Strategies to fight entertainment piracy

The DVD industry, hailed in 2004 as the most successful consumer electronic entertainment platform ever launched, now faces a year of challenges where new media and consumer perception may become significant catalysts for change. The purpose of SIMON MEHLMAN's document is to examine one of the key forces at play – entertainment piracy – and then to identify what measures are being considered and undertaken by content owners and publishers to protect their product.

You could probably calculate how much money you spend each week on petrol or transportation within a few minutes? With a direct debit, you can estimate how much you pay for your monthly utilities, but have you ever tried to assess what you spend on entertainment: watching television (license fee, satellite, DVDs), music CDs, electronic games?

It’s likely to be a significant sum of money and in spite of growing demand; the economies of digital entertainment are undergoing a revolution caused by the revenue-depleting explosion of digital piracy.

CONTENT IS KING

Fuelled by rising demand and established distribution channels, the digital entertainment sector is growing rapidly; hardware costs have fallen dramatically.

In this growing market an odd perception has taken hold in the mind-set of consumers; whilst they themselves value the content; their perception of its commercial worth is distinctly tied to it physical medium.

Downloading and burning a copy of an album onto a blank CD by a teenager is unlikely to produce a negative response from the average parent, but if the teen walked into the house with an album they had stolen from a shop, the parents would be far more likely to be outraged at what is essentially, the same criminal act – theft.

The issue of entertainment piracy impacts further revenues:
- 30% of pirate DVD purchases cannibalise cinema box-office earnings (IPSOS UK)
-n 39% of heavy downloaders decreased spending on home video vs. 16% that increased spending (Jupiter Research)
- Out of sample of 1,000 customers in France, 12% indicated they did not purchase DVD of Matrix Reloaded due to piracy.
- 39% of heavy downloaders decreased spending on home video.

Using a PC to copy electronic content is referred to as ‘ripping’, and this technology can be used to copy DVDs and CDs into a computer’s hard disk. Once copied, it may be stored, used to make another physical copy onto DVD or CD, or distributed electronically via the Internet.

Analogue copying involves transfer of data through an analogue port such as a SCART socket on a television or set-top box (E.g. a cable or satellite receiver).
Using this technology to make copies is the basis of domestic VCR and current DVD recorders. It used to be fair to say that whilst the first generation analogue copy may be of high quality, subsequent generations would suffer from signal degradation affecting video and audio quality; however using a SCART connection to a DVD recorder can now produce a DVD that can be ripped digitally and copied/distributed without further loss of quality.

FORMS OF ENTERTAINMENT PIRACY

Pirated product appears every day, in car-boot sales of counterfeit CDs and DVDs sourced from Eastern Europe or made overnight by a neighbour’s child; it can appear as semi-professional camcorder recordings made in a cinema in Asia or North America, or as high quality disc images that are distributed around the world using a file-sharing network.
The combination of physical and online piracy at local, national and international scales has created an incredibly complex illegal distribution channel to meet the demand of consumers who will willingly pay a cheaper price for illegitimate sourced products.

The UK Federation Against Copyright Theft (FACT) regularly seize disguised shipments of counterfeit DVDs and CDs that are imported into the UK. It estimates 3 million pirated DVDs will have been confiscated by the end of 2004, representing perhaps just 5% of the total in the UK. The forged DVD industry is thought to have made more than £400m last year.

For the purpose of analyzing how piracy works, and what steps can be taken to offset its impact upon revenues, it is helpful to identify two broad groups of pirates; ‘Professional Pirates’ and ‘Casual Copiers’. These two groups will ultimately supply content between each other, but the distinction is useful in assessing the effectiveness of ‘anti-piracy’ campaigns.

Professional pirates operate worldwide, their scale of production is usually very high and they are likely to be involved in a variety of other illegal activities. At the launch of the Industry Trust for IP Awareness in 2004, one speaker noted that a kilo of DVDs could generate more profit than a kilo of cannabis; more profit and a lot less risk.

The quality of counterfeit DVDs and CDs is a massive variable, ‘professionally’ packaged DVDs can turn out to be lower resolution VCDs or feature grainy images shot from the back of a noisy cinema, they can also be so good as to be indistinguishable from the genuine article.

