The Hollywood film industry, or at least its official representatives in the MPAA, likes to talk tough about efforts to combat movie piracy on the internet.  They rabidly support DRM systems to supposedly keep their content locked-down (CSS, AACS, etc.), they push hard for new laws to control how video moves around online (like ACTA and COICA) and they will happily sue sites or individuals they feel to be contributing to mass copyright infringement (too many to name).  Nonetheless, a more objective examination of how movies get onto file-sharing networks, and then how those video files get distributed, would clearly show that the movie studios’ anti-pirate endeavors are fundamentally off-target.

Widespread DRM systems, like CSS on DVDs and AACS on Blu-Ray discs, have absolutely no bearing on how or whether movies end up online, as the primary leaks invariably come from within the production process.  DVD and Blu-Ray sourced files appear online *before* the date those discs are actually made available for sale.  And not just a few days before, but usually weeks if not months before the official DVD release to the public.  Someone in the production chain of Hollywood itself actively puts the video files online for anyone to download for free, and does so *before* any DRM protection can be applied to the film.  It strains credulity to think that the film studios that contract out these services could not increase pressure on their employees and partners to prevent this kind of leak.  Yet, in the decade or so since large-scale online copyright infringement began, they have never done so effectively.

Even more telling as a demonstration of Hollywood’s lack of seriousness about piracy, however, is the annual decision by the film studios to distribute DVD “screeners” to members of the film community in the period before and during “award season” leading up the Oscar ceremony.  Despite explicit knowledge that these critically acclaimed films will immediately be uploaded for mass distribution, and even while the movies themselves are still in theaters, and months before they are scheduled to come out on DVD, the studios continue the practice.  There have been half-hearted attempts in past years to devise a more secure system for distributing these screeners, but they proved unwieldly and ineffective.

Yet the crucial point is that according to Hollywood’s own cost-benefit analysis, the supposed lost sales from the piracy of its own best films is overwhelmingly out-weighed by just the mere opportunity of these films receiving a publicity bump from winning awards.  In their own calculations, Hollywood values the increased revenue an Oscar traditionally generates far more than they fear what a leaked copy loses them.  Such a decision is at minimum an admission by the people who should know movie finances best that what is gained by the screener policy is vastly larger than any fear of possible losses.

And just to underscore the point, I looked at a few of the highest profile films from the recent Golden Globes, that had screeners leak long before their DVD release dates.  In the case of Black Swan, a good quality version of the film from an awards screener appeared on file-sharing networks barely two weeks after the initial limited opening on December 3rd.  The film has nevertheless earned over $73 million in box office revenue and is likely to receive a great deal more publicity when Oscar nominations come out.  Another high profile film, The Fighter, had a screener copy leaked three weeks after its release on December 10th, something that the producing studio, Paramount in this case, had to know would happen if they chose to make screeners available.

The MPAA and its member studios are quick to bemoan their fate in a piracy-riddled internet, seemingly robbed of “billions” of revenue (at least according to the statistics they cite).  Yet it is hard to take their arguments seriously when they routinely chose to engage practices like sending out award screeners that has proven repeatedly to foment illegitimate distribution of high-profile films.  The possibility must exist therefore that Hollywood does in fact realize that the supposed damages from piracy are actually not as substantial as they so often claim.

Expert on piracy?

Late last month, Frederick Huntsberry, the COO of Paramount Pictures, gave a talk at an FCC workshop on the future of broadband policy in the U.S.  He gave a ten minute Powerpoint presentation about the problem of piracy of media content, particularly the unauthorized distribution of Hollywood produced films.  Huntsberry’s contribution to the workshop received a good deal of coverage, some focusing on the odd sight of a studio executive giving an almost “how-to” guide to downloading unauthorized copies, but also from Paramount’s attempt to prevent Huntsberry’s talk from being distributed itself, for fear it would teach some would-be pirates how it’s done.

Commentators knowledgeable about the P2P world pointed out the numerous technical inaccuracies contained in Huntsberry’s presentation, particularly in his list of piracy assisting offenders that included such Internet giants as Google, Yahoo, but also promising technology start-ups like Drop.io and Boxee, not mention electronics makers like Apple and Sony. The heavy-handed nature and basic cluelessness of the talk, now widely distributed by YouTube, has received a great deal of mocking, yet the comedy has obscured the larger issues that the workshop discussed and Hollywood’s stated analysis of piracy.  Now that the entire transcript of the workshop is available, I thought it would be worthwhile to dig a bit deeper, and look at not only what Huntsberry’s presentation reveals, but also examine what the other Big Media representatives had to say.  (although, if anybody has a copy of the Powerpoint deck Huntsberry showed, I would love to get a copy)  What we see is both more damaging to Hollywood’s credibility when speaking about piracy, but also raises disturbing questions about their vision of the Internet more broadly.  In part 1 of this post I’m going to look at the scenario Hollywood paints of current piracy, while in Part 2 I will show how far off the mark they are and why their prescriptions should be dismissed as both inaccurate and likely to cause more harm than good.

