Why File-Sharing Could Save The Entertainment Industry, Not Destroy It

Major entertainment organizations in the U.S. have spent more than a decade trying to convince the American public that file-sharing and illegal downloading are killing their industries.

The R.I.A.A., the M.P.A.A., and others have waged legal battle after legal battle against major internet companies and their own customers. Instead of trying to find digital business models that work, the media organizations are trying to find new ways to stop file-sharers from accessing content.

They miss the point: file-sharers are their best customers, often times, precisely because they have more access to content.

OfCom, the U.K.'s version of the Federal Communications Commission, did a study last year on the entertainment-consuming habits of internet users in the U.K. and found something surprising. The large segment of the population who reported consuming entertainment via both legal and illegal means consistently spent far more than people who only consumed via legal means.

In some cases, these "hybrid pirates" spent three times as much as the law abiding citizen. Now, admittedly, the pirates who only downloaded content illegally spent far less, but they constitute only 4% of the population.

From Ofcom's study:

The reason that these hybrids spend far more than their legal counterparts is simple: they're more engaged. They watch more movies, listen to more music, and watch more television. These are your fanboys, your TV junkies, and your super fans.

The R.I.A.A. even conceded this point when a Columbia University study found similarly. Yet their response, via Joshua Friedlander, Vice President of Research and Strategic Analysis at RIAA, was confusing at best:

In reality, the comparison is unfair - what it's comparing is people who are interested in music with people who might not be interested at all. Of course people interested in music buy more.

Wait what?

The question that Friedlander really needs to be asking is: if file-sharing became impossible, would the illegal file-shares convert to sales? Sure, some of them would convert, but it seems unlikely that most would.

People have a limited supply of disposable income. We imagine that if highly-engaged customers could not get the content for free, they would simply consume less music.

A 2013 report by the European Commission's Joint Research Centre on online music consumption in France, Germany, Italy, Spain and the UK, which looked at clicks and visits to legal and illegal services, found that the majority of music consumed illegally would not have been consumed if it was not freely available.

The study even found that access to streaming services had "a stimulating effect … on the sales of digital music."

The other side of this story is that, when it comes to music, record sales may have gone down, but the music industry is making money in other areas. See this chart from the London School of Economics and Political Science's policy brief on file-sharing, released last month:

The dip in record sales over the last ten years has been mirrored by a rise in concert revenue. Perhaps this is because highly-engaged music fans are paying for less recorded music and using that extra disposal income to see more acts in concert.

If the R.I.A.A. wants a model for how to do business in the digital age, it should take a look at superstar DJ Derek Vincent Smith, who goes by the name Pretty Lights. Smith has been DJing since 2006 and released four albums and a myriad of mixtapes. He also gave every single one away for free (and still does) on his website. In fact the accessibility of his music played a huge part in his popularity.

"It's created a very loyal and respectful connection between myself and my fanbase…" Smith said during an interview with KAMP radio in 2012.

By providing music for free, Smith has employed a "pay-what-you-think-I'm-worth" strategy to fans and the music industry. He tours relentlessly, sells merchandise, and maintains a direct e-mailing list with his fans. He also sells physical copies of his music on his website but adds extra content to appeal to his diehard fans.

His newest album, A Color Map of the Sun, which he also provided for free, ended up making it to #2 on BIllboard's dance/electronic music charts (behind only Daft Punk's massive Random Access Memories album).

Comedian Louis C.K. has led the charge among entertainers looking to forge a similar model. C.K. came up through traditional means of distribution but, in 2011, he decided to try a new model-Internet distribution.

C.K. has long had an easy, aw-shucks decorum with his fans. When he decided to release his new comedy special on his website, he wrote a lengthy memo detailing how he was using his own money to fund the special and asking people not to steal it.

He provided the special at a low entry cost ($5), without digital-rights management software embedded (unlike the majority of content you purchase legally online) so it could be shared, and let his fans make the choice.

Eleven days after its release, C.K. reported on Late Night with Jimmy Kimmel that the special had grossed $1.1 million. Popular comedians such as Aziz Ansari and Jim Gaffigan have followed suit with their most recent specials.

C.K's letter to fans after the release just shows how C.K. "gets it" while the big media companies simply don't:

…[Traditional media companies would have charged you about $20 for the video. They would have given you an encrypted and regionally restricted video of limited value, and they would have owned your private information for their own use. They would have withheld international availability indefinitely. This way, you only paid $5, you can use the video any way you want, and you can watch it in Dublin, whatever the city is in Belgium, or Dubai. I got paid nice, and I still own the video (as do you). You never have to join anything, and you never have to hear from us again.

In the OfCom study from 2012, the researchers found that the most common reasons pirates downloaded or streamed content illegally was because it was free (54%), convenient (48%), quick (44%), and because they could try before they buy (26%). Those responses are telling.

The distribution methods that the R.I.A.A., the M.P.A.A. and others have deemed legitimate are not as easy, convenient, or portable as the illegal ones. A large number of these pirates use illegal methods because the legal methods are just not as good.

Here's the interesting part of that study, a quarter of the people said they file-shared because they wanted to try before they bought. That's what Derek Vincent Smith picked up on with Pretty Lights. If he could prove that his music was worth paying for, by letting people listen to it, eventually they would. He knew it was only a matter of time. He was right.

The media companies are going to have to accept that people are going to support content in a myriad of ways-live concerts, ad-supported or subscription streaming services, one-off digital downloads. Once they stop suing customers and websites and accept that file-sharing often convinces their customers to consume more, they'll figure out what customers are actually looking for.

Entertainers are starting to figure it out. Media companies better figure it out soon too or they really will become extinct.