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How Hollywood drives people to piracy

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Big media companies have been pushing SOPA and PIPA as a way to limit piracy, by removing consumers’ ability to find pirated content. But it’s not Google’s (s GOOG) fault people are seeking out films online and watching pirated streams or downloads — it’s the studios’ fault for not making it easier for consumers to find and pay for that content instead.

Windows? More like walls

In a blog post Wednesday, BTIG analyst Richard Greenfield argued that Hollywood’s windowing system is the what’s really driving people to seek out content without paying for it. The whole post is worth a read, but the key argument is here:

“In a world of IP-connected devices (smartphones, tablets and IP-enabled TVs) fueled by improving bandwidth wired/wirelessly and consumers that increasingly expect access to content anywhere/anytime (think WatchESPN or HBOGO), the movie industry’s sequential release pattern a.k.a. “windowing” appears to be the underlying problem fueling piracy. Hollywood’s distribution strategy needs to evolve to meet consumers needs. In a world driven by physical product (VHS/DVD), content was always available (except between theatrical and home video albeit there was no other way to get the movie), it never disappeared, whereas in a digital world, studios have created more discreet release windows that are impossible for consumers to understand.”

Hollywood’s windowing system is essentially keeping consumers from being able to access the content that they want to watch. Without a reasonable option to pay, many are left to pirate a film that they wouldn’t go to the theater for anyway.

Consumers will pay, if the content is there

Fred Wilson had a fascinating blog post over the weekend in which he gave a personal take on this very issue. Stuck at home while his wife was under the weather, the couple decided to watch a movie from the comfort of their own home instead of heading out to the theater. But the couple couldn’t find anything good through Netflix, (s NFLX) Amazon Video on Demand (s AMZN) or through their cable VOD service.

“We would have paid good money to watch Sherlock Holmes or Tinker Tailor Soldier Spy,” Wilson wrote. “But it simply was not an option. So we went with a TV show that was free and then went to bed.”

Were Wilson less scrupulous, he might have pirated one of those movies, and there are certainly many who do. But the important point here is that the studios are leaving money on the table by not giving viewers access to the movies that want to see and are willing to pay for. For the movie studios, whether the film was pirated or not shouldn’t matter — the end result is a lost sale.

In a discussion about the future of digital content in the cloud organized by PricewaterhouseCoopers Wednesday, CBS research chief David Poltrack said his company has found that most consumers — like Fred Wilson above — aren’t against paying for the TV or movies they watch. But more often than not, those titles aren’t available in an affordable, convenient fashion.

“Consumers feel that copyright owners have the right to get paid for what they produce,” Poltrack said. What gets pirated most of the time, according to him, are the things that consumers can’t find in a legitimate way. His advice to other media companies is to make it so that there’s no reason to pirate — by making content more readily available in a clean, well-lit place.

The Hulu example

Hulu is a perfect example of how content owners can fight piracy — by making their content available in a way that’s “better than free.” When Hulu was first launched, it was positioned not necessarily as a way to drive incremental ad dollars to the TV networks, but in response to a rampant piracy problem.

In the three years since launch, Hulu has grown pretty dramatically, both in mind share and market share. The site, which offers a way for consumers to catch up on their favorite network shows without having to pirate them, is routinely in the top ten online video properties, according to comScore. (s SCOR) More importantly, Hulu has has emerged as the top destination for advertisers in the online video market, which was a big part of the company’s ability to bring in $420 million in revenue last year.

While CBS isn’t part of Hulu, Poltrack said that its own efforts to monetize the network’s shows online have been largely successful. Online video ads have higher CPMs than what the network gets for broadcast viewing, and the company now generates more ad dollars online than it’s able to get from DVR’d content. As a result, he argued that giving viewers access to what they want online can actually be more lucrative than being stuck in the traditional cable model.

Going digital isn’t a zero-sum game

The big lesson that the big Hollywood studios have yet to learn is that a digital purchase or rental isn’t necessarily made at the expense of a trip to the movie theater. There are plenty of consumers who won’t go to the local megaplex to see a romantic comedy or drama, but are happy to pay for the convenience of watching it at on the TV at home or on another device.

