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

How rampant is online Piracy?

The author of a new study commissioned by NBCU has released a video presenting claims of huge increases in the amount of online piracy over the last two years.  I'm always a bit skeptical of industry-backed research in this area, particularly when the study doesn't provide details on their methodology or definitions, and reports claims of significant numbers in a somewhat dishonest manner.

This report seems to fit that pattern.  Hidden in the passing discussion is the result that their study of online piracy in 2010 reported that 23.8% of all online traffic was pirated content.  Still, while expanding the scope of their study to include new forms of pirated content, and claims that the amount of pirated content distributed via the internet had skyrocketed in absolute terms (160% increase in the amount of "pirate" data traffic), along with an increase in the number of people regularly trading in pirated content (up more than 10% to 317 million unique users), the report still suggests that in 2012, a whopping 24% of all online traffic was pirated content.  Yes, that's right - in relative terms, a nonsignificant increase of 0.2% of total global online data traffic - and that's with a broader definition of "pirated content."

The claim of huge increases in absolute amounts of content, even if accurate, is confounded by the rapid increase in both the number of Internet users in the three areas examined (North America, Europe, and Asia) and the even more significant increase in online traffic driven by growth in video content (and its much larger data files) and the expansion of broadband connectivity.  Put in that context, and looking at share of data traffic, the increase is minimal.  Similarly, a 10% growth in the number of internet users accessing pirated content regularly sounds high, until you compare against the growth in the total number of internet users globally - which is up 17% over just the last year.  The 317 million number also seems a bit suspect when you consider that it amounts to 17% of the internet users in those areas.  Do 1 in 6 internet users really traffic in pirated content at least monthly?

I'm not going to claim that online piracy isn't a problem, or profess any real knowledge of how significant the problem is, or how negative its impact.  (Although I'll point the interested to a study for the WIPO that found that while piracy of broadcasting signals was rampant, the economic impact was slight as the vast bulk of that piracy was in areas where signals weren't being marketed anyway, and/or where populations were unlikely to be able to afford first-world prices).

But I will point out that the trumpeted claims of online piracy becoming a significantly bigger problem in the last few years is contradicted by the report's own numbers, once they are placed in the context of the continued rapid growth of internet use and increased data traffic.

Source - Online piracy of entertainment content keeps soaring, LA Times
Study on the Socioeconomic Dimension of the Unauthorized Use of Signals, Part III - WIPO SCCR/21/2

Online piracy - and enforcement - hits apps

It was bound to happen at some point, given the rapid diffusion of smartphones and tablets, and the popularity of apps.

  The U.S. Justice Departments IP Task Force, in conjunction with French and Dutch authorities have seized three website domains for allegedly trafficking in pirated Android apps.  What happens with a domain seizure is that U.S. authorities work with Internet domain name servers to block access to the websites (replacing original content with a home page announcing the seizure), and where they can, they also seize website content on the servers that host them and try to arrest the site operators.  However, due to the nature of the Internet, site owners and operators are often outside US jurisdiction, or are hidden behind layers of fake names or companies.  Domain seizures have had a somewhat mixed record in terms of actually doing anything to slow down piracy or trafficking in counterfeit goods, and have at time seized websites in error.
  Still, this seems to be the first anti-piracy action directed at the unauthorized copying and sale of apps.  App developers have been worried for some time about the potential piracy of Android apps.

A 2011 survey of 75 Android developers by the Yankee Group and Skyhook Wireless found that more than half believed Google wasn't doing enough to prevent app piracy. Last month, developer Matt Gemmell also laid the blame at Google's feet: "People pirate Android apps because it's easy."

Google has implemented some additional security and encryption measures in newer Android licensing system and for apps sold through Google Play, but developers are concerned that these efforts aren't extended to all app developers and purchase platforms.  There is also some concern over whether Google's measures will be sufficiently hamper piracy and unauthorized copying of their apps.

Source -  Android App Piracy Leads Feds To Seize Websites,  Information Week

Study claims Live TV piracy growing (wrongly)

A study by Google and PRS for Music is suggesting that live TV streams is currently the fastest-growing aspect of online piracy.  The study identified 153 sites "believed to be significantly infringing copyright" to see the kinds of content and services offered, and the business models used.  Researchers identified six basic types of core activities on the sites - Live TV Gateway, Peer-to-Peer (P2P) Community, Subscription Community, Music Transaction, Rewarded Freemium, and Embedded Streaming.  They then examined a further 104 sites to validate the appropriateness of the six core activities.

