What PiracyData.org Really Says About Copyright: It’s Not Hollywood’s Fault

by on October 29, 2013 · 5 comments

Two weeks ago, with much fanfare, PiracyData.org went live. Created by co-liberators Jerry Brito and Eli Dourado, along with Matt Sherman, the website tracks TorrentFreak’s list of which movies are most pirated each week, and indicates whether and how consumers may legally watch these movies online. The site’s goal, Brito explains, is to “shed light on the relationship between piracy and viewing options.” Tim Lee has more details over on The Switch.

Assuming the site’s data are accurate—which it appears to be, despite some launch hiccups—PiracyData.org offers an interesting snapshot of the market for movies on the Internet. To date, the data suggest that a sizeable percentage of the most-pirated movies cannot be purchased, rented, or streamed from any legitimate Internet source. Given that most major movies are legally available online, why do the few films that aren’t online attract so many pirates? And why hasn’t Hollywood responded to rampant piracy by promptly making hit new releases available online?

Is Hollywood leaving money on the table?

To many commentators, PiracyData.org is yet another nail in Hollywood’s coffin. Mike Masnick, writing on Techdirt, argues that “the data continues to be fairly overwhelming that the ‘piracy problem’ is a problem of Hollywood’s own making.” The solution? Hollywood should focus on “making more content more widely available in more convenient ways and prices” instead of “just point[ing] the blame finger,” Masnick concludes. Echoing this sentiment, CCIA’s Ali Sternburg points out on DisCo that “[o]ne of the best options for customers is online streaming, and yet piracydata.org shows that none of the most pirated films are available to be consumed in that format.”

But the argument that Hollywood could reap greater profits and discourage piracy simply by making its content more available has serious flaws. For one thing, as Ryan Chittum argues in the Columbia Journalism Review, “the movies in the top-10 most-pirated list are relatively recent releases.” Thus, he observes, these movies are “in higher demand—including from thieves—than back-catalog films.” If PiracyData.org tracked release dates, each film’s recency of release might well turn out to be more closely correlated with piracy than availability of legitimate viewing options.

In fairness to Masnick and Sternburg, Hollywood probably could make a dent in piracy if it put every new movie on iTunes, Vudu, Google Play, Amazon, and Netflix the day of release. Were these lawful options available from the get-go, they’d likely attract some people who would otherwise pirate a hit new film by grabbing a torrent on The Pirate Bay. Those who pirate movies may be law-breaking misers, but they still weigh tradeoffs and respond to incentives like any other consumer. Concepts like legality may not matter to pirates, but they still care about price, quality, and convenience. This is why you won’t see a video that’s freely available in high-definition on YouTube break a Bittorrent record anytime soon.

But even if Hollywood could better compete with piracy by vastly expanding online options for viewing new release films, this might not be a sound money-making strategy. Each major film studio is owned by a publicly-held corporation that operates for the benefit of its shareholders. In other words, the studios are in the business of earning profits, not maximizing their audiences. For every two people who stream a movie on Netflix instead of pirating it, another person may watch the same Netflix stream in lieu of renting the movie for $2.99 on Google Play, resulting in a net loss for the copyright holder. Deciding how to distribute an information good such as a hit new movie—and how much to charge for it—poses an extremely complex business challenge, especially in an ever-changing economic and technological environment, as Carl Shapiro and Hal Varian explain in their classic 1998 book, Information Rules: A Strategic Guide to the Network Economy.

Why are release windows still around?

Instead of giving Hollywood the benefit of the doubt by assuming the studios are acting rationally, let’s consider whether the industry has a plausible case for releasing movies online only after they’ve been in theaters for months. By way of background, in case you’ve lived under a rock for the past half-century, major studio movie releases typically don’t appear online or in video stores until 90 to 120 days after theatrical release, depending on the movie and distribution avenue. Preserving the box office exclusivity of newly released films encourages moviegoers to head to their local theater—where ticket prices hover around $8—instead of renting the movie on Blu-ray or online at a lower price.

This strategy, a form of price discrimination known as “versioning,” aims to expand the market for movies by appealing to a broader array of consumers. When executed properly, versioning increases studio profits, and probably makes society better off as well. Consider the book market: publishers often release a book in hardcover format at first, then a year later, in paperback at a much lower price. Were both versions released simultaneously, fewer hardcovers would sell, so the publisher would likely charge more for paperbacks. In the end, fewer consumers could afford to purchase and enjoy certain books.

Of course, staggering release dates isn’t the only way studios distinguish different versions of the same movie. In fact, the release window has a serious downside: it doesn’t accommodate people who, for various reasons, can’t easily get to a movie theater. For instance, nearly 11 million disabled Americans receive Social Security Disability Insurance benefits. Around 60 million reside in rural areas, some hundreds of miles from the nearest city. And 14 million U.S. households include one or more children under 6 years of age. For many of these people, traveling to a movie theater may be extremely difficult or costly. Simply getting out of the house for a couple hours may be burdensome, especially for parents with young kids at home. Or, like Mike Masnick, maybe you just hate the experience that movie theaters typically offer.

