Piracy Part of the Business Model?

Up to this point, younger Internet users have been the most active abusers of video content rights on the Web. Much content now is pirated, according to The Yankee Group. We doubt this will continue to be so much the case as downloaded video becomes mainstream and much of the demand shifs to high definition TV fare where image quality and consistency will really be important.

There also is some precedent in the video world for a small amount of piracy to be a good thing for the overall value chain and growth of a new business. In its earlier days, the U.S. cable TV industry used filters of several types to control viewing of premium services such as Home Box Office. So piracy was a matter of securing the proper filter and inserting it between the house drop cable and the distribution cable's "tap." In this scenario, manual audits were the only way to determine whether an installed filter was legal or not. And since assigning technicians to patrol the entire plant looking at "traps" costs money, there is a cost-benefit issue.

A service provider wants to minimize theft of service, but not completely, as the cost to control then outweighs the "losses" from theft. Also, there is a subtle way that some amount of piracy actually creates more revenue, at least for the service provider. The example is subscribers who pay for basic cable access but then are able to pirate HBO. In that scenario, a cable operator might actually get a recurring revenue stream it otherwise wouldn't have gotten, while the economic loss is borne by HBO, which isn't paid. With changed technology, this particular attack is seen rarely, if ever. Also, access to HBO no longer drives cable, satellite or telco TV penetration.

The point is that some amount of piracy must be tolerated because complete eradication costs too much. And there might even be some cases in which a limited amount of piracy actually can lead to a bigger revenue stream for legal uses. Earlier in its development, productivity software suppliers realized that some amount of piracy actually would increase the base for legal sales, because users grew accustomed to the use of particular products and then would buy legal copies.

As the network-delivered video business develops, particularly as an application or service used by large numbers of people who don't want to hassle with technical details, and just want to watch content on their HDTV and other screens, we likely will see a significant decrease in piracy and an equally significant increase in legal downloads. We might even find, as we have found before, that some amount of piracy can actually stimulate the legitimate part of the business.