Another Victim of the Recession: Anti-Piracy

Some 95 percent of all digital music downloads continue to be pirated, according to estimates released today by music industry trade group IFPI. Those numbers don’t translate well for online video, especially as streaming sites like Hulu start to see significant traction, but a quick look at the stats of sites like the Pirate Bay show that unlicensed video downloads are hugely popular as well. So how does the entertainment industry react to these trends? Apparently by curtailing anti-piracy measures.

Sure, trade groups like the IFPI and Hollywood’s MPAA continue to beat the anti-piracy drum. But take a closer look, and you’ll notice that the industry is starting to backtrack on many fronts of the war against piracy. It’s not that they wouldn’t like to continue to pursue pirates, spam P2P networks with fake files and press for copyright filters. It’s just that those things never actually worked that well, and are starting to look like luxury in tough economic times like these.

Both Hollywood and the record companies used to spend millions on polluting P2P networks and slowing down file sharers with corrupted data. However, technical anti-piracy measures like these require lots of servers and bandwidth, and critics have always argued that these technologies don’t really work. That message seems to be resonating with cash-strapped entertainment executives.

MediaDefender, an anti-piracy company specialized on polluting P2P networks that made headlines when its e-mail servers were hacked two years ago, suffered substantial losses in the second half of 2008. Filings from late 2008 show revenue declining almost 50 percent in the third quarter of 2008 compared to the previous year. “The (c)ompany believes that a significant contributing factor for the decrease in revenues in 2008 as compared to 2007 is general cost-cutting measures by companies in light of a weakening economy,” states a filing by MediaDefender parent ArtistDirect.

The weakening economy may also have been the real reason behind the RIAA’s decision to halt its lawsuits against P2P file sharers. Critics have long suspected that the music industry makes a lot of money with its $3,000 out-of-court settlements with file sharers, but most of this money has been going to lawyers and companies gathering evidence about file-sharing networks. Combine that with the growing number court battles and expenses like the $108,000 the industry had to pay to wrongly accused P2P defendant Tanya Andersen, and the lawsuits begin to look like anything but a cash cow.

The record labels are now looking to reduce these costs by getting ISPs to do some of the dirty work. The RIAA has announced that some major ISPs have agreed to warn infringing customers and potentially disconnect repeat infringers, and Hollywood would love to be part of that deal. However, no single ISP has publicly agreed to work with the RIAA; Verizon, for one, has said it won’t agree to any sanctions against file sharers without court orders.

Of course, this conflict isn’t just about missing court orders. Forwarding tens of thousands of infringement notices to customers, keeping track of their misdeeds and potentially dealing with disconnects costs a lot of money, which is why some ISPs now demand that reimbursements should be part of any cooperation with the entertainment industry. It’s safe to assume that these types of voluntary agreements between ISPs and rights holders will be the next idea to be scrapped in light of the continuing downturn.

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