Impact of Online Piracy on the Film Industry - Assignment Example

Impact of Online Piracy on the Film Industry Table of Contents Abstract 2 Executive Summary 3 Introduction 4 Part One: The Definition and Methods of Piracy 5 1.1 Copyright Infringement vs. Fair Use 5 1.2 Methods of Piracy 7 1.3 Online Piracy – The Rise of File-Sharing Networks 7 Part Two: The Effects of Piracy and Efforts to Combat It 7 2.1 Reported Industry Losses Due to Piracy 7 2.2 Industry and Government Anti-Piracy Efforts 8 2.3 Privacy and Rights Issues 9 Part Three: The Piracy Market 11 3.1 Findings from Reviewed Studies of File-Sharing Users: Consumer Behaviour and Motivations 11 3.2 Results of a Survey of Student File-Sharing Users 11 Part Four: Surviving Piracy – Alternatives to Balance Rights & Demand 11 4.1 Assessing Current or Proposed Business Models 11 4.2 Key Factors Suggested by the Research 11 4.3 Recommendations for the UK Film Industry 11 Conclusion 12 Appendix: Survey Questions for Student File-Sharing Users 13 References 14 n.b. this document is a template, so these page numbers reflect where the sections are right now, and are changed as the paper grows. It’s just my own odd way of formatting-as-I-go. Abstract (To be added after report is otherwise completed. 100-120 words) Executive Summary (To be added after report is otherwise completed. 500-600 words) Introduction Piracy of copyrighted material, which can be generally defined as the copying of a work of literature, music, or film without compensating the owner of the rights of publication, is not a new concept. The invention of the photocopier, the cassette recorder, and the videotape recorder all provoked complaints of illegal reproduction and dire warnings of the death of the publishing and entertainment industries in the past. Not only were the alarms obviously unjustified, the impact of new technology could not be accurately measured. The Internet Age, however, has changed all that. Not only is there credible evidence that piracy, mostly in the form of peer-to-peer (P2P) file-sharing, is doing measurable damage to the film and music industries, the new technologies used for piracy make it possible to accurately measure the extent of this activity. (Liebowitz, 2006) Intellectual property and copyright are issues at the core of eBusiness, and the objective of this dissertation is to discover how technology could be used to develop business strategies to combat the large and growing problem of Internet piracy. The primary focus of this study is on the UK film industry: the extent and impact of movie piracy in the UK, the threats posed to the long-term health of the industry, steps being taken to combat the problem of piracy, and recommendations for further industry action. A vast amount of research has been conducted on the piracy issue, but this study is unique in the respect that none have yet focused particularly on the British movie industry. In the first part of this report, a clear definition of piracy is developed with regard to the difficulty in separating what constitutes a copyright infringement from “fair use”. Copyright and intellectual property, concepts that were easily understood when the products of creativity were something physical, such as a book, a music album, or a videotape, have become more complicated by the development of Internet technology. (ACE, 2003, and Gasser & Ernst, 2006) Once this necessary definition is established, the various methods of piracy are explored, with specific attention to the growth and function of P2P file-sharing networks. The second part of this report attempts to determine the real extent of the economic impact of piracy on the entertainment industry and on the UK film industry in particular, whose claimed losses vary from slightly over one billion dollars in 2005 (Motion Picture Association/LEK, 2006) to £338 million (about $580 million) in 2006. (UK Film Council, 2009) Accurately determining the financial losses to creative industries is difficult, however, because it is necessarily based on assumptions of consumer behaviour that are impossible to test. For example, it cannot be known with any certainty whether a person who normally downloads movies through a file-sharing network would pay to watch all or any of those movies in a theatre if the download option was no longer available, a supposition most industry estimates of losses makes. (Liebowitz, 2004) For the purpose of developing a realistic estimate of the losses of the UK film industry to piracy, this paper makes the assumption that most file-sharers would not pay to watch most movies under those circumstances, which is largely supported by the results of the research presented in part three. Efforts to punish copyright violators and prevent piracy are next examined. These actions, sometimes resulting in draconian punishment of offenders – particularly in the American music industry (Gervais, 2005) – have been hailed by the creative industries as effective and proper counters against piracy. But on the other hand, they have also raised serious questions about consumers’ rights to privacy and the fair use of entertainment media, prompting suggestions that copyright laws and the regulatory position toward file-sharing networks might need to be comprehensively revised. (Danay, 2005, and Samuelson, 2007) Perhaps the most unique aspect of the aggressive counter-attacks by the entertainment industry against online pirates is that their enemies are not often typically criminal personalities. Children, students, and ordinary citizens, otherwise law-abiding people, are all targeted by anti-piracy efforts, and most do not consider their file-sharing behaviour as criminal. (Schlesinger, 2008) Part three of