TV shows and movies are pirated online increasingly each year, but Netflix has figured out a way to capitalize on the trend.
Sharing has been made synonymous with theft in recent years. Aging American corporations blame so-called pirates for making digital files accessible to other people over the Internet.
As part of its strategy to build a bigger user base in the Netherlands, Netflix has begun tracking Internet piracy over a number of torrenting sites to help the company determine what new shows and movies will be popular among its new users. The company's VP of content acquisition, Kelly Merryman, told the website Tweakers that the company's recent licensing of the series Prison Break was a direct result of seeing the show's popularity on piracy sites.
This is a notable shift away from the monotonous antagonism toward the unlicensed sharing of certain kinds of media, which began with attacks on Napster and culminated in the bloated SOPA and PIPA bills. A study released by the Government Accountability Office in 2010 admitted that there was no clear evidence to support the idea that Internet piracy was harming the economy. A study from last month found evidence that piracy actually increased the box office revenue of small and medium-budgeted films by increasing person-to-person promotion.
In the same way that print magazines charge advertisers a rate based on the assumption that as many as eight different people will be exposed to a single issue, a movie downloaded through a torrenting service will presumably be mentioned in conversation to several other people, and it's likely that at least some of those will eventually find their way back into retail.
For every instance of potential revenue lost to someone pirating Windows or cracking iOS to steal bits of code, there is something potentially generative added back into the world.
A new report in Foreign Affairs suggests that Internet piracy in China has been a significant help to the world economy in recent years. The report cites the Weibo, which began in 2009 as a knock-off version of Twitter's micro-blogging service. The company now connects 30 percent of China's Internet users and has surpassed Twitter in scope and breadth of features. Another example is the iPhone imitator Xiaomi, which has generated $1.6 billion from seven million phones sold during the companies lifespan of less than two years.
"Nearly all creations rest on prior work, and the ability to freely copy and refine existing designs fuels fields as varied as fashion, finance, and software," Kal Raustiala and Christopher Sprigman argue in the story. For every instance of potential revenue lost to someone pirating Windows or cracking iOS to steal bits of code, there is something potentially generative added back into the world.
One of the fundamental problems in thinking about Internet piracy is the conflation of a number of different acts into a word that comes with heavily prejudicial implications. The office worker using pirated software in China to make products that will never be profitable enough to justify the overstuffed prices of Adobe is not stealing anymore than those companies are by charging the equivalent of a half a year's income for productivity software. The kid downloading episodes of a BBC show that hasn't been licensed for the territory he lives in yet is not a thief, nor is someone downloading a video game that will never come out in his country.
In objective terms, it's the IP owners who make the first aggressive gesture by limiting what can and can't be shared across a network, placing limits on the kinds of generosity that would be seen as noble in every other circumstance.
What helped create markets for overpriced productivity software and an overflow of movies, songs, and games was the natural limits on their manufacture and distribution in pre-Internet times. They required an industry of heavy manufacturing and shipping to seem valuable, involving tens of thousands of people in overlapping logistical roles to connect creator with user. These industries have been mostly removed now, and so the value of the things that were one transported through them has collapsed alongside.
The economic trap has thus been sprung on both sides. Old guard companies have staffed up to over-complicate and refine products that didn't necessarily benefit from it, and now they're stuck with unsupportable overhead costs and waning marginal value of their good.
Meanwhile, consumers seem to have realized the things they were obsessing over a few years earlier are mostly interchangeable and not especially valuable in themselves. It's not the show people ultimately want to watch, after all, but the community conversation they want to share in. Watching the show is just the door fee, the excuse to interact with other people. And that communal interaction does not seem especially worried about the cost difference between making one piece of content (a YouTube post shot with a webcam) from another (a music video made by a celebrated director and highly skilled crew).
Corporations will never be able to profit from individual sale of these conversation pieces in the way they were able to in the last century. Making these nominal data packages available to anyone seeking them is as much a cultural virtue of the Internet as it is an economic detriment to 20th century business models. As Netflix seems to have discovered, there is a more profitable role to be played in making the sharing of those digital assets safer and easier, than there is continuing to over-invest in individual works and then withhold access.
Michael Thomsen is Complex.com's tech columnist. He has written for Slate, The Atlantic, The New Inquiry, n+1, Billboard, and is author of Levitate the Primate: Handjobs, Internet Dating, and Other Issues for Men. He tweets often at @mike_thomsen.