Shades of Gray: BitTorrent And The Illicit Nether World Of Media
The student returns to his dorm, still buzzing from the opening night screening of "Serenity," the Universal Pictures sci-fi shoot-'em-up. He liked the film, a lot, but that only partly explains this unfamiliar natural high. He's been wound up by something else, a joy he'd almost forgotten how to feel: the communal exhilaration of a movie theater packed full of eager, like-minded fans.
In fact, it's the only film he's seen in the theater this month. And he's a film student.
That's because for this student, and many others in his computer-savvy generation, the preferred, even default venue for viewing favorite films and television shows is on a high-definition computer monitor. His interest piqued by "Serenity," he logs onto BitTorrent, the peer-to-peer file-sharing network that now accounts for 20 percent of the Internet's traffic, and begins to download high-resolution files of the entire season of "Firefly," the short-lived cult tv series that was the basis for "Serenity."
It's another night of business as usual on BitTorrent (or on similar peer-to-peer networks like eDonkey, Bearshare, FastTrack, Gnutella, or Ares). Only this is not, strictly speaking, business. No one makes a cent off this download transaction -- not 20th Century Fox Television, which produced and aired "Firefly," and certainly not BitTorrent. And, what's worse, the ads that initially ran with the tv broadcast have been neatly stripped out of the episodes.
Is this any way for the media industry to survive? In an apparent replay of the infamous Napster standoff with the music industry, peer-to-peer (P2P) networks have mutated and diversified into a huge phenomenon that has Hollywood studios on the defensive. The Motion Picture Association of America (MPAAa) has borrowed some tricks from the playbook of the Recording Industry Association of American (RIAA), filing lawsuits against pirates and P2P developers, and jamming p2p networks with download-clogging dummy files --the MP3 and MPEG equivalent of spam.
The riaa's aggressive crackdown may have made a dent in illegal music file-sharing: A recent study by the Pew Internet & American Life Project reported that just 16 percent of the over-18 population uses P2P networks to acquire music, and that 17 percent of respondents who once swapped files this way have stopped doing so. But a far more telling figure from the same study reveals that 27 percent of the adult population now uses legal online downloading services to acquire music. Clearly, the downturn in music piracy has much less to do with fear of litigation than with the emergence of a legitimate, monetized on-demand alternative, provided most prominently by Apple's iTunes Music Store and its iPod.
The music industry's instructive example may explain why Hollywood's saber-rattling about piracy is mixed with a guarded optimism about the business potential of P2P. Not surprisingly, Apple is again ahead of the pack, recently announcing a deal with Disney/ABC to sell downloads of the hit tv shows "Desperate Housewives" and "Lost" for $1.99 an episode through iTunes. The episodes can be played on a new generation of video-enabled iPods.
Other early adopters include pbs.org, which recently announced a video-on-demand service Sprout TV, and CBS, which has begun making its series "Threshold" available for Web downloads. Marketers are also getting into the act: Burger King made a deal with Heavy.com to offer free, ad-supported comedy shorts for play on video iPods, and Adobe Systems recently offered a half-hour infomercial on its Photoshop software for the same new platform.
Entertainment company shareholders, nervous about the decline in domestic box-office and the surge in global content piracy -- a much bigger problem overseas than in the U.S. -- may be grateful for gestures like mgm's lawsuit against Grokster. In that suit, the Supreme Court earlier this year overturned the decisions of lower courts and ruled that file-sharing software providers can be held liable for "inducing" users' copyright infringement. Last month, Grokster agreed to shut down and pay $50 million to settle piracy complaints by Hollywood and the music industry. The company's executives plan to launch a legal, fee-based service before year's end.
At the same time, however, movie executives who follow the music industry's struggles know that the file-sharing juggernaut can only be slowed, not stopped. Instead of threatening onerous legal action against P2P networks like BitTorrent, Hollywood is looking seriously at P2P trends and seeing a potential market, not a deadly virus. "The lawsuits and the attempts to deter users are really just about delaying the inevitable, so there's time to establish business models everyone's happy with," says Brian Wieser, vice president and director of industry analysis for Magna Global USA.
