form that some portion of consumers want, and watching it directly on AMC’s website appears to take a large group out of their natural flow. That’s something that Hollywood could learn from, but it never does. It just points the blame finger.
Masnick is one the Internet’s past masters of self-defeating arguments, but even for him this is a bit mind-boggling. If the issue under discussion is whether Google should modify search results to raise the visibility of legitimate sites over that of rogue piracy sites, wouldn’t that automatically imply that Google has the power to ensure that “people will look” to legitimate sites first?
In fact, if you Google “The Walking Dead” your first hit is to AMC’s web site, but if you search for “stream Walking Dead” you’ll be taken to a rogue piracy site, CouchTuner. So it seems rather clear that people who don’t make the a priori assumption that they want to pirate this show will easily find it on AMC’s web site with less effort than it takes to find a pirate copy. So it’s not a matter of availability, price, or convenience: people who choose the pirate version over the legitimate one are making a deliberate choice, probably looking to skip the commercials. In Masnick’s coded language, “convenient” means “foregoing profits.” Masnick is also Google funded, FWIW.
The state of the debate at this moment is that Brito has written blog post clarifying that he doesn’t condone piracy despite his claims that the creative industries (and only the content industries) have the power to end it by making more content available for sale. Brito says the heart of the issue is the money non-creative players such as Google should be required to pay to stop piracy:
So the question that we’re really debating is not whether piracy is right or wrong, but how to enforce copyright. How many resources should be expended, and by whom? That’s what this debate it really about.
I agree that this is the heart of the issue, and I’m glad Brito has come around. Never mind that he was forced to change his stance by the revelation that the very data he tried to use to justify minimal effort on Google’s part actually make the case for more vigorous action; all’s well that ends well. Not that the discussion is over; it’s really just getting started in a serious way.
Brito has raised the issue of business models in defense of Google’s laxity toward unlawful distribution:
Now, [the creative industry’s] business model is their prerogative, and it’s none of my business to tell them how to operate, but by the same token I don’t see how they can expect search engines and Congress to bend over backwards to protect the business model they choose.
Granted, the Hollywood business model has some influence on piracy: studios have various windows of availability for various movie formats, the goal of which is to achieve “welfare-maximizing pricing” for their work. As Jeff Eisenach explains:
The reality of the movie business is that content is released and re-released, taken off the market and put back on — “windowed” as they call it – in order to efficiently price discriminate, i.e., to make content available at something close to marginal cost to some customers, some of the time, while charging others – those with higher willingness to pay – prices high enough to defray part of the sunk cost investment. It’s simply another form of the efficient, competitive price discrimination engaged in by ISPs. And, if it’s OK for Comcast – as I suspect most of the folks at Mercatus agree – it ought to be OK for the movie labels too.
One of Hollywood’s goals is to get people off their butts and out to the movie theaters. Let’s not neglect the fact that these titles that are not available for streaming at initial release are very much available at movie theaters. So the whole argument about “availability” is bankrupt factually as well as morally and economically. If a movie is showing five minutes from my house, it’s plenty “available” by any rational measure and Google’s search results can easily point to theaters and show times.
The question of business models works both ways, although nobody ever wants to mention it. Google has a business model for its main business – selling ads – that depends on it never, ever having to pay for content or to run any significant part of its business manually. Why have Google’s attempts to sell cell phones direct to consumers always failed? Because they tried to provide service and support from an automated system that completely failed to provide consumers with solutions.
Google’s success in Internet advertising depends largely on the efficiency of its server farms: they can do the calculations necessary to determine which ad to show you faster and cheaper than anyone else can, so they can charge prices low enough to keep others out of the market and still make money. It doesn’t hurt that they have all that search traffic either: Search is magic stuff for advertisers because consumers reveal a personal interest every time they search. If that traffic stops coming because Google is suppressing guidance to would-be pirates, Google fears that the more legitimate parts of their business would suffer.
This seems a bit dubious to me, good reason to question the Google business model. Are people who explicitly prefer piracy sites over legitimate TV and movie streaming sites really a valuable demographic to advertisers selling tangible goods? I doubt it, but that’s just an intuition. Google certainly has data on this, but they may not be interested in sharing it.
So what we have here is actually a conflict between two business models, the “content wants to be free” Google model and the “artists need to eat” Hollywood business model.
Figure: Effect of Sweden’s iPred Anti-Piracy Law on Internet Traffic
One way to resolve this tension would be for Google to change its business model. Instead of trying to be the private sector’s version of the NSA – snooping on search users, building massive dossiers of our history, and data mining to serve is the most juicy ads – they could follow the lead of the creative industries and the ISPs and charge fees for premium content or take a cut of movie tickets it helps sell, as Ticketmaster does.
If they want YouTube to compete with Netflix and Amazon, some money will need to change hands, and what’s the harm in selling movie tickets? That seems like a natural adjunct to Maps. When Google is willing to update its business model so that it conforms with those of the creative industries and their main distributors, it may just find that the pesky search algorithm is not so hard to change after all. When do you expect this will happen?
Piracy is all about business models, both on the facilitation side and the mitigation side. That’s a point I’ve been arguing for years, I’m glad more people are starting to realize it. The dirty little secret about the Internet is that for some years piracy was the “killer app” for high speed broadband connections.
In the late 90s when broadband was taking off, the ability to pirate movies and TV shows was a big motivator for people to dump dial-up Internet services that were still just fast enough for email and light web use and pay $40/month for the megabits. The distribution system for TV and movies has essentially caught up and now there’s more legitimate traffic than piracy, at least in the US, but some business models are stuck in the past, when content was not effectively monetized and licensed.
Google has one of them, but even the web’s giants have to catch up at some point and there’s no time like the present to go legit. The advantages are numerous: no more fines for selling ads for dodgy drugs, and access to a pot of gold for legitimate content sales for starters. Google’s claim to fame is its ability to rank web sites by reputation. Surely, awarding low reputation to unlawful businesses is not beyond its ken. Google’s workforce is the best and the brightest, isn’t it?