Can You Really Compete with "Free?"

In some ways, piracy of movie or TV content is a bit akin to problems communications service providers have, namely “how to compete with free products.” And as is the case in the communications industry, the impact is complex.

In part, free alternatives cannibalize existing “for fee” products. On the other hand, such free alternatives probably also stimulate sales of “for fee” products as well.

That is not to say there are no revenue losses, or that content products are completely the same same as communication products, in terms of demand environment. Movie and content products are not “real time,” where communications products often are.

Movie and other video content products often have “release windows” that stagger availability on different platforms. Most communication products are simultaneous, not sequential, so the abiltiy to differentiate audiences is vastly less.

Still, there are some similar principles. There are “see now” versions of movie products, “see on smaller screen” versions, “own and rent” versions, “see later” versions and “see in specialized environment” versions (airline pay per view, hotel pay per view).

In the communications business, there are professional, high end videoconferencing products and experiences as well as Google Hangouts, PSTN calls and Skype calls.

Users have text messaging as well as instant messaging and email, with different user experience and “real time” aspects. Also, fixed network and mobile service providers increasingly also are service suppliers in the video entertainment business, able to fill multiple roles in the content distribution process, with different usage segments.

The point is that though “competing with free” is not fun or as lucrative as when such free products were not available, competition is possible.

At least some researchers believe movie studios indeed compete  with “free” (pirated) versions of their content through product differentiation and customer segmentation.

In other words, to some significant extent, television broadcast of a movie does not reduce DVD sales, suggesting the TV viewing and DVD viewing market segments are distinct. And, in fact a study suggests even piracy of movie content still being shown in theaters does not depress later DVD sales. At least in part, movie piracy stimulates demand for later DVD sales.

That is not to say such piracy does not reduce box office revenues, only to say such piracy could, among other things, also stimulate later sales.

Online piracy undoubtedly cannibalizes some content sales or rentals. What is not so clear is how extensive such losses might be, nor does piracy necessarily entail only “losses.” In fact, for lesser-known movie titles, piracy might actually help drive sales and rentals, At least that is what another study suggests.

The evidence is what happens to DVD sales, one week after a movie is shown on television networks. Sales climb. That is, at least in part, the effect of content sharing commonly called piracy: it stimulates downstream demand, even if it cannibalizes some amount of theatrical release revenue.

Content industry executives are not likely to change their thinking based on one or two studies.

In 2010, the Government Accountability Office examined piracy in the film industry and could  not substantiate the level of losses claimed by industry executives.

Additionally, a study published in 2012 by researchers at Wellesley College and the University of Minnesota found no link between the emergence of BitTorrent and declining box office revenues in the U.S.

The point is that competing with free is a complex process, with both revenue losses and gains possible.