Louis CK’s recent experiment in digital distribution without DRM got quite a bit of attention, and for good reason. In the midst of the debate over SOPA, which represents the efforts of big media companies to solve the piracy problem through economically and socially irresponsible regulation, Louis CK did the opposite of the conventional wisdom: he self-distributed, and did so with “No DRM, no regional restrictions, no crap. You can download this file, play it as much as you like, burn it to a DVD, whatever.” His only anti-piracy measure was a simple note, from him personally, asking people not to torrent it.
The results are in, and at least initially, it appears to be a huge success: as of December 13th, the special had recorded over $500,000 in sales in only 4 days. To be fair, a large portion of its success is due to the publicity of a DRM-free release (by my estimation, it stayed at the number 1 position on Hacker News for 2 days, and in the top 10 for 3 or so). But people have voted with their wallets that current media distribution is broken. Juxtaposed with the SOPA debate, it provides an excellent opportunity to examine the state of media piracy today, and where we’re heading, or at least where we should be heading.
Why does media piracy exist? The RIAA and MPAA seem to be working under the theory that piracy exists because people are basically bad, and when given the chance, will steal something rather than pay for it. The logical result of this thinking, and the one which they are pursuing, is that we need a sophisticated regulation system and online police presence to make people pay for music, movies, and other media. Their belief in this theory is strengthened by the fact that they benefit from having oligopoly-style pricing power over the distribution of media.
Others on the interwebs claim that piracy exists because existing distribution and pricing schemes are broken. They point to the success of iTunes, Spotify, and even the Humble Indie Bundle as evidence that people aren’t looking to steal, they just want to have control over their media, and they want distribution which reflects modern technology and media consumption.
The truth is probably somewhere between the two: of those that pirate media, there are a portion of them that want content for free and others that are looking for DRM-free content and better distribution. In that sense, the existence of piracy is proof of one thing: unmet demand. When unmet demand exists, suppliers pop up to fill it. (See: Napster, KaZaA, Grooveshark, The Pirate Bay, among others).
The MPAA and RIAA are approaching this unmet demand by trying to increase the (non-dollar) costs of piracy, thereby converting non-paying consumers of content into paying ones. That strategy has shown itself to be riddled with flaws, but I won’t beat a dead horse here.
The other way to approach this unmet demand is to provide legitimate products that meet the requirements of the pirating population. Louis CK’s special attempts to do this: no DRM, no regional restrictions, fast servers from which to download, and a low price. He is providing a product which people all over the world can buy, at a price most can afford, and of a quality that is unmatched anywhere else. He is meeting most of the demands of his audience, and is seeing massive sales (I’m implying causation here, but I recognize that I’ve only observed correlation).
But people will still torrent his special. It was seeded on The Pirate Bay shortly after it was released, despite his personal plea to the contrary. This means that there is still demand for his special that was unmet by his method of distribution. There are a few possible causes, including faster download times when torrenting, a desire to “try before you buy”, no access to a credit card, children under the age restriction, and those that can’t afford it, or otherwise refuse to pay for media.
What can be done to meet this demand?
Develop a paid distribution channel for torrenting. This might already exist, but if it does, it isn’t very popular. I’m imagining a tracker that logs whether or not a particular user has purchased the content before allowing that user to download it. While this would make it easier for others to upload on a free public tracker, past history has shown that DRM hasn’t been much of an impediment either.
Accept alternative forms of payment. Dwolla is putting together an impressive non-credit card payment network. While it may be uneconomical to accept it given the low volume of transactions likely to take place using Dwolla, it would capture some portion of the torrenting market.
Provide an ad-supported version of the content. Ads could be delivered in multiple ways: prior to the download, or in the content itself (although this would take some creative ad placement to keep the content in video format). Like the difference between paid and free content in the app store, the ads in free versions aren’t there to match the price of the paid version, they provide a way to extract some value from users who are unwilling to pay for content. The risk here is in cannibalizing your own paid, low cost sales. This is a study in price discrimination, and maybe the answer to losing sales at the low-end is providing an additional “super-premium” verison of the content or a choose-your-own-pricing format to extract more value from the high-end of the market.
As for kiddies that want to watch Louis’ comedy routines, I think we’ll all be ok if we don’t provide them a legitimate way to watch.
This is a real opportunity (read: free idea) for some enterprising entrepreneur: a content distribution service that takes care of everything. The content producer provides a copy of the video, and the company would collect payment (via multiple methods) for videos that would be delivered via torrent, download, or streaming. The company would slap ads all over it for the free version. All without any BS like registration or installing proprietary software. Louis CK’s special has shown that demand exists for this, both from the consumers and (some) content producers. You already have a validated concept, and I think you know who to call for your first customer.
Media piracy is all economics: rational consumers are trying to maximize their utility. If we provide legitimate ways that increase their utility as compared to illegal methods, legitimate means will win. Otherwise, we’ll face continued attempts from media companies to protect the outsized profits they extract from broken distribution channels.