Casual copying of music, games and videos has reached almost epidemic proportions in some parts of Europe, fueled by increasing broadband pipes, the wide availability of counterfeit copies from street vendors and the technological drive towards ‘simplicity’.

The Business Software Alliance (BSA) states that worldwide, “Today, there are 70 million broadband households. By the end of 2007 there will be an additional 100 million.” Further deregulation in the UK telecoms market will continue to increase home broadband speeds and access. Whilst this will create new legitimate forms of monetised distribution of content, such as ‘Video On-Demand’, it also opens the floodgates to significant numbers of downloads.

Consumers can now readily download complete uncompressed disk images of their PC & console games and videos from a wide number of Peer-to-Peer (P2P) websites that effectively connect multiple users from around the world and coordinate downloads of content from many PCs, accelerating distribution of content through their viral architecture.

One P2P site I visited offered a single 31Gb download which consisted of a four DVD boxed collection. The site’s download stats noted that this file was successfully downloaded 72 times in a single day.

UK network router company, CacheLogic, have determined in 2004 that the total population logged onto the major P2P networks at any one point in time is about 8 million sharing over 10,000,000 Gb (10 Petabytes) of data: this is nearly 10% of the number of broadband connections currently used in the world. Jupiter Media estimates that 75% of European broadband subscribers use P2P networks every month.

The drive to simplicity may actually be the single biggest advance in consumer electronics. Making a great product that requires tweaking & tuning is fine for the high value, low volume market, but to make real money requires mass market adoption and that in turn requires simplicity; fewer wires, simpler instructions and the pre-requisite ‘user-friendly’ interface.

Advances in consumer electronics (CE) technology, such as DVD recorders and hard-disc based PVRs (personal video recorders) have made once complex tasks easy; many employ the phrase ‘as simple as pushing a button’.

The combination of increasing consumer demand, online and offline supply and the means to simply and illegally create perfect copies and then distribute them easily around the world has seen an unprecedented explosion in consumer piracy.

This is not simply a case of counterfeit copies made to look like the genuine article, the dilemma facing the digital entertainment business is that it now risks competition from its own customers, who can now supply a high quality copy of the original product back to the market, leaving the content-owner and manufacturer to miss out on the revenue from thousands of transactions taking place every minute of every day; the World Wide Web never sleeps.

The Motion Picture Association of America estimates between 400,000 and 600,000 films are being illegally downloaded from the Internet each day. The IFPI 2005 report on Digital Music lists an estimated 870 million tracks illegally available for download from the Internet.

The Industry Trust for IP Awareness, formed in March 2004, claims, “downloading of illegal film and television files has tripled in the last twelve months and over 1.6 million people are now estimated to be downloading illegal films and TV programmes every week”

STANDING UP TO THE PROBLEM

The challenge for content owners is to be transparent to honest users and yet to provide a robust defence against unauthorised copying of content, and to do this without adversely affecting playback or hardware compatibility. Some content owners have embraced a raft of technologies and solutions to tackle the problem. These responses can be broadly listed as:

- Educational
- Litigation
- Government legislation
- Legal download sites
- Technological controls

Educational – Although there have been high profile educational campaigns throughout Europe, it is very difficult to assess the real impact this has actually had on piracy. There are cinema campaigns, posters in the high street, and leaflets in the shops. Some campaigns have focused upon educating people that illegal copying is a crime, other campaigns have looked at the consequences of getting caught, such as fines, prison etc. It is however quite difficult to asses the effectiveness of these campaigns.

In an attempt to counter claims that rolling release dates of cinema releases creates supply in one territory to illegally cater for the demand in regions where a film has not yet been released, some major studios have taken the decision to undertake global ‘same date’ releases on new cinema releases. New business models have also introduced lower priced retail units in the Far East to provide a legal alternative to cheap copies.

Litigation – Music trade associations such as the Recording Industry Association of America (RIAA) and the BPI have undertaken a broad range of educational initiatives, but they only really hit the headlines when they began prosecuting ‘significant music downloaders’.
From September 2003 to November 2004, the RIAA filed more than 7000 lawsuits, including more than 2200 lawsuits announced since October 1, against alleged file traders. The lawsuits included users of the eDonkey, Limewire, and Kazaa services, as well as 25 people using university Internet connections to distribute music files.