Though some executives, such as Disney CEO Robert Iger, have gone on record expressing their openness to partner with rather than crush P2P networks, most of the negotiations are strictly behind closed doors at the moment. Says Wieser, "If I were king of Movie Studio 'X,' I don't know if I'd want it to be known that I'm willing to play ball with people who are giving away something for free, which is undermining the shareholders' bottom line."
What is file-sharing's body count? A recent study conducted by nbc Universal found that the piracy of intellectually copyrighted products -- music, books, tv shows, films, and patents -- is costing the U.S. about $250 billion annually. But that figure includes offline piracy, a much bigger problem overseas than in the u.s. Furthermore, while BitTorrent has attracted 45 million users, film downloads are still a relatively time-consuming experience.
"P2P networks are as popular as they can be, because you have the issue that it takes significant time to download, because of the size and compressionability of those files," says Corey Treffiletti, senior vice president and engagement architect with Carat Fusion. Magna's Wieser agrees: "It's still kind of a hobbyist thing to download content and watch it on your computer."
Eric Garland, CEO of BigChampagne, a firm that tracks file-sharing traffic, puts the trend in perspective. "It's like Napster was 5 or 7 years ago," he says, adding, "It's disproportionately popular with a few early adopters, and comes on strong and fast with a particular demographic."
Garland is also quick to point out that some of the statistics about BitTorrent are slightly misleading.
"If you're talking about traffic, BitTorrent is the most popular application on Internet," Garland says. "But that says more about the application being a bandwidth hog than about the popularity of the application. So we try to be careful not to overstate the multimedia swap," he explains.
Still, just as the music file-sharing habit has penetrated the mainstream market beyond its initial computer-geek popularity, video file-sharing is increasingly migrating from the fringes.
"One night my wife asked me, 'Are you able to get tv on that thing?'" Garland recalls, adding that his wife, a fan of NBC's "West Wing," had missed some key episodes and wanted to catch up. "This is how casual piracy is born. Here's a schoolteacher who doesn't jaywalk, who listens to NPR, who's fiercely ethical, who's asking me, 'Can you score me some pirate tv 'cause I missed the episode?' That seems like a legitimate want. That's video on demand."
A Marketing Injection
Back to our computer-savvy film student. Look closely and you'll notice he doesn't just download film and television episodes. Catch him in an unguarded moment and you'll see him actively seeking out and watching ads.
First, he's marveling at Weiden + Kennedy's complicated Honda spot "Cog," and sending the link along to his friends. Then he browses the quirky blog boingboing.net and follows links to ads deemed "brilliant" by the host (a good number of them, admittedly, vintage or foreign ads with ironic appeal). Then he logs onto Apple's high-definition demo site to see if any new movie trailers or short films have been added. Given the scarcity of high-definition tv content available, he enjoys watching almost anything, even ads, in HD just to give his state-of-the-art monitor a test drive.
But how about that pre-roll ad he was hit with at the front of a just-downloaded, average-resolution iMovie file of "Lost?" Time for a bathroom break.
If content producers have their work cut out for them in forging a profitable business model that fits on-demand P2P habits, marketers have an even tougher job: figuring out how to reach consumers who've taken control of their own media. Even if film and TV producers do find a way to turn the "dark alleys" of file-sharing networks into a legitimate content bazaar, where will marketing fit into the picture?
"If you want to get between two sharers who've hooked up on a P2P network according to their personal preferences and tastes, that's tough," says Big- Champagne's Garland. "In a gray market, they're two anonymous individuals; you don't really have an opportunity to interject your brand."
As director of emerging media for OMD, Jeff Minsky is charged with monitoring trends, not only in P2P file-sharing but in such new tv technologies as interactive, telescoping, and multi-screening. "There is a growing awareness among clients that they're going to have to move from interruptive breaks to a much more content-providing role, and that is a challenge," Minsky says. "They are not used to that role, nor is there any proof that it can be made economically viable." As a result of this wait-and-see attitude, there are many experiments but "no best practices yet," he adds.
