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The MPAA may have a point…

Posted by Matthew Greensmith at 5:55 AM on August 24, 2009

…or at least a bit more justification than the RIAA for their fear of downloaders.

I have discussed in past posts how the biggest downloaders of music files are generally the biggest purchasers of music.  This makes a policy of prosecuting downloaders a strange one since they are attacking their biggest customers.  In the case of music, piracy can actually mean better sales.

Early this year I noticed how many people I came across were casually mentioning downloading movies in general conversation.  It sparked a note of interest and I have been taking a bit of an informal, and completely unscientific, study of peoples movie piracy habits.

The first thing that has changed radically from when I first studied music downloading 3 years ago is that people with very low technical ability are participating.  It is not just the computer literate and teenagers.  I have heard from people who still double click on web-links that have no trouble downloading a movie and burining it to a DVD to watch.  I have particularly seen a huge number of parents that are talking openly about either downloading movies, or borrowing copies of pirated movies off other people.

While the most common type of movie mentioned is a new release, i.e. a movie that is currently in cinemas, the essentially free access to movies has not prevented many of these families from going to the cinemas.  I would be surprised if there was no impact at all to movie attendance, however the impact of the GFC and the current state of movie quality have a greater impact on the box-office than piracy.  There is potentially also an impact to later DVD sales which is again unlikely to be large.  The people I have talked to have generally been happy to pay for the better quality, and the extras on movies that they liked.

Another potential loser is the rental market.  Again this did not seem to be so much of an issue.  The general usage case seems to be that people pirate the new release movies that they are sort of interested in, but are not willing to choose as one they see when they go to the cinema.  The second most common reason people gave for the piracy was that they had a level of interest that was too low to invest the cost of a cinema visit too, but high enough to not wait for it to get to video or TV.  Movie rentals will undoubtably have a larger impact to them than cinema attendance or DVD sales though.

The biggest loser in all this seems to me to be TV.  Most people were using the pirated movies as their choice of casual entertainment.  Rather than watching whatever was on TV.  They had a stash of movies that they would slot in when they wanted some casual entertainment and were not happy with the choices on TV.  Not only would the impact be to the viewers of general TV, viewership for premier movies on free to air and cable TV probably decline as well.

Regardless of whether piracy might actually be harming movie company profits, it is a mistake to be trying to use technology like DRM to block piracy.  As has been shown many times in the past and present, whatever DRM technology used will eventually be circumvented.  The only effect it has is to restrict what legitimate customers can do with their legal purchase.  While this might be part of the intent of the movie companies it actually lowers the value of their product to consumers and gives a justification to pirates to continue their practices.  In purely economic terms, reducing the value of your product has two negative effects.  It reduces the amount you can charge for your product, and it pushes more people over the cost/benefit line of piracy.

Even launching legal action against casual piraters (i.e. those that make no money from the practice) makes no sense.  People that are consuming pirated media are essentially your potential customers.  They want to use the media companies product, it is simply not available at a price and convenience level attractive to them.  Downloading movies is not getting it for free.  Regardless of your plan the bandwidth used has a real cost.  There is also the time and effort required to do the download and the cost of burning or storing the media.  These costs are neither large nor negligable.

The answer for movie companies is to find a tiered delivery method that caters to the time, convenience and cost factors.  The other clear answer is for them to stop limiting the useage rights of their legitimate customers, or try to use release schedules to force customers into higher cost consumption practices they do not wish.  The first step in this would be to have close to simultaneous release across multiple distribution models.

  • Cinemas would cater to the event crowd at a premium price.  Releasing a short time earlier (like 1-2 weeks) would also gather in the early adopters in this group.
  • DVD release with extras to entice those that want the movie to keep or to see the background information, deleted scenes, etc.
  • Online download for the home viewer convenience.  These need to be free of limitiations on how quickly, or how often it can be viewed.  It also needs to be at a cost at somewhere around half that of the DVD or less.
  • Potentially even release at the same time to a TV option, free to air or cable depending on who will pay more.  I’m not knowledgable enough on the economics of the TV movie market to know whether this could pay off or not.

The key is to have the movie available at the cost level that is attractive to all potential customers in a convenient fashion.  The higher cost methods then offer more experience or value to cover their higher cost.  DVDs offer the extra content and cinemas give the going out experience.  As I said in the beginning my analysis is based on anecdotal evidence.  From this though, the main driver for movie piracy seems to be less about price and more about a combination of convenience, price and lack of restrictions.  It does no seem that hard for movie companies to come up with a distribution method to fox this.  Changing your model is a scary thing though, much easier to whinge about how your customers don’t like your artificial barriers.

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