First Piracy, Then Profits


Mention peer to peer and file sharing, and you can almost hear the collective groan of the entertainment executive businesses. They are quick to press the speed dial button for the $1000-an-hour law firms, who in turn work with groups such as RIAA and MPAA to sue single mothers, and kids. Well, little do they realize why people are resorting to file sharing, and that after a brief initial pain, it actually turns out to be an opportunity.

David Choi and Arturo Perez, two academics make that point in a research paper they just published and point out that online piracy is a precursor to widescreen adoption of new technologies and emergence of new markets.

For example, they have made a significant impact in the evolution of file-transferring technology, which has created breakthroughs in information distribution for both illegal and legal uses. Second, the piracy communities have been the source of invaluable market insight to the business world. Third, online pirates have contributed to new market creation.

As argument, they offer Napster as an example. Many feel that Napster was all about free music, but Choi and Perez argue that it helped establish not only the music download business, it also pointed out that most consumers wanted to buy single songs not albums. Appleā€™s iTunes store capitalized on that and became the pasha of digital music. Similarly, the BitTorrent and Kazaa are leading to the emergence of what we like to call the personal P2P apps.



Jim Kerr

This is an interesting study, but it works too hard to find causality where there is none. For example, the fact that people want to consume singles and not albums wasn’t revealed by Napster. The record industry and many others have known that for years. Unfortunately, the entire record industry profit model was built on albums.

Also, to say that Napster inspired the for-profit digital download model is simplistic as well. It certainly had an impact, but one could argue that there was no for-profit digital download model until iTunes launched. Certainly Pressplay and the others can’t say that Napster set the table for them to succeed.

At the same time, the paper makes some good points. Consumers will do everything they can to fill a vacuum–If they want digital singles, they’ll create a way to get them. If they want easily downloaded and burned digital movies, they’ll do that, too.

The real lesson from Napster and YouTube is exactly what Jesse points to above: The path to profitibability is listening to the consumer, and nothing screams louder than creating a massive network of content to download and trade because there aren’t any other options.

Jesse Kopelman

pat, the point is that big companies are not giving people what they want. If they spent the money the spend on discouraging new behaviour instead on supporting new behaviour, they would increase profitability. Sure, that sounds like a no brainer, but the people that don’t understad it are the ones running the multibillion dollar companies.


What’s a pasha? (It sounds idiomatic.) My guess from the context and from Merrian-Webster Online is that it means “big man” or “top dog” or something like that. Just curious.


Not sure I see the power of this paper. Conclusion is: piracy shows market demand (well, obviously – people pirate the stuff they want); people will innovate in order to get the content they want as quickly as possible (ditto – they’re human); businesses can profit by catering legitimately to that market demand (ditto).

This is just offline behaviour mirrored in the online world. The online world just makes it so much simpler and faster to pirate content and obtain it illegitimately. The basic facts still apply.


Long before social networks, Napster was the most social of online experiences. It wasn’t just about the free music or the acquisition of songs– it was that I could look for a relatively obscure band, find it, and then take a direct look at the music collections of other people who had that group. is like this, except without the music so it’s a lot less fun. A version of Napster that kept the social, but introduced a revolutionary way to both keep it cheap (so one could experiment with new music but not be locked into junk) and get the artists’ and labels paid, would be HUGE.

So far, no one has been able to do it, be it “not getting it”, problems with the RIAA, etc.

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