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Dutch Study Shows Importance of Business Innovation to Defeating Infringement

Two Dutch organizations, the University of Amsterdam’s Institute for Information Law and the research firm Ecorys, just released a Global Online Piracy Study concluding that increasing the availability of content from legal channels is the most effective means of reducing online infringement.

The study examines the acquisition and consumption of music, film, books and games through legal and illegal channels in thirteen countries in Europe, the Americans and Asia. The study first conducted comparative legal research based on questionnaires on the legal status of online copyright infringement and enforcement completed by legal experts in the thirteen countries studied. Although there was an “abundance of enforcement measures,” the study concluded that “their perceived effectiveness is unclear.” Thus, “it is questionable whether the answer to successfully tackling online copyright infringement lies in additional rights or enforcement, especially if these will not lead to additional revenue for copyright holders and risk coming into conflict with fundamental rights of users and intermediaries.” Rather, the legal survey suggests that the answer to piracy lies “in the provision of affordable and convenient legal access to copyright-protected content.”

This suggestion is confirmed by a finding in the consumer survey of 35,000 respondents in the thirteen countries that “online piracy correlates remarkably strongly with a lack of purchasing power.” Further, between 2014 and 2017, when affordable streaming services became available, the number of pirates decreased in all European countries except Germany.

The study also wrestled with the thorny issue of the impact of infringement on legal consumption. The study “confirms earlier studies in finding statistical evidence that illegal consumption of music, books, and games displaces legal consumption.” At the same time, “the displacement coefficients are surrounded with substantial uncertainty.” In other words, infringement appears to displace lawful sales, but it is difficult to determine with any precision the amount of displacement. This is because “there are several opposing interactions between piracy and legal consumption, some of which have a negative impact on sales, some positive and some neutral.” Infringement could have a positive effect through sampling: “consumers are introduced to new music, actors and genres, and this creates new demand.” Infringement could also “enhance the demand for complementary products such as live concerts and merchandise.”

The divergent effects of infringement on legal consumption result in infringement having a different impact on different segments of the same industry. Thus, illegal consumption of music displaces legal downloads and physical carriers—i.e., it has a negative impact on record labels. But the sampling effect of infringement has a positive impact on live concerts and music festivals, and their promotors and performers. Consumer expenditures on live concerts are growing in most of the countries studied, and live concerts generate revenues comparable to those for recorded music.

The study, therefore, demonstrates that in addition to responding to infringement by supplying attractive alternative business models such as streaming, content providers are emphasizing channels that actually benefit from infringement, such as live concerts.

The key takeaway is that businesses must innovate to survive. The technological context, prevailing economic conditions, consumer preferences, and the competitive landscape are in a constant state of flux. Successful businesses adapt to these changes.

Innovation, of course, is difficult, and requires experimentation, including failed experiments. We are witnessing this experimentation right now with movie subscription services such as MoviePass. MoviePass initially offered subscribers one movie ticket a day for a fee of $10 a month. Although it gained 3 million subscribers, MoviePass was losing money because it was paying movie theatres the full price for a ticket, and thus lost money if a subscriber went to more than one film a month. (The average ticket price is $9.) Accordingly, MoviePass just increased its fee to $15 a month. Industry analysts doubt MoviePass will be profitable even with this higher subscription fee because it will still lose money on a subscriber that goes to more than two movies a month. However, movie theatre company AMC has announced that it would offer a similar service, allowing subscribers to see three movies a week for a fee of $20 a month. Analysts believe this service is far more likely to succeed because the subscription would tie subscribers to AMC theatres, and encourage them to see more movies, where they would buy more from the concession stands—the real source of movie theatre profits.

Properly designed movie subscription services will enable movie theatres to compete with online subscription services such as Netflix and Amazon Prime, and the proliferation of these affordable distribution channels will lure consumers away from infringing sources.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.