Worldwide, roughly 41% of all software installed on personal computers is obtained illegally, with foregone revenues to the software industry totaling $53 billion.These are staggering figures, and they only account for software. The music industry also studies the challenges. One credible analysis by the Institute for Policy Innovation concludes that global music piracy causes $12.5 billion of economic losses every year. Again, enormous figures. I've read old reports (from five years ago) that sales of bootleg music accounted for roughly 34% of all sales globally. Outside of developed markets, it would seem those numbers push well past 80-90%.
The data and staggering figures are certainly equally similar for television, video games, and film. Digital distribution, empowered by rapidly growing broadband access and pervasive mobile device internet access, is only rapidly accelerating the problem.
Industry leaders have tried various solutions to the address piracy. Software developers have tried to use "keys" as a means to control distributed copies and the music industry attempted to employ digital rights management through Apple iTunes. But, both of these attempts have largely failed to solve the problem.
As I see it, there is really only one viable solutions to intellectual property piracy. And, DRM is not it. The solution is (or almost) free content distribution with merchandising, advertising, or feature upsells. A low entry price-point (free or negligible), but peripheral monetization is how the IP industry needs to think. Zynga gives games away for free, but makes money on virtual goods. Google gives software away for free and makes money on advertising or by charging for increased storage/features. Musicians should give music away for free (or a very low cost) and monetize concerts and t-shirts. Online video should try to thrive at the intersect of nearly free (thwarting the need to pirate, yet still generating some high gross margin revenues) and monetize through volume, product placements, embedded campaigns, and interactive viewer engagement.
The net-net is that some form of hosted model with a free or cheap pricing model is a clear front-runner as a means to control piracy.
- Hosted, on-demand, in-the-cloud software is one way to tackle the problem for the software industry. The drawback with that are that today (and for quite some time to come), Internet connectivity is not truly pervasive so use is somewhat confined.
- The music industry has and continues to toy with various streaming, on-demand radio-like services, ranging from Napster to Pandora to Ruckus. Although not perfectly refined, they will get there eventually. Likewise, the music industry could/should look to reducing the cost of the actual music and instead monetizing the periphery (as they already do with concerts and physical products).
- The gaming industry is on the forefront, with an explosion in hosted games online and online gaming communities. This industry "gets it" and is faster at exploring alternative revenue streams such as virtual goods and advertising. Piracy was a major issue in Asia, and that drove a "need" to migrate from a pay video game model to a free video game model with virtual goods. Zynga is a great case study on that model.
- Video, television, and film are the least well positioned to deal with the the issue, but partnerships with Internet Service Providers can help address this. Revenue sources are bound to change (notably the syndication stream), but better customer data with targeted advertising could mean higher CPMs and product placements integrated with web strategies could provide for longer-term customer loyalty. American Idol (with interactive voting) and Heroes (with the Sprint campaign) are prime examples of the evolution of live television. The long-form film industry (excluding physical theaters) has a lot of wiggle-room in my opinion to play with pricing. A movie at the theater is $10, which is not an extraordinary sum to begin with, so with less expensive direct distribution and reasonable merchandising strategies, it would seem that the free or nearly free online showings (a la Cable On-Demand) could provide for the same bottom line.
