Netflix and Hollywood: Two different approaches to online piracy

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The ever-expanding streaming service is benefiting from online piracy at the same time as reducing it. Hollywood should take note.

There’s a scene in P.t. Anderson’s Boogie Nights that signals the death knell for the dominance of the cinematic format in the adult film industry. In one jarring, bloody scene the director highlights the transition from cinema to VHS and presents us with a metaphor for the film industry’s awkward fumble into new technologies. One wonders, if P.t. Anderson were to make a new film detailing Hollywood’s current gripes and its slow transition into online streaming formats such as Netflix and Amazon Prime, what the permutations would be. Would murder be a suitable analogy or are today’s chief exec’s much more weary of taking the plunge? Are they too scared to pull the trigger?

Hollywood has been typically slow in its uptake of online streaming technology, resorting rather to milk the little they can out of old formats. Take for example the release of Blurays in 2005, essentially a DVD upgrade when streaming was clearly on the horizon, and the advent of 3D cinema, at times it can be spectacular, but more often than not it acts as a cheap gimmick aimed at adding a few extra quid to that cinema ticket.

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A statistic from a few years ago is particularly revealing; of the 10 most pirated movies of 2011, zero were available at the time to rent online. Hollywood seems to be shooting itself in the foot when it comes to fighting piracy, but it seems that there are a few companies that have been daring enough to take the step and benefit from the big moguls’ current uncertainties. Things seem to be changing on the horizon, finally.

So how are companies like Netflix and Amazon Prime reacting to piracy? It’s simple. They are giving consumers what they want and making it readily available. More so than the online pirated content. Netflix’s CEO, Reed Hastings, unlike the majority of the big wigs at Hollywood, seems to be looking at things from the perspective of the consumer rather than focusing purely on lining his own pockets. This is benefitting his company immensely. He knows that if someone is able to obtain a movie illegally in pristine 1080p with two clicks of a button, it is very likely that they will do just that.

So what are Netflix really marketing to the world? Hastings answered this question himself by saying, ‘we offer a simpler and more immediate alternative to finding a torrent.’ So essentially, they are providing the consumer with a hassle free streaming service, for an affordable monthly fee, that guarantees image quality. There’s no need to advertise it this way, it’s obvious from the first minute you sign up.

This means that for most tech-savy consumers Netflix is seen simply as a time saver; even if you know how to use torrent files you don’t have to scroll through huge amounts of links before you get to one that is of acceptable quality. This is the reality of the situation, and Netflix knows that it’s a more valuable use of their time trying to better online pirating services than it is trying to demonize them. In fact, Hastings has said himself that ‘you can call [piracy] a problem, but the truth is that it has also created a public that is now used to viewing content on the Internet.”

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Let’s compare this to the stance of Harvey Weinstein, co-founder of Miramax and one of the best-known film producers in the world. He says that if an Internet company steals from someone who produces content, they should be shut down and tried later. He called this “[his] kind of justice. Like in the old movies, “Hang ‘em first, talk about it later.” Now, Harvey Weinstein is an incredibly successful Oscar-winning producer who knows the film industry inside and out, but it’s clear who is adapting for the future of the entertainment industry and who isn’t. Reed sees online piracy as a litmus test for potential markets whereas for Weinstein it’s a headache and a distraction from his actual work.

Perhaps Weinstein, and the many Hollywood producers who share his opinion, should take a leaf out Jeff Bewekes’ book when he said “Game of Thrones is the most pirated show in the world, now that’s better than an Emmy.” The CEO of Time Warner, HBO’s parent company, knows that piracy isn’t going away. However, where Weinstein sees only the financial setback Bewekes sees opportunity.

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In the same interview Bewekes went on to say, “we’ve been dealing with this issue for years at HBO…people have always been running wires down the back of apartment buildings and sharing with their neighbors. Our experience is, it all leads to more penetration, more paying subs [subscribers] and more health for HBO.”

None of this means that online piracy, viewed on its own, is a good thing. It affects people’s livelihoods and devalues people’s hard work and passion for projects that sometimes have taken a lifetime to get off the ground. What it does mean is that the companies that will survive and thrive in this climate are the ones that are adapting to this change. Weinstein is spending his time advocating for change in legislation, whilst Bewekes sees an opportunity for more subscribers. It’s clear however who is the winner here; Reed Hastings sees online piracy as a way of testing the waters before Netflix comes into the market. On top of that, the streaming service has done more to actually demonstrably reduce online piracy than Weinstein and Hollywood’s traditional approach has.

Ted Sarandos, Netflix’s chief content officer, has said that “When we launch in a territory, the Bittorrent traffic drops as the Netflix traffic grows.” Here is a graph that helps to illustrate the point:

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A statement from Netflix described these numbers by saying that “the entire Over-the-Top [OTT in the graph] category is growing as consumers increasingly embrace Internet TV and on-demand viewing and, even better, this growth is coming at the expense of piracy.” This all ties in with Sarandos’s and Netflix’s view that “the best way to combat piracy isn’t legislatively or criminally but by giving good options.”

Going back to Boogie Nights, Weinstein’s and much of Hollywood’s position, is greatly starting to resemble that of Burt Reynolds’s character, Jack Horner, who refused to invest in VHS just before it blew up in the 80’s. You could replace this analogy many times over. It’s the same as John Sculley firing Steve Jobs from Apple, and most strikingly, it’s the same as Blockbuster deciding not to buy Netflix itself when it was still a fledgling company renting out DVD’s through mail delivery. All of these are people, or companies that failed to adapt to change and they were left in the past.

In a Wired article Brian Barrett recently called this situation the ‘survival of the clickest’ and that’s exactly what it is. Taking risks pays off, whereas not taking them and ignoring opportunities can be fatal for a company. History is full of instances where big players ignored the signs of change and were overtaken by seemingly smaller propositions. Netflix have taken a different approach; they realise that online piracy isn’t something they can simply wish away and that, illegal or not, sites such as bitorrent are a competitor. For the time being, the world’s biggest streaming service seems to be making ground.

Guest Post by Chris Young Lopez

 @chrisyounglopez

 

 

 

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