The proliferation of free content on the Internet has had a profound impact on consumer behavior and the business models of companies in the content monetization game. As consumers, we simply are unwilling to pay for content that we might have shelled out a few bucks for in the past. Our mindsets have changed to a point in which we expect content to be free and are surprised when we are asked to pay for it.
This leaves those businesses producing content in a tough spot. On one hand, they need to adhere to the new reality of consumer expectations, but they must also monetize the content somehow to pay the actors, musicians, writers, etc. that are integral to the development of a high quality product. This tension between business needs and consumer expectations has spurned a huge market for illegal pirated content (aka online piracy).
The impact of online piracy is massive. According to a report from CNBC, online piracy results in a loss of $16 billion in lost revenue on an annual basis. Content owners not only want to quantify the impact of online piracy on their business performance, but also want to uncover trends in consumer behavior as it relates to this content. Who is most likely to engage with online content? Do they engage with legal content online?
Recently we partnered with a few of the country's largest studios to study the dynamics of both illegal and legal online viewership of TV content. By analyzing behavioral data from our two million person U.S. panel we discovered some interesting findings.
1. Although the number of viewers consuming pirated TV content online is significant and growing, it is only ~1/3 the size of the "legal" online TV market (i.e. Hulu, studio sites, etc.). This puts into context that although piracy is a huge threat, companies that are able to monetize online content legally through either advertising or subscription are still able to attract a substantial piece of the market.
2. Young consumers are the most likely to view online pirated TV content, but not as likely as older consumers to view TV shows on legal websites. 39% of those who viewed TV content illegally online were in the 18-24 age bucket (highest share of any age group), yet only 23% of those who viewed the same content through legal websites fell in the youngest cohort (trailing older demographic buckets). It is not surprising that our youth are the primary consumers of illegal pirated content, but it is somewhat surprising to see that they do not consume online TV shows legally at a greater rate than older consumers. This could be an indicator that our youth are so accustomed to free content that even the presence of a few advertisements drive them to prefer illegal channels, yet it also illustrates how older consumers are increasingly embracing the Internet as an accepted delivery medium for studio-produced TV content.
3. One in three visits to pirated online TV content occur the day the show airs on television. This illustrates the sophistication of these illegal operations being able to offer consumers content with no time lag compared to that of legal services. The lack of a value gap in timeliness of content between illegal and legal sites makes it that much harder to convince consumers to migrate towards legal channels. In fact, pirated sites often offer the content before it is available on legal sites! If content owners and legal site operators could more effectively ensure they were first to market, they undoubtedly could influence some consumers of illegal content to use legal channels as an alternative.
In sum, online piracy is a huge market that likely only will become larger. It will be interesting to observe how content owners modify existing business models to deal with the societal shift towards expectations of "free" when it comes to studio produced material. As this data illustrate, the threat is real, yet at least in the case of TV content, legal distribution remains king. However, the throne might be in jeopardy in the near future.