It took the broadcast networks a bit of time to learn this lesson as well. When Hulu was first launched, there was some serious consternation around whether or not it and other network sites would eat into primetime viewing, which is the bread and butter of broadcast. But what ended up happening was that the networks enjoyed an aggregate increase in viewership — and they were able to monetize shows online better than they would have otherwise.

I personally experienced this a week ago, thanks to Ed Burns’ indie flick Newlyweds, which was released on iTunes (s AAPL) and cable VOD at the same time that it hit theaters. I would have never paid to see it on the big screen, but for $5.99, it made for a good film for me to watch on my iPad during a flight to Las Vegas.

There will always be huge tentpole films like Avatar or The Dark Knight, which consumers will go out to see and enjoy the big screen experience. But just as TV viewers might tune in to the weekend’s football games live, but watch Modern Family on Hulu, there are plenty of theatrical releases that will play just as well on someone’s 60-inch flatscreen TV. By not making Tinker Tailor available to that audience at the same time, some studios might be missing out on incremental revenue.

What does Hollywood have to lose?

Of course, in the background of all this discussion, Hollywood is freaking out over its future: The studios are faced with declining box office revenues, as well as massive falloff in DVD sales. That’s created a perfect storm for Hollywood, which is soul searching and trying to find new ways to drum up revenues.

For the most part, studio reaction has been to protect the current distribution and windowing regime. There have been some efforts to shorten windows or create new windows, but most have been purely experimental and limited to titles that no one wanted to watch anyway (e.g. the premium VOD experiment around Tower Heist).

Hollywood’s UltraViolet initiative goes along way to improving the consumer value proposition by extending content ownership to multiple devices and storefronts. And it combats another big problem that Poltrack highlighted in his talk, which is that consumers don’t want to keep having to buy the same content over and over again. But until those movies are available in a timely fashion — i.e., not months after they’ve already left theaters — there will remain a huge audience that the studios will never capture, whether it’s because they’ve pirated the film or because they’ve chosen to watch something else.

Photos courtesy of Flickr users Hello Turkey Toe, sushi?ina and Benjamin Thompson.

33 Responses to “How Hollywood drives people to piracy”

  1. Adam Gray

    In my case, I’m a big Simpsons fan, so are my kids, I have every legitimate season DVD from 1-14, however we’re at season 23 now! Needless to say, I own every episode as I’ve downloaded them all as soon as they release through Isohunt, of course the UK gets them far later than the US so that’s my only option. If I could buy an official product immediately I would, I’ll get season 23 in 2020 maybe?

  2. People don’t steal things just because they can’t find them online. Blaming the system for not making choice available has a point, but doesn’t take into account the legacy system of rights. Do we steal candy bars from stores just because they’re not available online? No. It’s pure greed and ease by the average online user. So get real about it

  3. Ben Johnson

    I wonder if you can hit the studios and exhibitors with a law suite that release windows are ‘ageist’ or ‘stageoflifeist’? – i.e. they discriminate against people with kids, or who are just to god damn busy to make it to the cinema. It sucks having to wait for films to release to DVD, it sucks even more to have to wait for the films to finally hit Europe.

  4. I want to be able to watch a movie any time I want to (after the owners remove it from theater-only exhibition). I do not want to have to subscribe to a service to do so. I will pay the owner directly online to watch the film. I. Will. Not. Steal. It. So, why can’t I? I find the author’s point well taken, up to a point. That point is where the author hints there is any justification, ever, for theft.

  5. Athegreat

    Stupidest article I ever read. Stop bashing Hollywood and blame the people who want to consume such content. This is a rough analogy:
    1. Hollywood has a license to produce and sell crack and they are legally pedaling this in public
    2. The people are totally addicted to it since their childhood days of watching Mickey Mouse.
    3. One day they go broke and they no longer want to pay for crack but to steal it because they cannot afford the $$$$$.


  6. Contrary to popular belief, Hollywood box office is not declining…it is growing quite nicely globally…it is the American box office that is in decline but Hollywood does not care about the Americans who don’t go to theaters, they make up for them easily with the rising middle classes in growing economies who love Hollywood 3d and IMax…what is hard for average Americans to understand is that Hollywood does not care about you…they’re in a global business and their model is still producing growth…also, the machine which produces
    celebs – everything from tv shows to magazines is owned by Hollywood – that’s why a youtube star doesn’t yet have the cultural power of a Hollywood celebrity…new technology is great but Hollywood has been playing and perfecting their game for over 100 years so their dominance is not going away overnight. I think a more realistic approach is building a healthy alternative to the Hollywood system using new technologies…for example, film studios whose distribution is designed for the connected world from A-Z, meaning new releases go straight to web…if the quality is there then you could really put pressure on Hollywood but this would have to be a movement supported by major online players…most of whom are in bed with Hollywood in terms of their editorial focus and new content deals.