Fortunately, enjoying a film need not entail trekking to a movie theater. Thanks to television and broadband Internet, watching a movie at home is often as easy as pressing a few buttons on a remote control. This is great news for movie lovers who are disabled, have young kids at home, or live in remote areas. If you want to catch a brand new movie from the comfort of your own couch, however, you’re probably out of luck.

From Hollywood’s perspective, this presents a problem. If a family of four is willing to pay $30 to watch a brand new movie, whether they watch it at home or in a theater is inconsequential. Instead, Hollywood wants to capture as many high-value consumers as possible. The release window is merely an imperfect proxy for consumers’ marginal willingness to pay for movies. It also enables more flexible pricing—one ticket for every person—which is infeasible for digital rentals and purchases. But there’s nothing sacred about the release window. Back in the 1980s, “[t]he video window opened six months after the theatrical release and four months before the pay-per-view window,” according to Edward Jay Epstein, author of The Hollywood Economist. Later, as DVD sales began to rival and sometimes exceed box office receipts, the major studios gradually shortened their release windows, which are now often as short as three months.

Even the 90 day release window is showing signs of obsolescence. Recently, Hollywood has experimented on several occasions with letting consumers watch movies at home just weeks after their theatrical release, as I explained on these pages in 2008. In late 2011, for instance, Universal Studios sought to make Tower Heist available on-demand to 500,000 Comcast subscribers just 21 days after the film’s release. Despite the planned $60 rental fee, however, Universal called off the trial just weeks before Tower Heist‘s release after Cinemark, a major movie theater chain, threatened to boycott the film. If you’re still balking at the price tag—yes, a $60 rental is too expensive for all but the most profligate movie buffs—rest assured Hollywood isn’t giving up. As a recent article in The Convergence explains:

Two years ago, a number of major studios tested early release models based on varying windows. Disney rolled out an animated film, “Tangled,” in Portugal just a month and a half after its initial release. In the U.S., DirecTV served up several movies with a 60-day window for $30 a pop from Sony, Warner Bros., Universal Pictures and 20th Century Fox.

A few months ago, The Wall Street Journal reported that Sony offered Django Unchained in South Korea for online and cable rental three weeks after its April 2013 premier in Korean theaters. And Disney offered two of its animated films, Wreck-it Ralph and Brave, for online rental in South Korea just a few weeks after their releases in 2012. Also this summer, in a more modest trial, Canadian theater company Cineplex joined with Warner Bros. to sell ticket purchasers a digital copy of Pacific Rim for an extra $19.99 to $24.99 atop the ticket price.

Will these experiments become the new norm over the next few years? Quite possibly. Although the theater owners who distribute Hollywood films will surely fight tooth and nail to preserve the release window, whether the theaters prevail depends on consumers themselves. If enough consumers are willing to pay for the privilege of watching new release movies on-demand or online, the studios won’t hesitate to meet this demand—theater owners be damned. But if the studios offer hit new films online at too low a price, some people who would otherwise be willing to spend $8 to see a movie in theaters will instead view it online for much less. This tradeoff, perhaps more than any other factor, explains the release window’s persistence.

If spending $20 or $30 on a digital rental of a new movie sounds unappealing, you’re not alone. Lots of people watch movies using free or inexpensive services such as broadcast television, Netflix, or Amazon Instant Video. There’s nothing wrong with that. But calling on Hollywood to offer popular new films on inexpensive streaming services is asking the studios to take a major pay cut for no good reason. Even if every last U.S. household signed up for Netflix, at $7.99 per month, the company would only bring in $11b annually. That’s a lot of cash, but consider that in 2012, the big six film studios generated $21.8b in revenues, according to Variety.

The upshot is that while cutting prices can be a great business strategy, especially in information markets where the marginal cost is near-zero, there’s little evidence that Hollywood is systematically over-pricing its movies. Some niche markets may be underserved—I for one wish VUDU’s HDX rentals offered 5.1 audio to PC users, in addition to Xbox 360 and PS3 owners—but all in all, Hollywood has made a ton of progress in the past few years when it comes to offering movies on all sorts of devices at a variety of price points.

Do release windows help combat piracy?

Above, I discussed how shorter release windows can help curb piracy, even if the net result is consumers spending less on movies. But giving consumers more movie options is a double-edged sword. Perhaps the big studios fear that if they begin releasing films online and in theaters simultaneously, the piracy problem may get worse, not better.

Are such concerns legitimate, or are Hollywood bigwigs making a mountain out of a molehill?