  The study found that Live TV Gateways (sites offering links to streams of live free-to-air or pay-TV channels) accounted for roughly a third of the sample, and was the fastest growing areas of core activity.  Advertising support was the primary business model for two thirds of those sites in the sample, although the report claimed that the majority of ads were for companies "outside of the mainstream."  The report suggested that many of these sites also solicited donations from users as part of their business model.
  It should be noted that if these sites only offered links to legally licensed TV streams (say to network, station, or program sites) and not links to unlicensed sites or unlicensed content, that activity does not fit current definitions of online piracy.  As such, statements or inferences that such activity is piracy, or that all TV streaming gateways are illicit or an area of online piracy is not necessarily accurate.
  Peer-to-Peer Communities were identified as the second fastest growing segment, and relied even more heavily on advertising for revenues.  Of the websites in the sample with P2P sharing as their core activity, 86% carried advertising.  In contrast, subscription and download sites used user payment systems as a revenue source.  Some 69% of such sites featured credit card logos, and 39% had separate payment pages. The sites in the sample offered a wide range of of digital content, from films and music to games and ebooks.

Google's Theo Bertram said that "The evidence suggests that one of the most effective ways to do this is to follow the money, targeting the advertisers who choose to make money from these sites and working with payment providers to ensure they know where their services are being used."

PRS for Music chief executive Robert Ashcroft added: "This groundbreaking research tells us two things. Firstly sites involved in copyright infringement are businesses with real costs and revenue sources. They receive subscription or advertising revenue, pay their server or hosting costs but fail to pay the creators of content on which their businesses depend.
"Secondly, not all of these business models are the same, and the government now has the evidence to understand which policy levers to apply to deal with these different businesses effectively."

  You have to be careful with a lot of these "rampant piracy" studies, as they tend to overestimate both the frequency and impact of the alleged piracy.  So I took a look at the actual study and methodology, and will toss in my own warnings about the validity of some of the claims.
  First, I could find no indication that the researchers actually checked to see if the content and services offered by the sites were illicit. They only measured if content of a certain type of content was present on the site or not, and for some content types how many of the top ten examples of that content were available.  There was no measure of whether the content was offered legally, or whether content owners were paid for access to their content by the sites.
  Second, the study did not directly observe business models of site owners, but rather looked for evidence of features assumed to be associated with certain types of business models.  That is, they did not directly measure a site's commercial motives or choice of business models (or the success of any such models).  Rather, the choice and relative importance of a business model to a site is inferred.  The study thus can not validly claim that these are the models, or which are predominant - only that sites seem to be employing some aspects of particular business models.
  Third, all revenues and costs were derived indirectly from specific formulas, and in many cases, from assumed values.  For example, revenues were estimated by multiplying the number of page views times the lowest listed price for that type of content.  The formula assumes all page visits result in sales, and that there is no "free" content available - both highly unlikely assumptions.
  Fourth, this was a self-selected sample of sites identified by UK "experts" and is not generalizable, either as sites "involved in copyright infringement," or more broadly as digital content access sites.  The study methodology explicitly assumes the sites engage in online piracy, but offers no evidence in support for that assumption.  Any "finding" involving piracy is thus not a valid finding of the study, but merely an assumption.  And the purposive sampling method precludes the randomness needed for generalization to wider populations.  Any study findings are valid only as descriptions of that particular sample.

  These issues don't necessarily invalidate the first parts of the study - identifying the types of site content and services offered on the sampled sites, and the range of business models they seem to be employing.  The study can and does validly claim that there seem to be differences in the types of business models  the sampled sites seem to be using, and that the segmenting of content and services for the sampled sites are a reasonable way of distinguishing types of content/services (if not the only possible way).  However, any specific measures and proportions aren't generalizable to the larger population of websites (either legal or pirate), and the actual commercial motives business models are inferred rather than observed. In addition, any revenues or cost estimates derived must be considered to be unreliable and imprecise (at best).  But most important from a validity perspective is the fact that the sites are only suspected of being online content pirates (or even of being commercial).  The study did not directly confirm either presumption.  Specifically, the first key "finding" identified by Roger Ashcroft above is not valid findings of the study, and would have been roundly rejected as valid conclusions by any serious peer review.
  In particular, the definition and description of the "TV Gateway" type sites make it clear that these are quite different from other content-sharing or downloading sites - and in fact, sites that only link to other places where content is legally available aren't necessarily violating copyright or engaged in piracy.  Any attempt to broadly label TV gateway services as pirates is misleading at best, and wrong and libelous at worst.  The number of such sites, and even their use, may be growing, but the study fails to demonstrate that such sites are engaged in online piracy.  Journalists should be very cautious of repeating such claims

