Piracy
Look for the silver lining
Jul 17th 2008
From The Economist print edition
Piracy is a bad thing. But sometimes companies can turn it to their advantage
“MERCHANT and pirate were for a long period one and the same person,” wrote Friedrich Nietzsche. “Even today mercantile morality is really nothing but a refinement of piratical morality.” Companies, of course, would strongly disagree with this suggestion. Piracy is generally bad for business. It can undermine sales of legitimate products, deprive a company of its valuable intellectual property and tarnish its brand. Commercial piracy may not be as horrific as the seaborne version off the Horn of Africa (see article). But stealing other people’s R&D, artistic endeavour or even journalism is still theft.
That principle is worth defending. Yet companies have to deal with the real world—and, despite the best efforts of recorded-music companies, luxury-goods firms and software-industry associations, piracy has proved very hard to stop. Given that a certain amount of stealing is going to happen anyway, some companies are turning it to their advantage.
For example, around 20 times as many music tracks are exchanged over the internet on “peer to peer” file-sharing networks as are legitimately sold online or in shops. Statistics about the traffic on file-sharing networks can be useful. They can reveal, for example, the countries where a new singer is most popular, even before his album has been released there. Having initially been reluctant to be seen exploiting this information, record companies are now making use of it (see article). This month BigChampagne, the main music-data analyser, is extending its monitoring service to pirated video, too. Knowing which TV programmes are being most widely passed around online can help broadcasters when negotiating with advertisers or planning schedules.
In other industries, piracy can help to open up new markets. Take software, for instance. Microsoft’s Windows operating system is used on 90% of PCs in China, but most copies are pirated. Officially, the software giant has taken a firm line against piracy. But unofficially, it admits that tolerating piracy of its products has given it huge market share and will boost revenues in the long term, because users stick with Microsoft’s products when they go legit. Clamping down too hard on pirates may also encourage people to switch to free, open-source alternatives. “It’s easier for our software to compete with Linux when there’s piracy than when there’s not,” Microsoft’s chairman, Bill Gates, told Fortune magazine last year.
Another example, from agriculture, shows how piracy can literally seed a new market. Farmers in Brazil wanted to use genetically modified (GM) soyabean seeds that had been engineered by Monsanto to be herbicide-tolerant. The government, under pressure from green groups opposed to GM technology, held back. Unable to obtain the GM seeds legitimately, the farmers turned to pirated versions, many of them “Maradona” seeds brought in from Argentina. Eventually the pirated seeds accounted for over a third of Brazil’s soyabean plantings, and in 2005 the government relented and granted approval for the use of GM seeds. Monsanto could then start selling its seeds legitimately in Brazil.
Innovators ahoy
Piracy can also be a source of innovation, if someone takes a product and then modifies it in a popular way. In music unofficial remixes can boost sales of the original work. And in a recent book, “The Pirate’s Dilemma”, Matt Mason gives the example of Nigo, a Japanese designer who took Air Force 1 trainers made by Nike, removed the famous “swoosh” logo, applied his own designs and then sold the resulting shoes in limited editions at $300 a pair under his own label, A Bathing Ape. Instead of suing Nigo, Nike realised that he had spotted a gap in the market. It took a stake in his firm and also launched its own premium “remixes” of its trainers. Mr Mason argues that “the best way to profit from pirates is to copy them.”
That this silver lining exists should not obscure the cloud. Most of the time, companies will decide to combat piracy of their products by sending in the lawyers with all guns blazing. And most of the time that is the right thing to do. But before they rush into action companies should check to see if there is a way for them to turn piracy to their advantage.
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Internet piracy
Thanks, me hearties
Jul 17th 2008
From The Economist print edition
Media firms find that statistics on internet piracy can be rather useful
GLOBAL sales of recorded music fell by 8% in 2007, according to figures released in June by the International Federation of the Phonographic Industry, a trade group. It blamed 70% of the decline on “file-sharing” software, which allows internet users to exchange music and video without paying for it. Industry groups have sued thousands of users of such software, and have supported legislation to criminalise it. But file-sharing has so far proved impossible to stop. And it is not all bad news for the industry, because it can provide helpful insights into music-lovers’ interests.
For every song that is bought legally, in shops or online, around 20 songs are illegally downloaded, according to BigChampagne, a firm based in Beverly Hills, California, that compiles and sells statistics about file-sharing. Its customers can find out how many times, and where, a song has been illicitly downloaded, for example, what the figure was five weeks ago, what other music its fans like, and so on.
“It doesn’t make sense to put your head in the sand,” says Ken Bunt, head of marketing at Disney’s Hollywood Records, a BigChampagne customer. One of Hollywood Records’ artists, Jesse McCartney, is particularly popular in Italy, so that might be a good place for a tour, says Mr Bunt.
David Ross, the editor of Music Row, the largest country-music trade journal, based in Nashville, Tennessee, says the “anti-intellectual argument” not to use such data is emotional nonsense. Music Row publishes file-sharing figures, as well as conventional charts. Such information can help managers promote their artists. Jennifer Bird of Red Light Management, a management agency in Los Angeles, says her agency knows the names and geographic destinations of the 7.5 billion songs swapped in 2007. That is a big help if you are trying to work out whether people are raving about an artist—or merely about a song. And planning joint tours is easier when you know what other music an artist’s fans listen to.
BigChampagne’s latest venture, launched this month, extends its monitoring to television programmes and films, which are also widely shared online. Knowing what is popular among file-sharers could help broadcasters and film studios when negotiating with advertisers, for example. Hulu, a website operated by News Corporation that offers free, advertising-supported video-streaming, already uses file-sharing statistics to design its programming and to set advertising rates.
Many music executives were reluctant to take advantage of file-sharing statistics because of the trouble the technology has caused in the industry, says Eric Garland, BigChampagne’s boss. TV stations and film studios, by contrast, are “sprinting through the stages of grief”—and coming to terms with the reality that details of the illegal use of their material can, in fact, be very useful indeed.
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