  7. robbie K

    Hollywood also needs to realise that it is a player in a GLOBAL industry, simply opening up to Americans will not be enough. Hollywood needs to open up to the world. Many willing potential customers outside America who are not happy to wait the 6 to 18 months to watch/listen to an old season of some or other TV show or movie or music album and without any from of legitimate access will simply pirate it.

  8. Great article – if only the production houses would wake up and realize that the world has changed since 1950.

    BTW – this article could use a bit of proofreading :-)

  9. So what do you, the consumer, want in your video purchase? I sure don’t get it from my TV provider.
    No. 1 I want to watch what i want to watch, when i want to watch it. not at 8:00 but right now!
    No. 2 I want to be able to pause it so i can get to the refrigerator/phone/bathroom/etc. and come back and resume.
    No 3 I want it cheap.
    No. 4 I want to pay only for what I watch. If I don’t like your movie, I stop watching and pay only for what I have watched.
    No. 5 This means “micro charges”, a new concept for the moguls.
    All this is possible now. Whoever initiates this first will win.

  10. When I want to see a certain movie that logically should be in VOD through my Comcast provider, it’s usually not there. I also hate the movie theater, I can’t pause to use the bathroom, I overpay if I get the munchies, I can’t have a beer in most theaters and there’s always kids who will waste their allowance to socialize loudly instead of watching the movie. I’d like to make the point that I live literally next door to a theater with 20 movies playing at any given time, and a pretty low ticket price (always) of 8 bucks. I will pay legitimately to sit at home and relax with my girlfriend on the couch. But Comcast sucks too, so I’ve cancelled my cable (200 a month for bullshit on TV, every channel, nothing on) and their crappy customer service left much to be desired when a problem arose. I opted to spend 14 a month total for both Netflix streaming and Hulu Plus. I watch plenty of movies I want to see, and Hulu has air-next-day new episodes of network TV I WANT TO SEE when I want to see them, and with 30 second commercials instead of 5 minute commercials. When Netflix starts to suck, I go to ICEFILMS.INFO, but now that Megaupload is down, I don’t know how that will be. I don’t use it much anyhow. But for instance, my Dad and I love Breaking bad, he has comcast (paid) and he couldn’t watch the last season because AMC wants you to wait and pay for their DVD of the season. I had him go to ICEFILMS and he watched the whole series he hadn’t seen yet in it’s entirety for free at home on his ipad. If they had a digital and hardcopy option of the season in a timely manner instead of immediately taking the whole season off on demand, he would be paying gladly for that show because it’s good enough to pay for. Some things are worth it. Same with Dexter, they drag ass publishing the season DVD’s, so he streamed it offline for free. Sorry Showtime, you lost out, he bought every other season on DVD.

  11. Also you have to consider that in some countries the contents are blocked, for instance in Uruguay I cannot have a Hulu account, Netflix sucks because it has only a small portion of the movies available in the US service. Other crazy stuff includes that i can´t purchase an xbox live account or an itunes account

    • Arthur V.*

      That’s all a question of publishing/distribution rights and reception in that content’s main market (most of the time, the US). Sometimes, that content is either distributed by another company or released at a later date because its performance was below the expected in the US.

  12. So what you are saying is…you are ENTITLED to get everything you want whenever and however you want? And it is someone else’s fault and problem if you don’t get your way?

    Are you a fucking FIVE YEAR OLD?

    • MunchieT

      As a matter of fact, yes. As a consumer that is willing to pay for content, I am entitled to pay for ANYTHING I want whenever and however I want. It is not my fault that I have to resort to piracy to get it. If it was available where I could pay for it, I would. I want it now… and I’m not going to play the movie industries silly waiting game. If they want me to pay for it, make it available.

    • Doug White

      In general, people never sit on the sides lines wishing they could take part. Do you? Civilization is built upon countries (people) taking what they want, when they want.