Sources - Live-TV fastest-growing area of online piracy, says study,  Digital Spy
The six business models for copyright infringement, PRS for Music/Google report

 

FBI Blows Copyright Case

The high-profile case of contributory copyright infringement against file-sharing service MegaUpload was handed a major setback earlier today when the New Zealand High Court ruled that the search warrants used to seize servers and hard drives were illegal.
  The MegaUpload case was the US authorities' high-profile attempt to go after a non-U.S. internet service for contributory copyright infringement.  Contributory copyright infringement is defined as facilitating or encouraging copyright piracy, and MegaUpload was accused of encouraging copyright piracy by marketing a service where individual users could share files with others.  Since the corporate officers of MegaUpload lived in New Zealand, and their servers and data storage and servers were located outside the U.S., the FBI sought and obtained the cooperation of New Zealand authorities in serving warrants and arresting corporate officers.
  Responding to a legal challenge, the New Zealand High Court ruled that the warrants were illegal, as well as ruling that the FBI's moves to copy all the seized data and take it to the U.S. was unlawful.

"The warrants did not adequately describe the offences to which they related," High Court Judge Justice Helen Winkelmann said in her ruling. "Indeed they fell well short of that. They were general warrants, and as such, are invalid."

The ruling will impact further prosecutions in New Zealand and the U.S.  The judge ordered the FBI to return all copies of information and data provided by local authorities in violation of NZ law, and ruled that an independent lawyer would review all seized materials and judge what is relevant and appropriate to the case, and all other materials would be returned and could not be used in further court actions.  Lawyers for the Megaupload corporate officers raided indicated that they will argue,  in a hearing next week about how the case should proceed,  that all evidence seized in the raids should be considered tainted and invalid.  Standards in the U.S. are stricter, as any evidence obtained from illegal searches, or later developed based on information learned from the search, can not be used in court.  Lawyers for MegaUpload also argue that U.S. authorities cannot charge the company with criminal behavior because it is based in Hong Kong, asserting that no warrants or charges have been formally served on the company itself.
  Interestingly, lawyers representing the U.S. authorities said the ruling was "no surprise."  Which brings up the question of why jeopardize the case if you anticipate the warrants would be declared invalid?  Well, the procedures the U.S. have set up for combating intellectual property violations do not require any evidence of actual wrongdoing to take legal action.  The results in this case suggest that the U.S. will have trouble trying to gain cooperation from countries in the future in this area.  It's also a clear signal that a similar challenge in U.S. courts would be successful.

Sources -  NZ court finds Megaupload search warrants illegal,  Reuters
MegaUpload sees big court win, but case far from over,  cNet.com

Relevant posta -
The U.S. as Internet Bully
U.S. Efforts to Combat 'Pirates' by DNS seizure flops

ISPs and Content Owners to collaborate on anti-piracy plan

A group of media companies and ISPs (Internet Service Providers) have announced the establishment of a framework for a new organization, the Center for Copyright Information (CCI), as part of their strategy for combating content piracy.  The new Executive Director of the Center, Jill Lesser, said that the CCI  will focus on "education and deterrence, not punishment."
  According to the chairman of CCI's executive board,

"CCI's mission is to implement the most thoughtful and consumer friendly system to-date for promoting the lawful enjoyment of copyrighted material. Jill's ability to find solutions that work for content creators, ISPs and their customers will be critical to this task."

A large part of this effort involves the implementation of the Copyright Alert System - under which content owners will monitor Internet traffic, and alert ISPs as to possible violations, and ISPs agree to forward those notices to their customers (without revealing customer information).  Positive additions to this process include an incremental process with repeat offenders facing stricter potential penalties and the inclusion of an appeals process where users receiving notices can request an independent review of the accusation. In addition, according to an post on Ars Technica,

ISPs have agreed to institute "mitigation measures" (or, as you and I know them, punishments) based on the collected say-so of copyright holders. These measures begin with the fifth or six alert, and they may include "temporary reductions of Internet speeds, redirection to a landing page until the subscriber contacts the ISP to discuss the matter or reviews and responds to some educational information about copyright, or other measures that the ISP may deem necessary to help resolve the matter."

