Cashing In On File Sharing
A Report from the File Sharing Experiment
Last Update: Sunday, September 12 2004
http://www.nuclearelephant.com/papers/sharing.html
Jonathan A. Zdziarski
[EMAIL PROTECTED]
Machiavelli would have been proud. The Recording Industry of America has
raped and pillaged its heart out to put the fear of God into many unsavvy
Internet users and the message, 'We know where you live' to would-be file
sharers. File sharing has now become taboo to many; 87 year-old women who
mortgaged their houses to pay settlements aren't likely to bother us again,
and thanks to the RIAA, many 11 year old girls will now grow up knowing that
if you share music, somebody's going to come and hurt mommy and daddy.
In spite of scheduled beatings for the elderly, the RIAA has failed to put a
stop to the majority of Internet users who continue sharing files. As
sharing continues to grow, music sales ironically appear to follow in an
upward parallel. How can this be? Hasn't the RIAA been preaching a different
sermon? The RIAA insists that music labels have been severely crippled by
file-sharing networks. In light of industry earnings reports (which have
shown a dramatic increase in sales), there is no other explanation: this
must be reverse-psychology to trick us smarter fellows. The conflicting
stories between killing and blessing the music industry with file sharing
have sparked interest among many file-sharers who don't buy the three-legged
puppy image of the music industry.
On July 31 2004, I decided to conduct an experiment to determine the
motivation behind file sharers and establish proof for a long-believed
philosophy many have about file-sharing: that it actually benefits the
industry. Not just the music industry, but the movie industry and television
industry as well as others. It has been a long held belief by some that the
reason users are file sharing to begin with are because they are
disenchanted with today's business model for entertainment, and are finding
an alternative solution. In order to evaluate this philosophy, the
file-sharing experiment was designed to allowed people to submit the names
and cost of items they wouldn't have normally purchased if they hadn't first
downloaded it over a file-sharing network. Each purchase required an
explanation upon submission and, although establishing financial numbers was
not the goal of the project, there was surprisingly over a quarter of a
million dollars of merchandise reported within the first 24 hours of the
project's appearance on Slashdot. Each submission has been analyzed by hand
and bogus or questionable entries falling into the test window were
discarded. The goal of this report is not to attempt to justify file
sharing, but explain it. With a bit of creativity, the industry can overcome
filesharing by giving consumer what they need. This report also is not
intended to report on some level of statistics. Clearly, only individuals
who purchased items reported into the experiment, therefore this report is
only useful for explaining the reasons why individuals initially downloaded
something that eventually led to a purchase. What this report does offer is
a starting point for industry executives to build a new business model on
top of, in an attempt to win the consumer back.
Further analysis of the data showed many things which will be shared in this
report. The data as a whole screams one common observation: there is a
captive audience and a viable market in reaching the file-sharing community
to generate revenue (without litigation). Because of the vast selection of
media available to file-sharers, many are finding themselves exploring new
music, movies, and even software they would not have normally considered in
their purchases. There is demand, and demand creates market.
The key to finding the market is adapting to a new business model - one that
serves the enlightened consumer. Digital media provides a means of
gratification that is usually only somewhat temporal, like sex or good
barbecue. This presents a window of days or possibly months at the latest.
The industry has an opportunity to take advantage of this desire for
entertainment and use it to turn users into consumers. The rest of this
report discusses the how, straight from the voice of the consumer.
If the industry is indeed losing money to piracy, the root of the problem
does not appear to be piracy itself but rather the industry's failure to
listen to its consumers. There are many users who can and are making
purchases thanks to file-sharing. The "epidemic", as the industry would call
it, is far too widespread to be an issue of ethical decay among consumers
but rather one of obligation and civil disobedience. The industry has, thus
far, failed to adapt to the business model consumers demand and when that
happened, consumers took it upon themselves to find an alternative solution.
The experiment has shown, if anything, that there are many users today who
are ethical enough to purchase media even after they're in possession of it
- if they believe it is worthy of their money. File-sharing has spawned not
from selfishness, but from the demand of a simple proverb: treat others as
you would want to be treated. We'll see in this report the many things
holding back consumers from traditional purchases, and what drives today's
consumer into making purchases.
