Since the internet made it easier to illegally download and stream movies and TV shows, Hollywood struggled with people pirating its works online. About $5.5 billion in revenue was lost to piracy globally last year, Digital TV Research found (pdf), and it’s expected to approach $10 billion by 2022.
Streaming-video services like Netflix and Hulu have made it more affordable to access a wide-range of titles from different TV networks and movie studios. But the availability of cheap content online has done little to curb piracy, according to research published in Management Science (paywall) last month.
Customers who were offered free subscriptions to a video-on-demand package (SVOD) were just as likely to turn to piracy to find programming as those without the offering, researchers at Católica Lisbon School of Business & Economics and Carnegie Mellon University found.
The researchers partnered with an unnamed internet-service provider—in a region they chose not to disclose—to offer customers who were already prone to piracy an on-demand package for free for 45 days. About 10,000 households participated in the study, and about half were given the free service.
The on-demand service was packaged like Netflix or Hulu in layout, appearance, and scope of programming, but was delivered through a TV set-top box. It had a personalized recommendation engine that surfaced popular programming based on what those customers were already watching illegally through BitTorrent logs, which were obtained from a third-party firm.
Free TV isn’t enough
The study found that while the participants watched 4.6% more TV overall when they had the free on-demand service, they did not stop using BitTorrent to pirate movies and TV shows that were not included in the offering. That included new theatrical releases, which go to theaters and premium services before on-demand channels like Netflix, as well as other series and movies that were not licensed on the service.(Those whose tastes, based on BitTorrent logs, aligned perfectly with the programming on the service were a little less likely to use BitTorrent, but that was not the majority of pirates.)
The findings suggest that launching an online-streaming offering, like Disney is doing in 2019, or bringing programming to more services like Netflix won’t alone stop piracy. HBO, which offers its flagship series Game of Thrones in 130 countries through networks or its online-subscription service HBO Now, was still plagued by piracy during the latest season.
“To the extent that people can find free, pirated content easily, it’s going to be very difficult to get them to pay for it in a legal channel,” Michael Smith, one of the report’s authors at Carnegie Mellon University, told Quartz.
Making programming available sooner could help solve the problem, he said. That’s partly why Lachlan Murdoch, co-chairman of 21st Century Fox, has argued for shortening the exclusive 90-day windows that cinemas get. “It goes in the theaters for about 45 days and then the theaters by contract have a 45-day blackout where you’re not allowed to show that to anyone,” said Murdoch at the Business Insider Ignition conference last week. “The only place they get it is actually from the piracy sites, so movie theatrical windows will also collapse and will collapse quickly.”
Making it harder to pirate programming could help, too. Shutting down the file-sharing site Megaupload increased the revenue at two movie studios studied by at least 6% over an 18-week period, Smith found in earlier research (pdf).
Pirates are cheapskates
The latest study found that people who were prone to piracy weren’t willing to spend much on the on-demand offering once the 45-day free trial was up. They were only willing to spend about $3.25 a month, compared to the $13 the package costs. Netflix charges $10.99 a month for its standard service, after raising rates in the US this year. Its cheapest offering is $7.99 a month in the US.
There are a few caveats to the study: The report may omit true cord-cutters, because the free SVOD service was delivered over the TV. Researchers did not disclose the region where the study took place, which could affect the audience for on-demand video and piracy. And the study, which was published for the first time last month, conducted from December 2014-February 2015.
Since then, streaming has become more established, the price point has risen (Netflix’s standard plan was $8.99 a month in the US then), and the way people pirate video has changed. The majority of people who pirated the latest season of Game of Thrones, for example, did so via streaming, while the remaining 15% did so by torrent or download, Muso data found.
But Smith said the main point holds true. “This is an unusual study given that we were able to convince an ISP to run this experiment,” he said. “It’s one of the closest things to a real-world setting that you’re going to find for this sort of study… It’s really hard to get people back to paying for something they’re used to getting for free.”