this report comprehensively reviews the studies of the profiles and behaviours of P2P file-sharing consumers, most notably Gopal, et al. (2004), Hughes and Lang (2004), and Bounie, Bourreau, and Waelbroeck (2006). These and other findings are compared to the results of a survey conducted of local university students which, though it is intended to be indicative rather than definitive, finds that perceptions of unreasonably high prices for movies and resentment of heavy-handed anti-piracy tactics by the industry are key drivers of consumer behaviour. In part four of the study, the shifting business strategies used by the film industry to remain economically viable in an era of online file-sharing are examined, strategies that include, in some cases, litigation as a revenue-generating tool. (Slater, et al., 2005) How these strategies clash with or complement the profile and behaviour of the typical online consumer is analysed, with recommendations for new business strategies for the UK film industry that adequately address both the concerns of intellectual property owners and the rights and choices of consumers. Part One: The Definition and Methods of Piracy 1.1 Copyright Infringement vs. Fair Use The protection of intellectual property first became an important issue in the nineteenth century with the advent of the Industrial Revolution. The Paris Convention for the Protection of Industrial Property in 1883 was the first major international treaty addressing the protection of ideas, particularly the vast and rapidly-growing number of new inventions and industrial processes. In 1886, the concept was extended to creative works with the Berne Convention for the Protection of Literary and Artistic Works. Each of these treaties set a precedent for recognising the global reach of intellectual property, and attempted to define standards for its protection. “Piracy” has entered the world’s vocabulary in the past two decades to describe the illegal copying of copyrighted creative material such as music, film and software for purposes other than producing a back-up copy for the purchaser’s own use. (Gopal, et al., 2004) Because the large entertainment industry in the United States has been at the forefront of efforts to combat piracy, the fundamental principles of U.S. copyright law, contained in Title 17 of the United States Code, are most often cited as the legal basis for pursuing and punishing offenders; these evolved from the interpretation of the protections of property in the U.S. Constitution with respect to the Paris and Berne Conventions, and are closely similar to laws in most other countries. (Reidenberg, 2007) The Copyright Act defines rights that are exclusive to copyright owners, most significantly the rights to distribution of the work, and reproduction of the work for distribution purposes. In addition, the Copyright Act is constructed as a strict liability statute, meaning that it is not required that a plaintiff show that a violator of a copyright had intent to do harm in order to find that an infringement occurred. (ACE, 2003) It is on this basis that legal action can be taken against individual users of P2P file-sharing programs. While there are closely-protected rights for copyright holders, there are some limitations on them as well. The most important of these is the doctrine of “fair use.” There are traditionally six purposes to which a copyrighted work can be put that constitute “fair use”: criticism, comment, news reporting, teaching, scholarship, or research. But as technology has evolved, the doctrine has as well; for example, moving an otherwise legitimately-purchased music recording from one form of media to another, say from a compact disc to an MP3 file to be used on an iPod has been regarded by courts as being fair use. This has resulted in some legal confusion, and a globally-consistent standard is yet to be developed. In general, courts have ruled that P2P file-sharing cannot be defended by the doctrine of fair use. (ACE, 2003) Nevertheless, there are exceptions; copyright law in Japan, for example, characterises file downloads for personal use as fair use, making legal action against P2P users difficult. (Condon, 2008) This lack of uniformity in the copyright laws around the world is partly responsible for the persistence of P2P file-sharing. 1.2 Methods of Piracy This takes two basic forms: illegal production of hard copies (DVDs), which is achieved through recording a movie as it is shown in a theatre or by copying an otherwise legitimate disc; and by illegal downloading a music, film, or software file, which may or may not have been from a legitimate original source. Hard goods piracy – illegal discs – is outside the scope of this report. This section will summarise whatever discussion is available concerning the sources of the pirate files that are exchanged over P2P networks. 