The new CCI executive board includes several representatives from public interest groups that have been hostile to the more egregious efforts of content owners seeking draconian penalties through the courts, so there is some hope that this may bring about a "kinder, gentler" anti-piracy approach.

Source - ISPs, content owners move closer to launching anti-piracy plan - Fierce Online Video
Major ISPs agree to "six strikes" copyright enforcement plan,  Ars Technica

The U.S. as Internet Bully.

For the last decade or more, internet activists, organizations, and governments have expressed concerns about the possibility of the U.S being able to control the Internet, based on the location of the primary root files and governing Global Domain Name System in the U.S. (which funded the early system, and remains a primary source of operating funds).  Until 2009, the U.S. repeatedly and very publicly promised, at all levels and in every international meeting where "U.S. control of the internet" was discussed, that it would never interfere with the operations of the Interrnet's infrastructure, or the operation of the Global Domain Name System.

  That all changed with the Obama administration and a program run out of Customs Enforcement concerned with intellectual property theft (online IP piracy, and online trafficking in counterfeit products). "Operation In Our Sites" decided to combat IP theft by seizing the domain names of firms suspected of trafficking in counterfeit goods or pirated entertainment content.  That is, by actively and purposefully interfering in the operation of the Global Domain Name System and validating every fear about the big bad rogue U.S. manipulating the Internet for its own purposes.  And not once, but more than 700 times (so far).  All in spite of mounting evidence that those actions have been uniformly ineffective in actually stopping (or even slowing down) IP theft.
  The folks behind the program further raised the stakes with the high profile seizure last week of the domain name of Bodog.com, a Canadian sports-wagering site with no direct presence in the U.S.  Not only was it not a U.S. firm, and it's website not registered or operated in the U.S, but it was not alleged to have violated IP law, or to be engaged in IP theft actions.  The seizure seems to be the result of an arguement that it was engaged in online sports betting - activity that is legal in Canada and other countries where Bodog offers that service, but not in the U.S. (where it does not offer the services prohibited by U,S, law).  So it seems like the U.S. authorities felt it was proper to take action because a foreign firm offered services that were legal where offered (outside the U.S.), but not legal in the U.S., where the service was not available.  Further, in defending the action, a Customs Enforcement spokesman asserted that the U.S. had the right to seize any .com, .net, or .org domain name it wanted to, merely because the company that runs those servers is located in the U.S.
 An internet infrastructure watchdog group protested the cavalier attitude behind such an assertion, saying  that the “ramifications of this are no less than chilling and every single organization branded or operating under .com, .net, .org, .biz etc. needs to ask themselves about their vulnerability to the whims of U.S. federal and state lawmakers.”
  ICANN, an internet nonprofit charged with oversight of the Global Domain Name System has publicly limited its reaction to statements that they aren't involved, but have also acted in recent years to authorize a large number of additional domain names, which would be run by other organizations outside the U.S., and not subject to such actions.  Over the years, ICANN has been battling efforts to further remove the U.S. from any role in the oversight or control of Internet infrastructure.  There has been a concerted effort by the UN to shift Internet governance to a UN agency, beginning with a 2005 Working Group report concluding that "no single country should have a preeminent role in international internet governance."  A series of international meetings were held to develop proposals - efforts that were stalled in large part because of renewed promises by the U.S. that it would take a "hands-off" approach.  I was at some related meetings, and the concerns and threats to shift control are real and substantial.  With these actions by the U.S., with the blatant breaking of years of promises of benign intent, any credible opposition to removing U.S. involvement in Internet governance vanishes.  Look for a renewed movement to shift governance to a UN agency.
  In a Wired.com piece, David Kravets wonders whether these recent seizures will encourage more Internet firms to move their sites and registrations offshore, or even encourage Internet firms to move themselves overseas - in a global Internet environment there is no real need to be in the U.S., and increasing risk to remain.  Or will

the U.S. government’s big-footing over dot-com domains in the name of fighting copyright ... add more weight to the arguments of those who want to put the U.N. in charge of the internet’s naming system. While that’s not inevitably a bad thing, it could lead to a world where any .com might be seizable by any country, including Russia, Libya and Iran.

