Fighting For Your Right to Be Outdated

All the discussion about streaming sites’ VPN blocking and other attempts to stop online piracy have, to a large extent, ignored the business models that content owners are following. Many of them, like television networks, they have continued to ignore changes in technology and obvious consumer demand and instead have looked to legal and technological methods to protect their old way of doing business. While that does not justify consumers’ misuse of someone else’s intellectual property for commercial gain, it does serve as a reminder that content owners could avoid losing money if they would act a little smarter.

Take TV shows, for example. Viewers have demonstrated a willingness to pay or watch ads in exchange for watching current programs online. Distribution through sites like Hulu and iTunes have clearly shown this. Yet many content owners still refuse to put some shows online during their current seasons, or decline to make their older series available for streaming on Netflix, because they are still trying to make money through older distribution methods, methods for which consumers are showing less and less interest (e.g., oddly-timed cable TV in other countries, or selling DVDs). Because consumers know that easy and inexpensive online distribution is possible, they are coming to expect it, and they resent content owners trying to force them into other methods that have been a moneymaker in the past but which are simply falling out of favor. Viewers overseas are generally unable to access sites like Hulu because TV series are often released later overseas and the networks do not want shows available online until they have been on TV there. In a way that makes sense, but since overseas viewers are already going to pirate sites to get their current shows, wouldn’t it make sense for networks to adjust their timing to take advantage of that demand? Consumers who would be willing to pay are instead turning to pirating sites not because they are free but because for many series that is simply the only way to watch a show online. Networks end up leaving money on the table because they aren’t willing to adjust their business model.

Content producers probably do this because it has worked for them before and they have gotten some protection under the legal system, but that past success in the courtroom and other arenas has made them lazy now. In 2001 a group of TV networks filed suit against ReplayTV, which produced a DVR with an automatic “commercial skip” feature that detected commercials during playback and skipped past them. Rather than finding other ways to generate revenue the networks instead turned to the courts, their justification being that this technology fundamentally altered their ability to make money (kind of like electric lights fundamentally altered the oil lamp industry’s ability to make money, though I don’t see anyone pining for that). ReplayTV filed for bankruptcy in 2003, so the networks won, but their success kept them from devising better alternatives. Today, DVRs still have fast forward buttons, and I doubt very many people who watch a recorded program are still watching commercials, so the networks still face the same problem.

This is not just limited to the networks. Music companies were successful in shutting down Napster but only later did they start getting smarter about actually distributing music digitally themselves. Had they focused on their business practices rather than litigation, they could be a lot farther along. Digital content carries a marginal cost of 0 (that is, an additional customer does not incur additional costs, unlike a CD or DVD, which requires a disc, packaging, and shelf space for each additional unit to be sold) so it can be a great moneymaker even at a low price, because once the fixed costs are paid, everything beyond that is profit.

The lesson here is that, when your industry goes through fundamental changes, you need to adapt to that change and take advantage of emerging opportunities, rather than expecting the government to fix your problem or otherwise stick your head in the sand and ignore those changes. Sure, you might be successful in suing someone, but once the public knows that other, better distribution methods are available, they are going to demand them, and if you ignore that and try to stick with outdated methods, you will lose legitimate customers who will otherwise turn to pirating (or its equivalent for your product) or just quit consuming your product altogether.

The idea of looking for the best distribution method is not restricted to those who produce content. You might think that hairstyling doesn’t really lend itself to methods other than cutting hair in a salon, but give it some thought. Is there a market for house calls? What about doing hair for a wedding onsite rather than having the wedding party come into the salon in the days leading up to the ceremony? If you can provide a desirable distribution method while your competitors aren’t, you can soak up part of the market that they are leaving behind.

None of this is a justification for illegal behavior on consumers’ part, but at the same time, there’s not much excuse for using taxpayer funds to support dumb business decisions by content owners who are too lazy to make changes or too incompetent to be able to. If you are smart, you will focus on making the best business decisions rather than counting on the courts or the government to protect you from yourself.