1.3 Online Piracy – The Rise of File-Sharing Networks This section will include a listing of the various file-sharing networks that currently exist; KaZaA, Limewire, and Bearshare are among the biggest and best-known, but there are a number of others. Not everyone downloads films illegally, but the number of people that are thought to engage in the activity is surprisingly high. Research done in 2003-2004 on behalf of the Organisation for Economic Cooperation and Development (OECD) indicated that, despite the hue and cry raised over illegal music downloads, more movies are actually downloaded than music tracks, accounting for more than 34% of the traffic over P2P networks. (Timms, 2004) The same research found that almost 25% of Internet users – 20% of users in the UK – admitted to illegally downloading a film at least once, with about half of those stating that they would continue to do so. (Ibid.) Part Two: The Effects of Piracy and Efforts to Combat It 2.1 Reported Industry Losses Due to Piracy Within the movie industry, figures for losses due to piracy vary widely depending on how they are measured and how up-to-date they are. The most recent figures from the UK Film Council (press release, 12 March 2009) claim a direct loss to the industry of £531 million per year from all forms of piracy, with a total loss to the national economy of a little more than £1.2 billion. What is not explained, however, is what proportion of those figures can be attributed to Internet piracy, and how the determination of the loss to the overall economy was made. In the US, figures provided by the Motion Picture Association of America (MPAA) are somewhat more exacting, but are several years out-of-date; figures are provided through the year 2005, and a search for more current information revealed that most researchers and commentators are still quoting those numbers. The MPAA pegged the loss to “the major U.S. motion picture studios” in 2005 at $6.1 billion as a result of piracy, of which about $2.3 billion could be attributed to Internet piracy. The overall industry loss, which the MPAA characterised as the loss not only to studios but also to producers, distributors, theatres, video stores, and pay-per-view providers, was estimated to be $18.2 billion in 2005, with about $7 billion attributable to Internet piracy. (MPA/LEK, 2006) Undoubtedly the losses to film industries around the world due to piracy are considerable, but clearly determining the scale and impact of the losses is problematic. As will be discussed further in Section 4.1, Peitz and Waelbroeck (2003 & 2006) and Liebowitz (2004 & 2006) found that there are two circumstances arising from piracy in general, and Internet piracy in particular, that may ameliorate the extent of the industry’s losses: First, all estimates by the industry make the assumption that everyone who downloads a shared movie file would, under other circumstances, purchase a movie ticket or legitimate DVD copy of the film. This may not be, and probably likely is not, an accurate assumption. Second, the opportunity to download a movie may actually increase the likelihood of the viewer or persons acquainted with him to make a future legitimate purchase. Thus while the film industry losses can be viewed sympathetically, they must also be viewed with at least a small degree of scepticism, since it may not be possible to determine them with a high degree of accuracy. 2.2 Industry and Government Anti-Piracy Efforts The fight against digital piracy began with the successful effort to shut down the Napster music file-sharing network in the United States in 2001, something which was possible because Napster was based on a few Internet servers in a few locations, easily identified and located. (Gervais, 2005) The end of Napster, however, simply spread the problem out; new software technologies forced the entertainment industry to adopt the tactic of pursuing individual users who could be identified by their IP addresses. The music industry in the U.S., represented by the Recording Industry Association of America (RIAA), was at the forefront of the effort. The RIAA contended it was successful in reducing piracy, but the campaign was a public relations nightmare; the scatter-shot approach of identifying targets for lawsuits by IP addresses meant that unlikely criminals – children, grandmothers, single parents – found themselves in court, the apparent victims of a heartless and greedy industry giant. (Bruno, 2009) Despite their claimed success, the RIAA quietly dropped its individual pursuit of file-sharers in favour of pressuring Internet service providers and university networks into controlling file-sharing traffic, and identifying offenders. This tactic has resulted in similar public backlash, with universities refusing to co-operate on privacy grounds, and with major ISPs either also refusing, or using much more limited controls than demanded by the RIAA. (Bruno, 2009, and Telecommunications Reports, 2009) By contrast, the film industry counterpart to the RIAA, the MPAA, still follows the original policy of targeting individual users, as does the UK Film Council. (Bruno, 2009, and UK Film Council, 2009) Despite the unpopularity of copyright enforcement efforts against file-sharers, the entertainment industry has formidable legal weapons it can use. In the UK, the Copyright, Designs and Patents Act 1989 (CDPA) contains provisions that address not only unauthorised distribution – which is largely a commercial concern, but still can be argued in the case of an individual file-sharer – but also “creates an offence of distributing works which the accused ought to have known were protected by copyright” (Danay, 2005), which is a criminal and not civil matter if the distribution is of “such an extent as to prejudicially affect the owner of the copyright.” (Ibid.) But as is detailed in the following section, this seeming clarity of the copyright laws is quickly muddied by contradictory laws and doctrines of use established by copyright laws themselves. 