Blog Post

Can P2P Be Made to Pay?

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

Napster, Grokster, Kazaa, Morpheus, Torrentspy, Audiogalaxy: Hollywood and the music industry have forced countless file-sharing services out of business in the last decade, and major record labels have sued tens of thousands of individual file sharers in the U.S. alone. But go to a site like The Pirate Bay and you’ll find millions of users busy swapping practically every movie, TV show or song imaginable, even as music sales free-fall and DVDs follow suit.

More and more, entertainment industry insiders are seeking alternatives to lawsuits and legal threats, realizing it’s time to finally work with, instead of against, P2P network operators and their users.  Some of these initiatives are still in stealth mode, while others are emerging to establish entirely new ways to compensate rights holders. Here’s a look at three approaches I described in a recent article for GigaOM Pro (sub req’d):

Flat-fee Licensing:

This approach to monetizing music sharing is as simple as it is disruptive: Instead of regulating file sharing, the music industry wants to monetize it through small monthly fees paid by users. Two years ago, Warner Music Group (s wmg) CEO Edgar Bronfman hired digital music distribution pioneer Jim Griffin (who was a sharp critic of the industry when it started to go after P2P networks) to explore the idea of licensing P2P downloads through a flat fee that would let users legally download as many MP3s as desired. Griffin and his company, Choruss, approached universities early on to act as a test bed for flat-fee licensing and say they are looking at broader deployments later this fall. Though no school has publicly declared to be a Choruss partner, Griffin recently stated in an interview (subscription required) that half a dozen schools have signed on for field tests. The Isle of Man proposed a similar licensing scheme in early 2009, and Noank Media has been building tools to legalize music and video sharing in P2P environments as well. However to date, none of these projects has gone beyond the planning stages.

Ad-supported P2P:
, one of the most established file-sharing clients, proposed a different type of monetization scheme two years ago: The company would show contextual text ads, similar to the ones popularized by Google (s goog), next to search results within its file-sharing client and split any revenue from those ads with rights holders. The system might, for example, display an ad for Gwen Stefani’s perfume next to search results for No Doubt tracks. Advertisers would pay only if a user clicked on the ad, and rights holders would receive around 40 percent of the revenue generated by that click. LimeWire is the first company to tackle advertising in a P2P context by using Adsense-like ads within a file-sharing client. Others have claimed to deliver ads over P2P networks before, but most of those efforts were little more than thinly disguised spam, and no other company has so far proposed to give rights holders a cut of its P2P ad revenue.

User Donations:

Swedish BitTorrent site The Pirate Bay has been known to make fun of rights holders in response to take-down requests, but one of the Bay’s founders recently launched a startup that explores yet another way for rights holders to monetize sharing of their works. Flattr, which launched in private beta earlier this year, offers users the ability to donate money to writers, musicians, filmmakers and other creatives. Rights holders list their works with Flattr and, in turn, receive a badge that looks very much like the button used by social news site Digg. They can then embed this badge onto their own sites and ask users to contribute with a click, just like they would vote on a post with a Digg button.

Choruss, Lime Engine and Flattr aren’t the only companies and projects looking to monetize file sharing, but are among those closest to deployment. The very fact that more than one solution exists represents a huge opportunity: Smaller and bigger rights holders alike can figure out which solutions work best for them, experiment with various approaches and possibly even combine multiple models to receive new revenue streams through a mix of donations, advertising and flat-fee licensing.

Entertainment industry executives have lost the war on file sharing, and it’s time to start to building a peace-time business. The tools are there.

6 Responses to “Can P2P Be Made to Pay?”

  1. Of the three you present, none will succeed. The flat-fee will have limited reach, the ad route will generate too little money, and the donation route is simply wishful thinking.

    Janko, I think you’re looking at the wrong end of the pipeline for the solution. It isn’t the users but the producers that are the solution. Producers need to seek out advertisers who are willing to either sponsor their projects (TV show, concert tour, novel, etc.) or pay for product placement in them or both. What the producers then want is maximum downloads from P2P and online distribution points (Hulu, show’s website, etc.) as that is what advertisers seek. This is how advertising currently works. TV networks use a show’s ratings to determine how much to charge advertisers to advertise during it. Advertisers want the biggest audience possible for the least money possible (a.k.a. biggest bang for their ad buck).

    As for sponsoring projects, that is how ALL TV networks operated during their Golden Years, i.e., Firestone Theater. Successful music bands have their tours sponsored by advertisers. Sports events (from NASCAR to football to women’s beach volleyball) heavily depend on sponsors.

    As for what the music industry should do, they should hold a funeral for all record companies. Concert tour organizer/promoters and corporate sponsors are the music industry’s future. Corporate sponsors adding to the pot of gold generated by concert ticket sales and tie-merchandise sold at concerts. Bands need to view their songs as a form of advertising for their concert tours and simply give them away for free and at the end of each of their songs slap on a 30-second “radio” ad for their concert tour website.

    As for product placements, this is the fastest growing revenue stream in Hollywood AND the public has long indicated that it wants it in their TV shows and movies. No one in the real world drinks a can of generic pop called “Cola”. Real people drink “Coke”, “Pepsi”, “RC”, and such. When a generic product is used in TV shows, movies, etc., they actually hurt the suspension of disbelief.

    What Hollywood, music industry, publishing industry, and any other industry that feels they have been hurt by P2P needs to do is have one big cry about the death of their old business model, blow their noses, wipe their tears away, and accept the new reality. They should stop trying to beat back the tide with their swords and try to surf the waves instead. They should be having workshops and conferences on how to get advertisers as sponsors and product placement advertisers. They need to invite advertisers to come to these events and explain what they’re looking for in these two things and how producers should pitch them to get them on board for them. I am sure advertisers will love to send some of their advertising executives to speak at such events. I would even expect them to be willing to be pitched by producers at such events. The key to success for producers in this new world is accumulating and cultivating such ties with producers. That’s the solution, Janko. That is the solution I proposed way back in 2003 in a white paper I wrote titled “P2P Revolution”. Click on my name to read it.

  2. someone else

    to go to the movies its 12 for a ticket whether or not that movie sucks, and a music cd cost 17.99 most artist only have 1 or 2 songs that are actually worth listening to, the rest is pure garbage or what i call crap filler.

    You pay 25 for a DVD and its filled with commercials before you can even start watching the damn thing they put special security features on the DVD so you cant watch it on your computer.

    So why do you think people P2P because people listen to music and then throw it out and get new music, people watch the DVD and then delete it. and its free. I believe if its on the radio and played on cable why cant someone download it in a format they can listen to or watch somewhere else?

    i don’t know it doesn’t make since to me what the fuss is all about.