Free vs Pirates

There's no question that online content piracy is a problem.  There's some question about how big a problem (in terms of impact on content sales), and growing problems with regard to how to best combat it (copyright enforcement becoming increasingly problematic).

The growing problem with enforcement is that making and distributing digital copies is easy and dirt cheap - and the solutions being offered in policy debates increasingly degrade both digital systems, network security, and individual privacy.  Perhaps its time for a different approach.

A new paper (and forthcoming book chapter) for the National Bureau of Economic Research suggests that a more effective anti-piracy strategy might be to reduce the economic incentives for pirates.  Using new online data sources, and tracking the impacts of natural experiments when large amounts of content were either removed from online markets or made available to them, the study found that having content online significantly reduces online piracy.  Making content widely (and inexpensively) available online can reduce piracy by 10-20%; removing content, or making it significantly more expensive, can increase piracy by a similar margin.  Making distribution of pirated content more difficult and expensive (in this case by shutting down Megaupload.com) increased online content sales by 5-10%.

These results are of a piece with a number of studies that link pricing and marketing strategies with the prevalence of online piracy.  A study for the WIPO found that while online piracy of broadcast signals was rampant, it occurred overwhelmingly under two circumstances: when the content was not legally distributed in the area, or when pricing was set at Western levels (making it unaffordable in poorer areas).  Similarly, a wide range of marketing studies have found that having free or minimal price options minimizes incentives to search out illegal versions.  Those studies also found that content creators can maintain sales and profit levels through the increased volume of legal access, and by engaging in content versioning. 

   Versioning refers to the ability to market different versions of the core content,  For example, music can be made available free online in a low-resolution option, with standard (CD-quality) resolution for a modest price, and in a higher-fidelity version (perhaps with some affiliated goodies) for a higher price.  Versioning has a long tradition in book publishing (hardcover vs. paperback), records (45s vs LPs vs CDs vs DVD-As, etc.), and online radio & video (lower quality streaming for free, but high quality streams requiring subscriptions).

What this suggests is that content creators have an alternative to trying to force digital distribution systems to follow the analog copyright metaphor - particularly when those efforts criminalize their potential audience and markets.  Instead of trying to regulate digital markets to fit traditional business models, they can explore the potential that digital offers for new and increasingly lucrative business models.

Source -  Want to Fight Off Content Pirates? Just Stream Your Show for Free, BloombergBusinessweek
Understanding Media Markets in the Digital Age: Economics and Methodology, NBER Working Paper No. 19634
Monetizing digital media: Creating value consumers will buy, EY.com