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Cord-cutting, Piracy and Alternative Scenarios

Cord-cutting, Piracy and Alternative Scenarios

GigaOm recently published an article citing some pretty dramatic piracy data: a new report is out that says ABC's restriction for next-day online viewing to cable customers and Hulu Plus subscribers has led to a 300 percent increase in illegal downloads (for one specific show, Agents of S.H.I.E.L.D.).

Numbers like this, of course, give us pause. And, they present several questions about some of the challenges media companies face, namely:

  • For a media giant like ABC - a network that generates billions of dollars per year in advertising revenue - which depends on content security mechanisms such as digital rights management (DRM) to enable its content distribution business, how does piracy of this magnitude really happen?
  • How can networks successfully navigate this delicate dance--pleasing their pay TV partners without alienating their audience?
  • "Illegal" streaming success vs. broadcast ratings: which matters more?

Here's my take…

DRM doesn't always matter
When piracy occurs within a video experience that implements "studio-grade" DRM, a plausible - but typically unlikely - scenario is that viewers gained access to the content because of an error in configuration or implementation. In practice, DRM can be used (along with a broader set of policies and associated technologies) as an effective means for restricting the access and consumption of content based on the business rules of the content owner. However, as more restrictions are enacted to "protect" content, consumers may also feel these "restrict" their access, e.g.,

  • "I have six devices, why can I only access this on five?"
  • "I want to view this on my phone, but it’s only allowing me access via my laptop!"
  • "My new device won't work with my TV via HDMI!"
  • "I just purchased this content, why can't I copy it and give it to my child to watch?"

When it comes to piracy, though, content owners should be concerned about other members of the value chain--not just viewers. Before content ever reaches the point of mass distribution, countless individuals--and systems--touch that content. The film industry has been exposed to numerous incidents, X-Men Origins: Wolverine being the most publicized. Even trusted sources can become a potential source of a leak, from editors to production houses to even celebrity talk show hosts and shock jocks.

However, even technically sophisticated systems can be circumvented with relatively simple means. The sidewalks of Manhattan are littered with DVDs containing low-quality handheld recordings taken from within a theater. One premium media company shared a scenario for which they had no easy remedy: individuals renting a hotel room (with their channel available in HD on a 1080 flat screen television), recording the program, encoding and then uploading to BitTorrent networks.

Technically sophisticated--or simply bold--people are hard to stop. So, what gives? Should we throw our hands up and accept piracy as the norm?

Realize who your audience is
In my view, there are three audience segments that exist:

  • Viewers who will always prefer pirating or accessing pirated, illegal content because they believe content should be free and accessible to all or simply have no qualms about obtaining content in this manner. While we can point a finger and say, "You cheated." The answer--as Jack Sparrow would say--is "Pirate." I have several friends in the digital cryptography and security fields who are dedicated to their professional craft but personally embrace this type of "sharing" of digital content--films, books, music, software.
  • There's another faction of networks' audience that will consume content in whatever way it's available--they may prefer to consume the content on their terms (anytime, anywhere, any device) but they aren't willing to bend over backwards to fulfill that preference. They'll take what's available to them or simply find an alternative, i.e., reading a book, skipping the series, buying the physical Blu-Ray, etc.
  • But, for networks, there's a "squishy" (and arguably, the largest) middle that wants content and are willing to pay for it--but they want it on their terms (anytime, anywhere, any device)

The squishy middle is what the networks should focus on. These are the consumers who want to consume content. These are the consumers who are willing to "pay" for content either through subscription or ad-supported models. These are also the same consumers that--when restrictions, rights, release windows, and technology [DRM, ahem] become obstacles in their consumption--will resort to other means, illegal at worst, muddy at best. Not every company may share Richard Plepler's tolerant stance on sharing account credentials.

Negotiate with cable, but cultivate owned properties
TV Everywhere (TVE) is one way for programmers to reinforce their relationship with cable partners, while creating additional viewing opportunities for their audience members; however, TVE still has a steep hill to climb to build usage, awareness and long-term value for all participants in the ecosystem.

Most importantly, programmers need to develop their own properties that they can manage separately and use as a way to differentiate their business. Consider, for example, what AMC Networks has achieved with YEAH! TV--it has created an exciting, interactive viewing experience while also upping AMC digital's contribution to the broader revenue pie (and also building broader network/brand affinity). Watch your favorite movies online, participate in fun quizzes, interviews and polls--all for a nominal fee. Thanks, AMC!

There's no need to steal video when it's easy to get your hands (and eyes) on it legally, from anywhere and any device.

Should we worry about skewed ratings?
The GigaOm piece also discusses that while AGENTS of S.H.I.E.L.D fared only OK in the Nielsen ratings there was obviously rabid demand for it. How can networks (and studios) wrap their heads around this disconnect in legal vs. illegal success?

It all comes down to what I mentioned earlier in this post: who is your audience? If your audience is prone to pirating specific content, do you want to cultivate that audience? Some--like Time Warner's Jeff Bewkes--may be in a position to downplay piracy and view it as an asset, a mechanism for building awareness and publicity that has more promotional value than an Emmy. But what about shows that aren't powerhouses like GoT? For these, ratings and revenue may never exceed a reasonable threshold. Attempting to "convert" the piracy audience may simply be the Sirens' song.

But, if there is demand by that "squishy" middle, content owners should evaluate their distribution strategy and determine if they (and their audience) are better served by reducing the delay or by extending the consumption options to additional over-the-top services.

The bottom line is: when piracy is becoming status quo for consumption, networks must re-evaluate this in relation to their tools, target audience and associated distribution strategy. It's a numbers game, after all.

I'd love to hear your thoughts in the comments.