As with the Internet, many experts predict that the new world of on-demand video will enable more targeted and measurable marketing. "Once you have heavy consumers and it's a legitimate business, and rights holders are being compensated, you will have a roadmap to the tastes of individual consumers," Garland says, adding, "Procter & Gamble used to pay housewives to look in their cupboards. But you've never had this kind of ability to smart-market to consumers."
Indeed, in a Magna Global usa report authored by Wieser, "If the Thunder Don't Get You (The Lightning Will): The Inevitability of P2P Networks and the Opportunities They Present," he predicts: "P2P may prove to be as powerful a platform for marketers as contextual advertising, and almost certainly will complement existing online opportunities very well."
Wieser's report outlines five advertising models that may work, some even in the current, not-quite-legal P2P world: Sponsorship, with "highly targeted" ads embedded as pre-roll video; branded entertainment, which could be spread virally through }P2P networks; free trial versions of software, particularly games; free song and video samples that drive consumers to the artists' or sponsors' Web sites; and -- an idea our film student might enjoy -- a library of "classic" commercials which could be placed on P2P networks. For an example of an ad-supported model that might work with P2P, Meskauskas cites WeatherBug, an adware application powered by aws WeatherNet that updates local weather with a small ladybug icon.
"In order to have that be free, there's advertising. But I can choose from a list of advertisers that have opted to support that," Meskauskas says. "Being more interested in the advertiser itself is going to make me more receptive to whatever message they're presenting, because I've opted in. So when I pick Expedia as a sponsor for a month, I'm given the Expedia browser, and the bug icon may be wrapped with the Expedia logo. For the advertiser it's priced almost on a cost-per-click basis."
Applied to a P2P environment, Meskauskas says, this model would have the BitTorrent icon, or the download bar, branded with a logo. Even so, he concedes that marketers will have to proceed warily, because an "instinctual revulsion against marketing is not a small part" of what has driven the P2P trend.
There's truth in that, Wieser says, but he adds, "The value for consumers is not ad avoidance, though there may be some in that. The value is being able to watch it whenever you want it." In his report, he's even clearer: "The biggest driver of file sharing is the limited availability of content."
Closing a Window, Opening a Door
So the ball is firmly in the content producers' court. The opportunity is theirs to lose or win. But not only do film and TV studios have the music industry's example to learn from -- they also have their own past to guide them.
"Hollywood has been diversifed for so many decades that a disruptive new technology is almost old hat," Garland notes. "They've become very good at monetizing the same piece of content over and over again. You go to the movie, buy the DVD, buy the CD. Especially if you've got kids -- I feel like I'm four or five products deep into 'Finding Nemo.' When the dust clears, what this may amount to is little more than another revenue window."
The untapped potential is large and growing: A report by Envisional, a firm that tracks P2P networks, shows that worldwide downloads of the Fox series "24" on BitTorrent networks rose from an average of 35,000 for each episode from the 2003-'04 season to an average of 95,000 for each episode from the 2004-'05 season. Downloads of ABC's "Desperate Housewives" rose from 40,000 for its debut episode to 60,000 for more recent episodes. abc's willingness to sell episodes of the latter show should drop that number as consumers shift to a legal downloading model.
But with file-sharing on the rise and the broadband Internet decreasing lengthy download times, the window of opportunity for content creators is beginning to narrow.
"Unlike with music swapping, it's still really arduous to do the equivalent with movies," Garland says. "The huge and obvious opportunity for Hollywood is to introduce the idea of doing it better. If you simply took the millions of dollars they spend on anti-piracy efforts and used some of them to make sure there's a cogent system for delivering content online, all these networks would be incredibly robust," he adds.
Likewise, once Madison Avenue gets behind a working model, the new media may give advertisers a golden opportunity to increase relevance and eliminate waste.
"The ability of peer-to-peer networks to better serve ads that are more specific to the consumer can develop a level of trust," Minsky says. "We don't want to make the mistake of overcluttering, as we did with pop-ups on the Internet. We should have learned from the Internet, and even from broadcast, that it's not just about the eyeball. It's about the quality and impact of those eyeballs."
Minsky could be speaking both for Hollywood and Madison Avenue when he concludes: "The industry needs to figure out a better delivery system and reinforce that the consumer is getting value from the exchange."