      Humanity is like a river, it will take the path of least resistance.

      The question is now, how do you create an easier path than the that of piracy?

      I must admit some “re-education” is probably necessary, but it can happen. Hulu is one example, Netflix another, iTunes yet another. However, these solutions must open to more countries, specifically Hulu and Nextflix (amount of content).

      As well, content must be less expensive, who wants to pay $2 for a single episode of a television show, when over-the-air it is “free”?

    • Ryan Lawler

      My point is that the Hollywood windowing system is broken. Before things went digital, it served the purpose of allowing the studios to extract the most value out of release cycles as they could. Now it doesn’t work — consumers are able to find the content that they want for free long before the studios make that content available to them. If there’s widespread piracy, it’s mostly because Hollywood hasn’t adapted to this new reality and changed its release schedules accordingly.

    • Your reading comprehension reveals your intellectual age. The main premise of this article was given in the very first paragraph: “Big media companies have been pushing SOPA and PIPA as a way to limit piracy…it’s the studios’ fault for not making it easier for consumers to find and pay for that content instead.”

      The point is not that consumers are entitled to producers’ content whenever and however they want; it’s that the producers fail to realize that their current policy with regard to releasing content contributes to the piracy they are trying so hard to prevent.

    • What you’re missing is that it’s probably in the content providers’ interest to make content available everywhere simultaneously, as long as people are willing to pay for it. It seems likely the providers will sell more that way.

    • Apparently five year olds are creating a new free market then. That’s part of a fast paced market that internet has created. You can pay 200 bucks a month for internet and cable, or pay 40 a month for internet and 14 a month for hulu/netflix and watch the same things quicker with little to no ads. So what are you, a patient old man who just wants to watch Wheel of Fortune so he can fall asleep?

    • Piracy is caused by what economists call a market failure. If the goods you want to buy are available, but are not available to you, or in a form you can partake of, but is available via ‘alternate markets’, you get piracy.

      So yes, what was being said was that consumers who want content can, and will, get it. It is a failure by the studios to provide the desired goods and services consumers want.

  13. What about all those (like me) excluded from the few services like netflix or Hulu?

    I’m european and if I want to stream a film to my home I’ve only 2 options….
    1) pay and setup a VPN with north america gateway, then fake an identity and hope that there aren’t extensive cross checks between registration name and credit card name/adress used to pay.
    2) directly download it from somewhere (illegally)

    I would pay but I can’t as they don’t want my money….

    Also I’ve taken the habit (and suggest others to do so…) to return any dvd that has non skippable trailers at beginning of the film. If I buy a film, I want to be able to see it. I don’t want to be forced to see advertisement.

  14. Pseudo Nym

    Here is a ham-handed but (I think) workable way to not be a totally dishonest content thief. If a person were to somehow acquire a movie not available through the legitimate “windows” (Redbox, VOD, et. al.) that person could rent a similar offering from the same studio from Redbox, VOD, CinemaNow, etc.

    In this way the studio gets the same revenue as it would normally receive through such a window. And the individual is not limited by the lack of content. Of course, the individual would not watch what he/she actually rented, as that would prove for watching two things but having paid only for one.

    This is completely imperfect; the content owners are well within their rights to restrict the distribution of their content. And at its core relies heavily on the honor system. However for those that do want to pay for their content, this is at least somewhat of a way they can do that.

  15. They need to realize that there are people, like me, who will not go to a theater to watch a movie. The ticket price isn’t that bad, but I will not support a company that thinks it is ok to rape people with concession stand prices while preventing you from bringing in your own. Some of will also never buy a movie until we have seen it to make sure it is worth the purchase. By pushing back the rental dates (redbox,etc.) they just delay my possible purchase longer.

    • Recognize that concession stands are what is supporting the brick and mortar theater. The Hollywood machine basically pockets the entire ticket revenue which leaves the theater owner what ever he can drum up in popcorn and sugar water sales to pay the rent.

  16. @coffeewithian

    There is so much room for “window” reform, even with TV.

    The current (and final) season of Chuck is not available online, in its entirety. At least legally. A few episodes (but not all) are on but that’s it. It’s not on Hulu or Hulu Plus or Netflix. It’s not for sale on iTunes or Amazon. One of the most tech savvy geek friendly shows on TV is not available to its audience.

    Except the pirated version, of course…