Yesterday the FBI shut down website megaupload, a storage website which was known for facilitating copyright infringement, but which was also used by thousands of users as a legit way to store files (those files are gone, and if you didn’t have a backup, you’ll probably never see them again).
Yesterday I read the indictment (the document that states what the prosecutors believe Megaupload to be guilty off), and one thing has been bothering me since: The Entertainment industry have in their hands, for the first time, a global-scale case study showing how much people are ready to pay (either through subscription or advertising) for digital content in today’s world, but in their arrogance will probably not draw any useful conclusion out of it. Since Megaupload was not paying any copyright owner, they were able to set the prices of their premium accounts, and/or the level of annoyance caused by advertising to match exactly what people are ready to pay for.
In other words, they have proven, especially with their premium account system, that people are ready to pay something for digital content. The problem, and this is why I think shutting down Megaupload will not stop piracy, is that what customers are ready to pay (as a result of this global-scale 5 years experiment) is way below what the entertainment industry expects them to pay.
This is described in the very first page of the indictment, by the prosecutors themselves:
estimated harm to copyright holders well in excess of $500,000,000
reported income in excess of $175,000,000
So we have, on one hand, the money that the industry would have expected to make from the sale of these goods (“well in excess of” 500 millions), and what a real world experience on a website visited by millions of real users actually provided (175 millions). Now, the harm being higher than the actually money made would not be a surprise in the case of counterfeit for physical goods (A fake Louis Vuitton is usually of lower actual quality than a real one, therefore costs less in the eyes of the buyer), but in the case of digital goods, this should actually be the opposite (a pirated movie has a higher value from the end user’s point of view since it has not limitations on when/where/how many times it can be played). Note that I’m talking of the actual “market value” (what people are ready to pay for something), and not the actual production costs (a product that costs more to produce than what people are ready to pay for it cannot exist for long in a capitalist world)
To summarize, what I’m saying is that if people are ready to pay 175 millions for a service providing movies without any restrictions, they will be willing to pay potentially less for a lower quality system with DRMs (which is currently the only alternative offered by the Entertainment Industry for movies). Yet the indictment says that the prejudice is “way over” 500 millions.
What is the consequence of this? Let’s make it super simple and assume Megaupload provided 100 million illegal downloads over the course of 5 years. This means people are willing to pay 1.75$ per file (let’s say those are movies). What the Entertainment industry would actually expect them to pay for a lower quality service (with DRMs and many limitations) is 5$, almost 3 times the price. (I’ve actually read hallucinating numbers such as 4 Billion for the “harm” made to copyright owners, which would mean the Entertainment industry expects the end user to pay more than 20 times the amount people are actually willing to pay for a movie)
What this shows me is that the Movie Industry is entirely disconnected from the actual market value of the products they sell. Don’t get me wrong, some people are ready to pay this amount for DRMed movies and such, but these people are not the people who were using Megaupload. The millions of daily users of Megaupload will not suddenly be ready to pay 3 times the previous price all of a sudden, so they will not magically migrate to legal offers, this is perfectly unrealistic.
Think about it, imagine your baker shuts down, and the other baker in your street is 3 times the price for crappy bread…. what will you do? Personally, I’ll start buying my bread from the baker close to the office rather than the crappy one close to my home…or I’ll eat way less bread… or bake my own bread, or stop eating bread… in other words, I’d find solutions to maintain the stability of my budget. The result is not that people will go more to the crippled existing legal solutions, they will instead watch way less stuff.
The solution is obviously to rethink the way movies are distributed. Music has gone a long way, with mp3s being sold without DRMs nowadays, or sevices like Deezer… it’s time Movies do the same. Where are DRM free legal offers? Where are TV shows less than 2 years old on legal offers? Why do Europeans and Asians have to wait up to 5 years before their favorite American show gets legally accessible in their country, most of the time with a terrible dubbed version?
The current Legal offer could be majorly improved with a few simple steps. Fighting efficiently against piracy is not done by shutting down one of the hundreds of sites that promote it, or by voting laws like SOPA or PIPA, which will do much more damage to legal businesses than they will do to stealers. It’s done by providing something better for a competitive price (I haven’t downloaded illegaly a single South Park episode since they started distributing on their site the episodes officially the day they are shown. Also note that the South Park website is the only way for me to legally watch South Park were I live if I do not want to wait approximately 5 years).
The problem, especially if the numbers of 4 Billion VS 175 million are real, is that no company in the entertainment industry of the US would be willing to put the necessary resources in building a digital content platform if they were told it would bring them “only” 175 million over 5 years. (which is ironic, because when Megaupload makes that amount of money, it’s considered as insanely high in the prosecutors’ eyes).
Note: I don’t endorse the copyright infringement that was promoted on Megaupload, it is hard to say anything to defend them here, but my point is that the long term consequence of this action will not be a decrease of piracy. The only victims of this are the hundreds of thousands of users who were legally using the service, as well as the (already damaged) relations between artists and their audience. Pirates will find their way, they always have and they always will. Piracy has not decreased after the napster case, it has not decreased after the DMCA law, it will not decrease after the megaupload case or the sopa/pipa.