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August 16,2010

Since the early days of Napster’s popularity and subsequent demise as a piracy medium, we have been treated to the public spectacle of the awkward “cat and mouse” battle between owners of intellectual property and the “pirates” who live to steal it. It seems that with each new advance in technology for content delivery and file sharing, a new wave of legal efforts and public relations campaigns arise to counter its use as a method of unauthorized sharing of media. And then another previously unapologetic heavy metal thrasher first insists that we eff the man, then complains about digital piracy, and finally pirates his own music.

In some cases, it is this very battle that seems to be driving innovation in methods of digital content transfer and delivery. The protective mechanisms of legal enforcement and civil liability, at least in theory, offer a safety net to the media industry, which would otherwise likely be more actively involved in driving these innovations in content delivery themselves. Potential consumers regularly face a choice between what is to them an inefficient, old-school method of obtaining their digital content (and the high price point involved therewith), or some new and innovative, highly efficient, yet criminal alternative. For every consumer who takes the step of pirating the content, furthermore, there are likely several with similar desires who simply do the most honorable thing and choose not to buy the content or illicitly download it.

In other words, not every digital content pirate is a black hat hacker looking for the thrill of putting one over on the big media industry, or a criminal at heart who simply wants to get a product without paying. Many are simply acting on a desire to obtain the content through a more efficient medium that is not offered legitimately; and indications are that many of these people would be willing to pay for the content, delivered efficiently, if they were able to do so.

In other cases, there is an unwillingness to pay the prices demanded but not a general unwillingness to pay for content. Digital content delivery affords manufactures significant savings in production costs, and yet even some of the most innovative channels for content purchase and delivery often price the digitally-delivered product the same as an off-the-shelf retail packaged copy. One striking example of this is IGN’s Direct2Drive service for computer games. To add to the problem, these services are often still slower methods of content delivery than a highly-populated, free pirate torrent download through BitTorrent.

Jerry Kirkpatrick, professor of international business and marketing at Cal State Polytechnic has illustrated this in his article, The Market Function of Piracy

“Message to the innovative marketer? Either drop the price of the new product or produce a cheaper version — or be the first to exploit a new technology, something the movie and recording industries chose not to do. Many, including these two industries, would rather sue than practice good marketing.”

Another striking illustration of this is piracy of television series. For many consumers, the desire to download the pirated media is driven primarily by a desire to view the content in the soonest format available because it is an episodic series that they are actively following. It is not at all an indication of unwillingness to use a legitimate channel, were it available and even modestly priced, instead of piracy. (A la carte cable channels on demand, anyone?) Often ill-timed release dates and regional conflicts delays delivery through Itunes or other legitimate channels and fuels this demand.

While these considerations may or may not justify the willful violation of a copyright (read: justify? they do not), or the consequent deprivation of monetary benefit to the creator of digital content (read: innovate or die), downloads of pirated products are a very real indicator of market demand. Consumers are indicating a demand either for a lower price point or a better method of content delivery, both of which are often only available through digital piracy. Manufacturers and marketers, as well as enterprise e-commerce professionals working on new strategies and business models would be well-advised to heed these market signals… as savvy ones traditionally have.

Speaking of savvy, it is only fitting to end with a mention of Radiohead’s 2007 album In Rainbows. They offered the album via their website as a pay-what-you-like download, and the album subsequently made them more money online than all of their previous albums combined. Wired featured a great interview of Thom Yorke by David Byrne at the end of 2007 discussing the topic. Yet it should come as no surprise to anyone interested in the digital piracy space that even the In Rainbows download story is not as simple today as it may have appeared in 2007. The awkward battle continues.

Mike Bates is CEO at HotWax Media and will join other HotWax Media employees and advisers in periodically posting thoughts here related to OFBiz, eCommerce, ERP, and related topics.