   Telecomm and online regulation and legal maneuvering tends to be short-sighted and problematic, because it is often done by people who don't consider the implications of their actions, and/or don't understand the technologies and markets they seek to control or influence.  Here, it's all in play - an incredibly and extremely short-sighted effort that will not only have virtually no shot at actually achieving its stated goals and purpose, but has a real chance of resulting in significant and long-lasting harm to the U.S. Internet industry - and a very real chance of destabilizing and perhaps even destroying the Internet as an open-access system.
  How can we let this happen?

Source -  If It Ends in .Com, It's .Seizable,  Wired.com

edit track - cleaned up some language in the early sections (7 March)

PolicyFail - SOPA/PIPA protest update

I've commented before on the bad policy at the heart of the SOPA/PIPA legislative proposals.  Last week, thousands of websites "went dark" for a day in protest.  Some gave an indication of what a DNS seizure (perhaps the most egregious part of the proposed anti-piracy legislation) would look like, by blocking access to their main sites.  Many others, including a number of the largest Internet sites, placed protest notices and directions for contacting Congresscritters to register their objections.
  The efforts did not go unheeded.  “The voice of the Internet community has been heard,” said Rep. Darrell Issa (R-Calif.), indicating that House leaders would not vote on a bill that included the most problematic sections.  The White House also issued a strongly worded statement, saying the President would veto any bill that did the things critics alleged that SOPA/PIPA would do, after months of "strong support" for the bills.
  After the protests, though, came news that U.S. officials had arranged for the arrest of the chief executives of Megaupload in New Zealand, and seized their DNS address.  This action, however, raised questions about the "urgent need" for the SOPA/PIPA legislation, and the negative side-effects of DNS seizures.  Megaupload offers what's called cyberlocker facilities - a place where users can store files online, and allow others to access them.  There are plenty of legitimate uses for such a service, and, of course, it could also facilitate online content piracy.  The U.S. argued that Megaupload facilitated piracy, by not verifying that every uploaded file was legally licensed (and in the way it promoted and rewarded high-volume file-sharing that was likely to be trafficking in pirated content).
  While proclaiming a victory against piracy, the action showed that they didn't need the SOPA/PIPA legislation, flatly contradicting their earlier positions, and the content industry's vehement claims, that the proposed bills were essential to combat global piracy.  It also amply illustrated the major problems with the approach.  The piracy continues - the larger content pirates quickly moved to other sites, as has happened with previous DNS seizures.  In fact, a DNS seizure does nothing about the alleged pirated content - it only disconnects the site's text name (domain name) from its numeric web address. A simple registration and the site can re-open under a new domain name (or savvy Web users can use the numerical web address for direct access to the content).  Yahoo! News is already reporting a numerical address for the Megaupload cyberfiles.
  In the meantime, until the numeric address or a new domain name is publicized, the seizure prevents legal users from accessing their files; one of the biggest problems with such an approach is that it does not discriminate between legal and illegal uses, another is that the action is based on an allegation of criminal activity rather than actual evidence of it - it's akin to seizing and closing a drug store because someone complains that they saw a counterfeit aspirin.
  And rather than fighting cyberterrorism, such actions encourage it.  In response, the hactivist collective ANONYMOUS countered the seizure with cyberattacks shutting down more than 10 websites at the DOJ, RIAA, MPAA, and large content providers backing the bills, all within a 20 minute period.  A posted statement allegedly from the group promised "more is coming"
  So, while a few people were arrested, thousands of innocents are harmed, and the piracy continues unabated.  It's a preview of what passage of the SOPA/PIPA could mean.
  I've been arguing for more than a decade that the only thing that could kill the Internet would be strict application of a copyright system designed for physical media to a digital world, combined with over-reaching enforcement policies and actions.  We've seen a demonstration.  Can we allow it to continue?

Sources - SOPA protests shut down Web sites, Washington Post, Post Politics blog.
Why Did the Feds Target Megaupload? And Why Now?,  Gizmodo
Megaupload is Back with New Domain Name,  Yahoo! News
Web War!  Anonymous Downs, RIAA, UMG, MPAA, Justice Dept. Websites,  AllAcess.com 


edit track: a draft was published due to a bad mouse click.  This first edit was to complete the post.