2.3 Privacy and Rights Issues As was pointed out in the introduction to this paper, copyright infringement has existed in some form for decades. Copying record albums onto cassette tapes to share with friends, making recordings of a variety of songs from different albums to produce “mix tapes”, recording shows onto videotape from TV broadcasts to watch later, and even more subtle uses of copyrighted material such as recreating iconic elements from one movie into another or creating derivative musical compositions are all infringements and all forms of piracy in the most basic sense. Because these activities have nearly always been overlooked because of practical reasons -- the costs of enforcement far outweighing the potential compensation in most cases – they have become a matter of habit and tradition. Digital technologies reduce the costs of copying, but do not change the basic behaviour, at least for people whose intentions are non-commercial. The complaint that the Internet generation “...is devoid of the moral integrity or understanding of the law ignores the manner in which tradition has shaped behavior.” (Petrick, 2004: 14) Tradition is a poor legal argument; just because “it’s what everyone has always done,” an act does not suddenly become a protected right. Within the EU, however, P2P file-sharing may actually be protected under Article 10(1) of the European Convention on Human Rights, which guarantees the freedom “to receive and impart information and ideas without interference by public authority and regardless of frontiers”. (Danay, 2005) The following Article 10(2) of the ECHR, on the other hand, allows “restrictions that are necessary in a democratic society.” Laws such as the CDPA in the UK regards file-sharing as an infringement without defence, one that deprives the copyright holder of his control over and compensation for the distribution of his work, regardless of the intent to do harm; thus the CDPA is presented as a “necessary restriction” and not “interference by public authority”. (Danay, 2005) But that is a legal framework that is still to receive a definitive test; until then, there is a potential conflict in the law. Copyright law in the US raises other issues of users’ rights. Along with the exceptions to the rights of copyright owners described in section 1.1, there are three factors that are intended to guide courts in judging fair use defences. First, fair uses must be unauthorised by the copyright holder. Parodies of existing works, for example, can constitute fair use, and the rationale behind this is that if the copyright holder’s rights were extended too far, he could by exercising them prevent the creation of other works that would themselves be covered by copyright. (Armstrong, 2006: 57) Second, fair use does not require compensation to the copyright owner. It might seem pointless for the law to specifically mention that, but the reason it does is to set firm limits on the compensation and extent of ownership rights enjoyed by a copyright holder. Imagine the chaos that might ensue if, for instance, every newspaper had the right to insist on payment every time one was used for study purposes in a journalism class. The third factor is that fair use is anonymous. (Armstrong, 2006: 58) The copyright owner need not be notified for permission or payment if the user believes he is making fair use of the work. Thus, there are two ways of looking at P2P file-sharing. On the one hand, it may be an act by a user to obtain a copyrighted work with the explicit intention of not paying for it, either by purchasing a physical copy, or buying a ticket to watch a screening or performance. On the other hand, it may be an act protected by the doctrines of fair use and the non-interference of public authority in the free exchange of ideas. In this sense, the principle of strict liability in copyright law, where intent need not be proven, might be unfair to users. Equally disturbing is the growing use of DRM, which goes beyond protected the content of copyrighted materials to controlling access to the content. This has the effect of transferring control of copyrighted works from publicly-defined rights to privately-managed technology (Reidenberg, 2007), vastly expanding the rights of copyright owners beyond the boundaries established by existing laws. Part Three: The Piracy Market 3.1 Findings from Reviewed Studies of File-Sharing Users: Consumer Behaviour and Motivations Direct studies of file-sharing users that will be analysed in detail include: Hughes and Lang (2004), Gopal, Sanders, Bhattacharjee, Agrawal, and Wagner (2004), Bounie, Bourreau, and Waelbroeck (2006), and Chen, Shang, and Lin (2008). 3.2 Results of a Survey of Student File-Sharing Users (To be added at the conclusion of the survey administration and tabulation of the data.) Part Four: Surviving Piracy – Alternatives to Balance Rights & Demand 4.1 Assessing Current or Proposed Business Models Several studies directly or indirectly inform this part of the discussion: Peitz and Waelbroeck (2003 & 2006) and Liebowitz (2004 & 2006) examine problems with measuring the impact of piracy and file-sharing, and explore other unforeseen potential benefits to the industry because of file-sharing activities. Rupp and Smith (2004), Gervais (2005), Slater, Smith, Bambauer, Gasser, and Palfrey (2005), and Gasser and Ernst (2006) all examine aspects of changing business models for the entertainment industries in light of the challenges of file-sharing and rapidly expanding technology. These studies will be compared with ideas presented by the industry itself, and by industry and business observers. 4.2 Key Factors Suggested by the Research (To be added at the conclusion of the survey administration and tabulation of the data.) 4.3 Recommendations for the UK Film Industry (To be added after conducting the primary research and writing Sections 3.2 & 4.2.) Conclusion (To be added after completion of Section 4.) Appendix: Survey Questions for Student File-Sharing Users (These are still being developed.) References American Council on Education (ACE). (2003) Background Discussion of Copyright Law and Potential Liability for Students Engaged in P2P File Sharing on University Networks. 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