UK: Pirates - digital theft in the film industry

One of the biggest challenges is the question of who is doing the piracy. With hard copy piracy, tough action is appropriate as it involves organised crime. Those downloading films off the internet, if the music industry is anything to go by, are the general public. "With digital theft, you are dealing with people who are likely to be your customers, and could well be your family and friends," says Mark Endemano.

A recent survey by MP3.com (owned by Vivendi Universal) revealed that there are nearly as many over 45s downloading illegal music as under 18s. The film industry can expect a similarly diverse group to be participating in downloading films illegally.

This, then, is a very different threat that is more about winning hearts and minds than suing the pants off everyone. Downloading pirated content is clearly seen as more acceptable than buying dodgy videos at car boot sales. The question is why?

An alarming rise in digital theft of recorded music has been accompanied by a sharp drop in online (legal) sales of music. People don’t seem to view digital theft as wrong.

Recent evidence demonstrates a clear correlation between an alarming decrease in legitimate music online sales with an increase in peer-to-peer file-sharing. In other words, why pay if you can still get it for free? In the graph ‘Legal online music sales vs illegal file-sharing’, the green line charts the decline of online music sales, while the yellow line illustrates the rising number of people using file-sharing applications, i.e. peer-to-peer technology. This is a trend that doesn’t bode well for the film industry.

So why do some people seem to draw the line at purchasing knock-off DVDs or videos, but feel digital theft is OK?

Theories abound. "99.9% of digital thieves are good law-abiding citizens. They just don’t believe that what they are doing is wrong - and certainly wouldn’t call it theft," says Mark Endemano. "Attitudes among the older age groups seem to be that if it is so easy and everybody is doing it, it can’t be illegal." Another contributor is the nature of the internet. Since the advent of the internet, people expected online content to be available for free – and it was. However, we do not believe this is sustainable in the longrun and media companies have begun to charge for online content, e.g. FT.com.

The rise of convenient and legal sites for downloading online music, such as Apple’s iTunes, may also change people’s opinions. Apple has trumpeted its success, with 3 million songs downloaded in the first month (May 2003). This launch may change the way consumers obtain online music in the future, though not if they switch to filesharing once they become comfortable online (see graph, ‘Legal online music sales vs illegal file-sharing’).

There are also pricing issues. If people feel they are being ripped off, they are more willing to ‘get their own back’. The entertainment industry is widely perceived to be rolling in cash – with film stars getting paid upwards of $10m, glitzy events, etc.

The public knows that DVDs only cost a few dollars, and feel that downloading a film illegally is a petty loss compared to the cash the studios freely splash elsewhere.

In the US, there have been attempts to link piracy to the black market, drugs and terrorism in an attempt to gain the sympathy of the general public and to push it further up the political agenda.

The US film industry, through the MPAA, has conducted an advertising campaign to raise awareness of soft copy piracy and to educate people about issues such as job losses. It is too early to say whether this has proved effective, but it is clearly a step in the right direction, and more will certainly need to be done in this area. The industry has also been lobbying the US Congress. Representatives of the MPAA and the RIAA have been lobbying the US Congress to pass stronger copyright laws. The film industry is keen to do everything in its power to prevent what has occurred in the music industry (Napster-style file-sharing) happening to them.

Whilst these are all positive steps in the right direction, they do not offer a long-term answer or solution, but merely address the current symptoms of piracy.

We believe the industry must continue to fight the piracy war on several fronts. It should continue to lobby government and initiate legal action where appropriate. It should also make some significant changes to its current strategy to address the underlying long-term problem of digital piracy.

One of the attractions of pirated content is its price, which is significantly less than legitimate copies. In China, eight pirated DVDs can be purchased for the price of one legitimate DVD. In the UK, DVDs are available on the black market for $12-14. With a broadband connection, digital theft is free, or just the cost of a writeable CD.

One solution championed by a film distributor (representing Paramount, Universal and Dreamworks) in Egypt, where piracy is rampant, was to change their pricing strategy. The distributor reduced DVDs to $4.40 to compete with piracy prices of only $1.50. It remains to be seen whether similar pricing strategies would be sustainable in mass consumer markets.

Greater security is also needed to protect master copies of films before they are released. Simple controls like master logs can be very effective – what’s needed is a cultural adjustment so that employees see this extra administration as important to the company, not just unnecessary layers of bureaucracy.

Regarding distribution, current practice is to release films in sequences known as ‘distribution windows’, to maximise revenues from all possible media. Historically, films are released in cinemas, home video/DVD and finally on pay TV and terrestrial TV.

One of the problems associated with the current distribution windows is that consumers want access to films on home video/DVD when they are only available in the cinema. Pirates are able to cater for this demand and, as a result, some individuals will buy pirated DVDs although this is clearly not the only driver.

The distribution windows have been increasingly compressed over time e.g. international video/DVD release is now moving to four months after theatrical release. Further compression would allow consumers to buy legitimate copies sooner and could go some way to addressing this issue. In addition, there is significant cash flow benefit for the studios to access video/DVD revenues more quickly and shorter windows should lead to lower total marketing costs.

To combat digital theft, film companies should also continue to explore alternative distribution strategies such as creating online sites like iTunes or www.CinemaNow.com. This site is backed by 100 licensees including MGM Home Entertainment, Twentieth Century Fox Film and Warner Brothers and supplied with around 3,000 titles. The site offers feature and short films that can be digitally streamed. Each film is marked ‘pay-perview’ ($3 for one viewing) or ‘premium’, where members pay a monthly fee of around $9 for unlimited access to any such film. More of this type of thinking needs to happen.

There has to be a shift to further careful collaboration between the large studios so as not to run a foul of anti-trust structures. No one studio can address the issue on its own. The film industry, as with many others, has historically been notorious for oneupmanship. To address the piracy problem, this needs to change – an equal partnership is required. Film companies need to invest in a common approach in order to develop a long-term resolution. Film companies also need to collaborate more effectively with technology companies. The lack of secure standards for distributing digital content has the potential to hold back the development of the industry and will not help in the fight against piracy. The recent launch of iTunes is a good example of where collaboration between the music industry and an IT company can be successful. Ongoing work to advance encryption technology is also needed. Lastly, ongoing collaboration with governments is necessary. Intellectual property rights must be enshrined in law and the police and courts given clear guidance on what is required to convict pirates. International treaties and enthusiastic enforcement of these will be required to reduce the number of safe havens for pirates. No single film company can win this battle on their own. All will have to pull together across all business units within the film groups (Theatrical, Video, TV), between film companies, with governments, technology companies and the digital distribution gatekeepers, the internet Service Providers.

Digital piracy is moving higher up the Boardroom agenda and becoming more central to the strategy of film companies.

Specifically, the industry needs to continue to:

• Push for litigation where appropriate, and to lobby governments for stronger intellectual property rights in digital media. 

• Rethink pricing strategies, release schedules and distribution in light of developments and changing customer attitudes. 

• Improve physical security of master copies. 

• Introduce and support collaboration between studios to take effective action against piracy; between governments and industry bodies to strengthen cooperation. 

• Collaborate with technology companies to create new distribution channels and to improve security. 

• Communicate with consumers to understand the reasons behind piracy and to provide legal alternatives. 

• Campaign to address the mindset that downloading pirated content is OK. 

The industry can avoid falling to the same fate as the music industry, but the clock is ticking

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.