The speakers from Hollywood included not just Huntsberry from Paramount, but also Dan Glickman, CEO of the MPAA,  along with representatives from the Director’s Guild, the Copyright Alliance and the Writer’s Guild (Gigi Sohn from Public Knowledge presented a more civil liberties-oriented perspective).  Not surprisingly, the Hollywood consensus was that any future government involvement in broadband policy must address what Glickman termed “the tidal wave of piracy” online.  The Hollywood speakers however went beyond the mere fact of copyright violations to emphasize how the problem is actually growing worse.  The emphasis of what Huntsberry in particular demonstrated was what he called the shift from “Geek to Sleek” in video piracy, or how technological and business developments online have made it markedly easier to both distribute and receive unauthorized content.  As he put it, “What we’ve seen now that there’s been a huge development shift in piracy — if you go back a few years it was strictly — you know, you have to be computer-literate as a user. Today, anyone can pirate a movie.” (emphasis mine)  According to Huntsberry and Glickman there has been a crucial move away from downloading to the streaming oftpirated movies, a fundamental change in their view.  No more confusing software to install, no more waiting for lengthy downloads to complete.  In Hollywood’s nightmare, it is no longer only tech-savvy geeks sealing content, but potentially everybody with a computer, a fast Internet connection, and a desire to see the latest blockbuster film for free.   New gadgets can even get that illegitimate content off the computer and into the living room.

Even more disturbing to Glickman and Huntsberry are the multitude of ways legitimate companies are seemingly supporting the pirate infrastructure, making it easier for users to participate by lending a kind of legitimacy to the outlaw operations.  Pirate websites often make money from advertising, including from respectable companies, or can employ Paypal to generate revenue from their “customers.”  Internet connected devices from Apple and Sony, innovative software from Boxee and Yahoo, even seemingly innocuous services like Facebook and Drop.io all contribute to what Glickman called a “lawless environment” with “no rules of the road” or clearly defined distinctions between what is allowed and what is not.

The underlying, though generally un-stated, argument that Huntsberry, Glickman and the other media lobbyists put forth was that the neither the FCC nor any other government agencies should prevent ISP’s from taking on a monitoring role to prevent the trafficking of pirated content through their pipes.  In fact, what the copyright owners would love to see are laws that mandated ISP’s become copyright enforcers with the ability kick offenders off the Internet entirely, as has been promoted in a handful of countries recently.  Any expansive notion of “network neutrality,” that might actually limit the ability of ISP’s or other proposed monitors from examining or manipulating Internet traffic is anathema to organizations like the MPAA and is a constant target of their lobbying efforts.  Huntsberry’s presentation, that also included a giant banner depicting the massive flow of unauthorized copies of the most recent Star Trek film, was purely to alarm government regulators of the apocalyptic scale of the piracy problem and overwhelm any lingering reservations about possible negative effects of monitoring.

Yet neither Huntsberry, nor Glickman, or any of the other speakers, were able to present any hard evidence that piracy has in fact grown recently, or has indeed shifted to a new more dangerous form, or even that it fundamentally threatens their current business models in a profound way.  We’ll examine the veracity of their claims next week in part 2.

Being many, many timezones away from Stockholm (and having been woefully behind in blogging in general) makes anything I have to say about the guilty verdict for the Piratebay admins rather old news, but I will just reiterate my previous prediction that nothing substantive will change in the P2P or filesharing world.  Most likely appeals will prevent any change from affecting Piratebay itself for quite some time, but even if that proves mistaken, there is roughly zero chance that if the Piratebay disappears it would reduce the amount of Bittorrent traffic worldwide, much less decrease the amount of copyright infringement that occurs on the Internet.  Just as with previous rightsholder victories (Napster, Suprnova, Isotorrent, etc.) there will likely be evolution in the way people share files, making whatever the next mainstream avenue of piracy (usenet, directdownload, etc.) that much harder for enforcement to have any real impact.

For some other interesting analyses of the verdict, go here and here.

