The U.S. credit ratings downgrade, tumbling stocks and international instability have made not just financial analysts nervous this week. Consumers are also starting to wonder whether we’re about to enter another recession. Whenever that happens, people start to tighten their belts and cut unnecessary expenses — like paying for movies and TV shows. Add in the Netflix (s NFLX) price hike as well as new authentication plans from broadcasters like Fox, (s NWS) and you’ve got yourself a perfect storm for piracy.
Hollywood has in recent years embraced the idea that piracy is passé. Consumers have been moving toward licensed and paid services like Netflix in record numbers, with Netflix now actually accounting for close to three times as much residential downstream bandwidth than BitTorrent during peak hours. Netflix CEO Reed Hastings echoed this sentiment just two months ago when he told an industry audience that his company “finally beat BitTorrent.”
P2P is alive and well
The problem with this narrative is that piracy never actually declined. It just didn’t grow as fast as other types of media consumption. Throughout the day, BitTorrent is still responsible for an average of 21.6 percent of residential Internet traffic in North America, according to Sandvine. That’s only slightly less than Netflix, which accounts for 22.2 percent. Cisco (s CSCO) even estimates that global consumer file sharing traffic will nearly double over the next four years, growing from 6 PB in 2011 to 13.9 PB in 2015.
With memories of the housing slump still fresh, many people could simply return to BitTorrent and download movies for free instead of going to the movies or paying for VOD. To make matters worse, Fox will give people another reason to fire up their Torrent client next week: Starting Monday, only DISH (s DISH) and Hulu Plus subscribers will have access to Fox TV shows the day after they air. Other consumers are supposed to wait eight days for their Master Chef and Glee fix; but a closer look at the impact the availability of free content online has had on piracy in the past suggests that up to a third of Fox’s online audience may go back to BitTorrent.
Consumers cancel cable — is Netflix next?
Consumers will receive another reminder that paying for entertainment can be expensive two weeks after Fox’s pay TV wall goes up: Netflix is splitting up its DVD and online video subscriptions starting Sept. 1, and the huge backlash this provoked when announced in July suggests a significant number of subscribers might just outright cancel. Even Netflix subscribers that downgrade to one of the two plans might want to get some of their entertainment elsewhere, and free torrent sites are always just a few clicks away.
If Hollywood needed a reminder of how dire the situation is, it came just a few days ago, when it became clear that 193,000 people stopped paying for TV last quarter. Not all cord cutters will flock to BitTorrent, but there will very likely be at least some cross-over.
Of course, piracy in 2011 isn’t likeit used to be: Rights holders also recently succeeded in getting some major ISPs on board for an anti-piracy program that could help to further curtail file sharing. And then there was the demise of LimeWire at the end of last year. The file sharing service may have fallen out of fashion with hardcore P2P users long ago, but it still had a huge footprint with casual downloaders.
Piracy is moving to the cloud
But LimeWire, and to a degree even BitTorrent, have been replaced with one-click-hosting and streaming sites as well as a new generation of personal cloud media services to get movies and TV shows without the risk of getting sued. Cisco estimates that non-P2P file sharing will grow three times as fast as Torrent-based file sharing from 2010 to 2015, and Sandvine noted in May that “a significant portion of traffic is associated with online back-up and file storage sites,” only to explain that much of this isn’t caused by personal backups, but by file sharing through services like MegaUpload and RapidShare. Streaming sites that don’t care about take-down notices are also becoming increasingly popular, especially since they’re much easier to use for consumers that are more accustomed with Hulu than with The Pirate Bay.
It’s only a few more weeks until the TV season starts. With legal catch-up services becoming less appealing and Netflix raising its prices, it looks like the piracy comeback is just around the corner as well.