Piracy, Filesharing and the Customer Management Challenges

Progress on passing the controversial Stop Online Piracy Act might have stalled, but movement against alleged online infringement hubs has been as aggressive as ever in recent weeks.

Regulators sent shockwaves through the online world with the sudden seizure of long-running filesharing website Megaupload, and they continued their strike this week with a crackdown on various online streaming websites, including the very popular First Row Sports. In between the two high-profile seizures, a number of filesharing sites, including Filesonic and Fileserve, willfully—and abruptly—dropped the filesharing components of their sites, effectively transforming into "file storage" hubs.

And yet, through all the government seizures and fear-driven site shutdowns, all parties involved seem to be ignoring the key customer management questions associated with copyright infringement in the digital age.

For starters, a shocking dearth of attention has been paid to the immediate customer implications of the shutdowns. While the nature of the Megaupload seizure likely made it impossible to prematurely warn the site’s users and premium, paying customers of the situation, that does not excuse the ambiguity and stalling that has occurred (particularly from regulators, and particularly regarding retrieval of uploaded data) after the fact.

Filesonic and Fileserve, moreover, willfully shut down their file-sharing services, and yet did so without issuing explanatory statements to their vast customer bases (Update: Fileserve has since reopened its site for filesharing). Observers might hesitate to shower sympathy on those who were potentially paying for the right to more-rapidly download allegedly-pirated files (and particularly those affiliates who were making money from their distribution), but the reality is that file-sharing is not an inherently-illegal practice. And so, no matter how specifically one might want to apply the "buyer beware" tag to the filesharing space, the customer management shortcoming here is akin to selling someone a full gym membership and then restricting them to the lockerroom or selling an East Coaster a plane ticket to Los Angeles and then going no further than St. Louis. Customers are not getting the service for which they paid.

Beyond the "woe is me" issue for the affected subscribers, there also exists the greater question about how the ongoing "war on piracy" is resonating with customers. After all, if the purpose is not to consistently "out" the tech whizzes behind alleged piracy operations but instead bring a resounding end to unlawful distribution of copyrighted content online, government seizures, crackdowns and lawsuits should have a meaningful deterrent effect on the customers themselves.

That is the issue on which these crackdowns have fallen immensely short.

Though the seizure of Megaupload seemingly spurred the willful shuttering of Filesonic and Fileserve and thus made for a big news story in the tech community, it did not necessarily change the attitude with which many customers approach pirated content.

Instead of turning "illegal downloaders" into iTunes buyers and Hulu or Amazon subscribers, the elimination of popular file-sharing sites has seemingly just prompted them to look elsewhere. Alternative file-sharing destinations have seen their traffic numbers surge since the events of two weeks ago, undoubtedly due to sharers of copyrighted movies, music, television shows and pornography pegging them as new destinations to house and promote their content.

As bloggers and Tweeters dealt with the news, "these alternative sites (insert sites here) still work" was a popular sentiment.

And so the recent efforts might have cut off a toe or two, but they did not kill the beast.

Granted, there is no rule that says regulators and intellectual property holders must think about the long-term implications. If there is evidence that individuals (and their websites and customers) are breaking laws and stealing from copyright holders, the relevant parties have every right to approach the situation from a punitive perspective.

Similarly, if I run an electronics store and catch someone stealing a computer, I have every right to press charges against that person. I do not have any obligation to consider the issues that drove—and will keep driving—the customer to commit the theft.

Just like stealing a computer, sharing copyrighted material without permission is, quite unequivocally, wrong.

But the onus is on these regulators and corporations to recognize that their current approach to piracy is weak from a deterrent standpoint. Focusing on identifying—and seizing—copyright infringers is effective and valuable from a law and order standpoint, but as long as alternative means exist and are attractive to customers, users of seized websites not necessarily going to cease their downloading (and thus cease creating demand for pirated file sharing).

With free, pirated content so readily-accessible online, far too many customers have come to take their continued access to such material for granted. These individuals have transformed into a new breed of customer—they are not necessarily people who would otherwise be in the market to pay for the media and are instead specifically seeking out content they could obtain for free.

Consequently, they do not see their choice as one between "using Megaupload" or "using iTunes." And when a site like Megaupload goes down, they look for an alternative to fill the gap for "free" media content rather than one that lets them get the content, even if it is of a superior A/V quality, for a fee.

Of course some customers would be paying for their material if online streaming and filesharing did not exist, but the fact that it does exist has greatly changed the value calculation for customers. If they have come to expect the option of accessing the material freely online, their impression of the content’s worth has declined, and they are likely to pursue other options before resorting back to paying full price. This pursuit assures continued demand for pirated content, which assures its continued access and ultimately more deeply entrenches the customers into "fans of this movie…if it’s free" territory.

The true goal for copyright holders, therefore, should be to figure out to monetize today’s "illegal downloader" as he currently is, rather than assuming that making his access a little more difficult will turn him into a full-price-paying customer. It is not necessarily fair that organizations have to approach the situation this way (and, as noted, they are not obligated to do so), but if the goal is to truly stop piracy and actually turn some of that illegal activity into revenue, it really has no choice.

This is not easy. Obviously, if one drastically reduces the price point of online content in order to attract would-be pirates, it creates an arbitrage situation that will ultimately result in its entire price point being driven down. Insofar as millions are happy to pay $10 to watch a movie in theatres or $1.29 to download a single song, businesses have no reason to direct such customers to a cheaper (and yet still legal and safe) option for accessing that material.

But it’s reality. Unless someone has actually gotten pegged for downloading, he sees recent activity as a battle between regulators, copyright holders and uploaders. And as long as uploaders assume the risk and continue putting content out there, he has no reason to change his habits, and the circle continues.

The chain can only be broken by speaking to the actual demands of the "illegal downloaders" and figuring out what they, as customers, would see as a viable alternative to switching from filesharing site to filesharing site.