Janko at P2P-Blog has already pointed out that the NYTimes mistakenly placed TorrentFreak in Germany, not the correct Netherlands (hi Ernesto!) but applauds Stelter and Stone for high-lighting the MPAA’s admission that lawsuits are not going to be a long term answer.  And the reader comments to the article very rightly point out that the figures cited by the studios are utterly meaningless, and that TV and films should probably be analyzed separately because of the very different geographic and financial models of their distribution.  The Economist instead looks beyond piracy for the most part, but does lump it into its criticism of Y0uTube as a visually confusing and unsavory place for professional content (read ad dollars) because of all the user-generated content.

A few points occur to me in reading both these articles back-to-back.  First, the MPAA, I believe, quite deliberately elides any notion of quality in their statements about pirated content.  Yes, as the article says, The Dark Knight was available for download within a few hours of its release to theaters this summer.  However, as previously shown here, the only copies that existed for the first seven weeks of the film’s release were extremely low quality camcorder recordings (a decent copy didn’t show up on P2P networks until September 9, HD not before November 21st).  And considering that The Dark Knight is now the 2nd highest grossing film of all time, those cam copies did little to nothing to impact the film’s financial success, at least at the domestic box office.  Piracy likely does impact DVD sales and box office outside of the US, but certainly not in the widely exaggerated claims of the MPAA that considers every single download to be a loss of a sale.

As The Economist rightly points out, streaming is an entirely different beast from download, and combined with a genuinely interesting catalogue of content, Hulu has attracted a sizable audience and in a form that advertisers are relatively comfortable supporting.  The other YouTube competitors, including Veoh, Joost, Revver, Metacafe, and Stage6 all followed what they saw as the YouTube model, i.e., grow an audience through liberal upload policies for user generated content and then use that audience to attract premium content and advertising revenue.  As even the leviathan YouTube has shown, advertisers are just not interested in UGC, so it was going to take something far more managed like Hulu to achieve any kind of critical mass.  As a veteran of the Stage6 experience, I can personally attest to the difficulty in  allowing uploaded content while keeping a site free of porn and illegitimate content, not to mention while burdened by the bizarre strictures of the DMCA ruling.  Sadly, Stage6 ultimately had to close down precisely because it could not find an acceptable balance between attracting eyeballs and paying for the bandwidth those eyeballs were using, not to mention the ever present threat (and eventual reality) of lawsuits.

Of course Hulu has its problems too, particularly around the geographic limitations that rights-holders force it to respect.  And it’s not really sure that the current model for Hulu is self-sustaining, depending as it does on rather fluid advertising dollars and the continued cooperation of the participating networks, something that is far from assured as the re-launch of cbs.com may demonstrate.

Based on my experience, I believe the key dynamic that brings the two stories together to give us a deeper understanding of what is “working” on line is the geographic element.  Wide-scale video sharing took off in the wake of DVD and broadband, but it took off far more strongly in Europe than it did in North America (just look at the market penetration of DivX enabled DVD players to track that phenomenon).  The key driver was the desire to see movies and tv shows that had high consumer awareness but no distribution, that is, high profile, highly marketed films or shows that had been released in the US but were delayed in Europe, so the only avenues available were illegitimate channels.  As communications and marketing become more global, instantaneous, and community driven, they rapidly move beyond any effective notion of geographic boundaries, especially among tech-savvy online participants.  If Hulu can be said to work, it is only in the US context, just as the BBC iPlayer does in the UK, but neither really work outside of it, and in fact likely drive viewers to precisely the kinds of illegal distribution channels mentioned in the NYTimes piece.  Until the geographic restriction/opening window issues get resolved, it will be hard to say that online video “works” as well as it should, or as well as users demand.  And piracy will continue to provide an experience that meets those demands, regardless of the wishes of the content creators.

According to the rules of Internet memes, I will quote from Star Wars to describe the likely result of this, “The more you tighten you grip Tarken, the more star systems will slip through your fingers.”  In other words, the people who create, develop and maintain file-sharing networks and P2P technology are not going to hear this news, shrug their shoulders and give up.  They will innovate around it, and come up with something that is even harder for the MPAA, the RIAA, BREIN, etc. to combat.  An easy solution would simply be to encrypt the traffic. All the major Usenet providers already offer an encrypted solution and I’m sure something could be figured out for large-scale Bittorrent and direct download sites.

Of course a better solution would be to just have the ISP’s themselves stand up for themselves and their customers and rightly point out that this idea is ridiculous.  Or to have Congress do the same.  But I’m not counting on that, and nor will the P2P community I suspect.