In the UK, the BPI began a similar campaign targeting ‘major uploaders’. At the same time, the International Federation of the Phonographic Industry (IFPI), which has over 1450 members in 75 countries and affiliated industry associations in 48 countries stated that a further 459 alleged file-sharers across Europe now face legal action with France and Austria also targeted for the first time.

Although very unpopular as campaigns with consumers, there is strong evidence to support the effectiveness of litigation as a deterrent.

The Film industry in the US has taken up this tactic to counter online piracy. In November 2004, the Motion Picture Association of America (MPAA) announced it would sue anyone caught swapping or downloading digital copies of films. The MPAA said the civil suits would seek damages of up to $30,000 per film.

Litigation has also been used successfully as a piracy deterrent in closing down some file-sharing websites that were offering unauthorised downloads of copyright protected films, music, games and software.

Legal actions against hardware pirates have recovered significant quantities of counterfeit DVDs & CDs. The sale of such goods is highly lucrative for organised crime and the Industry Trust for IP Awareness has claimed that a kilo of counterfeit DVDs is more valuable than a kilo of cannabis.

Government legislation – The issue of digital piracy impacts taxation revenues and foreign investment. European governments are being increasingly called upon to engage the issues and in some areas, good progress has been made. In the UK, trade associations such as the UK Film Council, the BPI and the BSAC (British Screen Advisory Council) all work to secure greater government support in the battle against entertainment piracy.

Legal download sites – With the launch of several high profile legal download services, such as Apple’s iTunes, many consumers now have a legal recourse to buy individual tracks, download them electronically, and enjoy listening to their music on their portable music devices.

The 2005 IFPI report on Digital Music notes that in 2004, legal music sites quadrupled to over 230, the available music catalogue doubled to one million songs and that around the world, paid-for music downloads increased from less than twenty million to over two hundred million.

Legal movie downloads are just starting to appear, but catalogues and geographic access are limited. At the January 2005 Screen International European Film Piracy Summit, one of the common threads to emerge was the call for new business models to be developed to supply consumers and out manoeuvre the Pirates; but for this to happen in the UK, broadband speeds need to be increased further, and a suitable DRM scheme approved and adopted.

Technology – If technology delivers the means to illegally copy and distribute digital entertainment content, it should be noted that it can provide a robust and effect defence against piracy, when utilised. Solutions can be applied to physical media, electronic content and even network structure of the Internet.

Content protection technologies have evolved significantly in the last eighteen months. More emphasis is now placed on value-management and copy-control, whereby more business models can be created. This can benefit consumers by allowing more choice and increased usage rights, whilst at the same time, rights-owners can benefit from a wider range of revenue generation programmes and reduced threats of piracy.

New video technologies are already in development that can carry additional usage flags identifying a ‘rights management’ set of allowed and dis-allowed functions. This technology appears to have much to offer the rights owners in terms of protecting their content, but great care must be taken to ensure that the final package is also palatable to consumers.

WHAT'S NEXT?

Entertainment Piracy will not go away by itself, but the industry has to ensure that it does not introduce draconian measures that might cause resentment with the consumer. New video technologies may soon offer new formats (HD-DVD and Blu-Ray) and delivery systems with a range of additional features and benefits, however there is a clear need for a business model that supports the value of owning the legitimate content without penalising the consumer, the distribution chain or the rights owner.

For all the blockbusters that make money in the entertainment industry, there is requirement to invest and develop a wider selection of potentials and new talent. Reduced revenues mean that movie studios, record labels and music publishers have less funding to seek out new talent.

Stefan Arndt, producer of the highly acclaimed film Good Bye, Lenin!, estimated that he lost about $3m of revenue to digital piracy; prior to the DVD release of the movie, some 770,000 German households owned pirate copies of the film, either downloaded from the Internet or purchased on pirate optical disc. This loss of revenue forced Arndt to cancel four new film projects.


Simon Mehlman has worked with technology leading companies for the last 15 years, providing both strategic and tactical marketing solutions for the commercial and consumer adoption of entertainment technology, ranging from content-protection to digital cameras. Previous employers include The Character Group and Macrovision Corporation.
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