Piracy Shmiracy: We Need 21st Century Business Models

The MPAA and NATO are panicking because they don’t know how to replace revenues lost not to piracy, but to newer legitimate commercial content platforms, like Netflix, or ad-supported platforms like YouTube. This is, I believe, a better explanation for the brinksmanship between Old Media and New Media companies over the now-tabled SOPA/PIPA legislation.

The MPAA and NATO are panicking because they don’t know how to replace revenues lost not to piracy, but to newer legitimate commercial content platforms, like Netflix, or ad-supported platforms like YouTube. This is, I believe, a better explanation for the brinksmanship between Old Media and New Media companies over the now-tabled SOPA/PIPA legislation: it’s not really about piracy, but about which business models are going to be successful in tapping the entertainment content market in the 21st century.

The only way to stem piracy is to make more content more widely available at a competitive price point, and include added-value that pirates can’t match. It seems so obvious, at least to those of us not invested in failing 20th century business models. Piracy exists because consumers want content and can’t get it legitimately. Legislation can’t fix this. Remember Prohibition? Technology will find a way around enforcement every time. Remember DRM?

We have to figure out new ways of dealing with the fact that consumers are telling us what our content is worth. We can no longer dictate pricing based on what our content cost to produce. We have to figure out how to work within the new consumption patterns in the market to successfully monetize and drive buyers to our products.

A growing number of studies, including at Carnegie Mellon’s Heinz College of Policy and Management, confirm that consumers pirate content when they can’t get it legitimately, but pay for it when the price is right, and they can get what they want. The real issue that the entertainment industry needs to address, is that by truly addressing consumer demand, and making all content available simultaneously on all platforms for all devices (industry parlance for simultaneous release is “day and date”), the traditional scarcity-based distribution windows erode, and revenues along with them.

This week, I attended a discussion at the Sundance Film Festival moderated by NYT writer David Carr, and featuring prominent independent producer Christine Vachon, MPAA President Chris Dodd, and NATO President John Fithian. As you can imagine, the conversation turned very quickly to SOPA/PIPA. Both Dodd and Fithian, much to my continuing disappointment, persist in the party line scare tactic fiction about needing to save the 2 million entertainment industry jobs threatened by $58 billion in lost revenue by offshore pirate websites. Both of these figures have been pretty soundly debunked, and the MPAA has apparently been unwilling to support these numbers with research.

More troubling to me was the glaze that seemed to spread over Fithian’s face when I suggested that his rhetoric on the panel about preserving windows and prices was specious. My point was that the proverbial horse has left the barn on content pricing. We have so much content available to us (and this is because we have been so successful in creating and distributing it, mostly on DVD), that we have turned content into a commodity. For the average consumer, a title is just a title, and they don’t necessarily see the logic to paying more to see it in the theater.

Fithian disagreed, and put up the usual platitudes about preserving distribution windows as the only way to maintain an initial high price for (scarce) content (i.e. “new releases”), and then gradually reducing the pricing through succeeding windows.

He is in denial. Content can no longer be priced according to a scarcity model. This is the 21st century, where we need to develop models based on the assumption that content is abundant. His attitude can only spell disaster for the theater owners he represents. Like it or not, we are creeping towards the end of the theatrical window as we now know it. Already, the fight is on for day-and-date Video On Demand (VOD) release, with last year’s release of Margin Call paving the way. Theater owners are even starting to amend their categorical refusal to open movies that are simultaneously going to VOD.

In this new marketplace, I actually believe that with value added, consumers will, in aggregate, pay more for their content. Kevin Smith’s “tour” with his movie, Red State, last year indicates that fans will come out of their homes to see a movie in a concert-style venue and pay a concert-style price for it. To be sure, not every filmmaker is as colorful a personality as Kevin Smith, but the success of that experiment opens up new possibilities for marketing content.

In the end, at Sundance, Fithian did make a weak concession to the idea that content consumption drives increased content consumption, and that theaters were floating the idea of making VOD sales in their theaters to exiting patrons. That’s actually an optimistic concept: cooperation and revenue sharing between theaters and cable providers! That’s the kind of forward-thinking strategy we need. Now, we need to see if he and his theater owners, along with the MPAA companies, are serious about addressing the challenge.

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