• by Laurie Sullivan  @lauriesullivan, January 3, 2013

Two of the world's largest search engines, along with eight other ad networks, fund Web sites with pirated content through advertising, according to a report from the University of Southern California released Thursday. Fixing the problem could force brands to bid more to run ads on premium sites.

The Annenberg Innovation Lab Advertising Transparency report names the top 10 offenders. The report lists Openx, Google, Exoclick, Sumotorrent and Propellerads among the top five funneling cash to the sites displaying pirated materials. Yahoo, including Right Media, Quantcast, Media Shakers, Yesads, and Infolinks, are No. 6 through 10, respectively.

The first USC Annenberg Lab Advertising Transparency Report details the online ad networks' support of pirate movie and music sites around the world. It shows that many major brands are not aware that they are the key source of funds for the piracy industry. The goal is to help brands steer their ad dollars away from sites that exploit film, TV and music artists for what appears to be criminal gain.

Fixing the broken system creates a double-edged sword for advertisers.

The laws of supply and demand on legitimate sites would kick in, creating a bidding war. For brands, the price to serve an ad on a premium site would likely rise, but at least brands wouldn't fund sites distributing pirated content. It would raise the value of ad spots on premium sites.

Jonathan Taplin, director of the USC Annenberg Innovation Lab, doesn't believe the industry can rely on government regulation alone to fix the piracy problem. In 2011, Google returned $500 million to the U.S. Department of Justice for allowing online Canadian pharmacies to advertise drugs to U.S. consumers, but companies must also self-regulate. Those in major technology sectors, like the online advertising industry, could make it more difficult to provide funding.

"I'm sure Procter & Gamble ads don't end up on porn sites, so there's no reason why the industry can't do the same with pirate sites," Taplin said, citing Google's pirate site count as 44,000. "Pirate sites are basically parasites on the creative economy. None of the money that flows into their coffers goes into producing content."

Google partners with about 2 million sites that operate on a revenue share. All sites abide by strict policies pertaining to content and copyright infringement. It's the sites for which Google doesn't have a relationship with the publisher that present the problem, where the sites don't share revenue with Google. It's a technical challenge to see where the ad appears and have the system make a decision on when to serve them.

"We don’t have the full details on this report or its methodology, but to the extent it suggests that Google ads are a major source of funds for major pirate sites, we believe it is mistaken," according to the Google spokesperson. "Over the past several years, we’ve taken a leadership role in this fight, partnering with industry organizations to cut off the flow of money to piracy sites, as well as investing significant time and money to keep copyright-infringing content out of our network. The complexity of online advertising has led some to conclude, incorrectly, that the mere presence of any Google code on a site means financial support from Google."

The USC findings also cite a report -- The Six Business Models of Copyright Infringement -- funded by Google and PRS for Music, with research conducted by BEA Systems that outlines the ways that ad networks support major pirate movie and music sites around the world. It also finds that advertising financed 86% of the peer-to-peer search sites that feature illegally distributed content.

USC said it used a bot to scrape ad network HTML identifiers from each ad to identify the advertising network responsible for its placement.