To answer this question, a visit to The Pirate Bay is in order. No, I won’t advise you to download a copyrighted movie. Rather, I’ll compare the search results for the last two movies I saw in theaters, both of which made the latest most-pirated list on PiracyData.org. First up is Pacific Rim, currently listed as the fourth most-pirated movie of the week. Released on July 12, 2013, Pacific Rim is available for digital rental and digital purchase, along with Blu-ray and DVD. The other film is Elysium, the sixth most-pirated movie of the week. Released on August 9, 2013, Elysium isn’t available from any authorized online outlets or on disc.

Searching The Pirate Bay for these two films reveals strikingly different results. See for yourself. Here are the top results for Pacific Rim, sorted by number of leeches:

pacificrimAnd here are the top results for Elysium:

elysiumSee the difference? Several Blu-ray rips of Pacific Rim are available, including several 1080p files and even a 12.9 GB 3D file (good luck getting it to play!). Note also that all of the top Pacific Rim torrents were uploaded during the past few weeks, even though the film came out back in July.

Elysium, on the other hand, is only available as an “HDRip,” “CAM,” “Screener,” “Webrip,” or “Telesync.” According to comments on The Pirate Bay, these files—many of which were uploaded in September or earlier—offer poor quality audio and video, while some files include “hardcoded subs” in a foreign language.

Why the discrepancy between Pacific Rim and Elysium? Because the former is available online and on disc, while the latter has yet to be released in either format. Acquiring a digital copy of a movie, it turns out, is much more cumbersome if the film is still only in theaters. For brand new movies, pirates typically distribute so-called “cams”—whereby a person simply records a movie in a theater with a handheld or tripod-mounted video camera—or “telesyncs,” which are similar to cams but include a direct connection to the sound source. Also sometimes uploaded are “screeners,” a pre-release DVD of a film usually sent to critics and award voters.

But when a hit new movie is released online and on Blu-ray, pristine digital copies of the film soon begin appearing on The Pirate Bay and similar outlets. Despite studios’ ongoing efforts to protect access to their works using digital rights management (DRM), nearly every major movie format has been cracked in short order. Blu-ray’s BD+ DRM, for instance, was cracked not long after its 2007 release by the Antiguan company SlySoft. To this day, newly released Hollywood films invariably end up online almost immediately after their release window ends—if not a few days sooner. Videophiles can even download untouched 30GB MPEG-2 Transport Stream files that are bit-for-bit identical to the Blu-ray version of the film.

If we assume pirates are more or less rational, it follows that they care about video and audio quality, much like their law-abiding counterparts. The easier it is for pirates to acquire a high-quality digital file of a new movie using Bittorrent, therefore, the less likely pirates are to bite the bullet and buy a ticket at the box office for a much awaited film. Although some pirates may be unwilling to pay to see a movie in a theater at any price, other pirates are surely more flexible when it comes to deciding how to enjoy a new movie. For consumers of the latter type, waiting three or four months to enjoy a new movie in a high-quality format may be unbearable for certain films.

So long as new DRM technologies are cracked soon after their release, many copyright owners will think twice before making high-value content available in a digital format. Unfortunately for law-abiding consumers, this understandable aversion to digital distribution results in fewer lawful venues for enjoying content online. Despite Congress’s efforts to bar the circumvention of technological measures that protect copyrighted works, DRM remains fallible—and the release window persists.

Don’t blame the victim-blamer

Some critics have accused PiracyData.org’s creators of “blaming the victim.” For instance, Larry Spiwak of the Phoenix Center writes that the site’s “mentality is nothing new to the digital piracy debate and it entirely misses the point: intellectual property is property” (his emphasis). Jeff Eisenach makes a similar point over on AEI’s TechPolicyDaily.com.

One need not loathe copyrights, however, to care about how lawful markets for expressive works affect unlawful markets for such works. I’m strongly against assault and robbery—and support the criminalization of both acts—but I still care to know how to avoid being mugged or gunned down. If a journalist pens an article about neighborhoods to shun late at night if you’re alone and unarmed, it doesn’t mean she is pro-robbery or pro-violence. The law isn’t our only fount of protection from would-be aggressors. If we pretend otherwise by ignoring self-help options—or, worse, by trying to craft a government that can safeguard us against all ills—we’re kidding ourselves and screwing our posterity.

To be sure, I think copyright infringement is a problem. Brito agrees with me. And, as I’ve argued here, here, here, and here, federal law probably should do more to address piracy. But this proposition is not self-evident, however much its advocates wish it were so. Indeed, if Hollywood could double its profits while cutting piracy in half by revising its business model over the coming year, that’s a extremely good reason for Congress to hold off on anti-piracy legislation. If, however, Hollywood is doing its damnedest to curb infringement while preserving economic returns that are commensurate to the risks entailed in movie production, then it’s up to lawmakers to determine whether and how to better secure copyrights in a manner that serves human flourishing. Insofar as PiracyData.org can help inform this debate, may a thousand similar websites bloom.

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