Analysis of TV Series Downloads
The first category analyzed included users who reported the purchase of a
complete TV series as a result of file sharing. The TV series on DVD has
become a very popular and only lightly tapped area of the television
industry lately, but it's growing in spurts. While the industry may not be
as widespread as the movie industry, the revenue generated on DVD purchases
can be multiplied up to 4000% or more per complete series. This industry
seems to be only prospering from file sharing, as the major challenge in
selling a TV series on DVD is hooking consumers who like the show; the
average Joe isn't going to blindly purchase a $60 DVD collection.
Purchase Demands
A majority of users who purchased a TV series did so after downloading a few
episodes from a file-sharing network. Users became consumers after they
purchased the series for shows they became hooked on, or at least liked. The
most common reasons for purchase fell into the following categories:
* For better quality recordings
* For a medium they can easily watch on their TV
* To avoid lengthy downloads
* To own the complete set
* The medium became available
With this in mind, file sharing appears less of a threat to the television
industry and more of a sales tool - if the industry can get a hold of it.
Analyzing this for a moment from a marketing perspective:
1. Users get bored sitting in front of their computer in the office or even
at home.
2. They download a few episodes of a TV show, enjoy it, and boom...
3. Industry earns anywhere from $50 to $700 off of that one individual
The sales opportunity this presents is quite simple, but the catch is that
it relies entirely steps one and two - the user previewing and liking the TV
show. We know a few things about the consumer from this:
* The conventional medium for television doesn't fulfill the
requirements of many consumers. Over 500 channels and there's still nothing
on, or perhaps television isn't available to the user (at work, for
example). They simply may not have the time to watch it when it's on. There
is a clear need for alternative means to view the media.
* The individuals who download these shows are not necessarily needy
teenagers without money. Many are willing to shell out to purchase the
expensive titles they like.
* Many users are uncertain whether they will like a particular
television show, and are therefore previewing them via download.
The television industry is obviously benefiting from the consumer's ability
to download a few episodes online. There is somewhat of a novelty to owning
an entire boxed series. People generally can't handle owning an incomplete
set of anything, and therefore most users are going to be compelled to
purchase the collection as it's much easier than downloading a set that is
probably inconsistent in quality and resolution. Based on these
observations, file sharing is providing a service to the industry without
the industry even knowing it - by making these previews globally available
to consumers at no cost to the distributor for bandwidth or server
resources. The industry could do the same and provide an easy interface for
ordering while you're watching.
Business Model Demands
The industry can easily capitalize on file sharing and increase sales by
adjusting their business model to meet the consumer's demands:
* Many users downloaded episodes only because they weren't available on
media yet. This is most likely delayed due to syndication contracts. Making
the media available in a much more timely fashion may increase revenue.
* Continuing to provide good quality television will undoubtedly
continue to grow the market that exists in file sharing. Because of the cost
of the series, only fans are likely to purchase the box set. Therefore,
there doesn't appear to be a distrust among consumers yet.
* Making several episodes available for download with links to ordering
can help generate revenue for the casual browser and take authoritative
control over file-sharing by providing best-quality samples in ideal
resolutions; advertising or ordering information can be superimposed over
this to further expand revenue possibilities.
Analysis of Movie Downloads
Full-length movie downloads have also led to many sales. File sharing as
related to the movie industry appears not to be one of trust or preview, but
one of convenience and timing. Many consumers haven't got the time to hire a
babysitter and go to the movies as often as they would like to.
Purchasing Requirements
The primary reasons a majority of contributors reported to purchase a movie
included:
* Purchasing a better/pristine quality recording
* To avoid lengthy downloads (e.g. downloaded a poor quality version or
only part of the movie)
* For a medium that would allow them to easily watch on a television
* To view the special features on the DVD
* When the movie became available in stores
File sharing provides a few advantages to the movie industry that movie
rentals and pay-per-view don't:
* When a consumer views a movie in DVD quality (as in, from purchasing a
rental or PPV), they are less apt to run out and purchase the movie; they
need time before they are interested in seeing it again which may lead to
the loss of a sale. When viewing lower-quality movies, however, the user is
more apt to purchase the movie and view it immediately in its full glory.
* When a consumer rents a DVD, all of the special features are
accessible to them, while movie downloads usually don't include any special
features. Special features might be worth the $15 for purchasing the movie,
but are not worth the hours of download time.
* By the time a movie has hit pay-per-view or Blockbuster, it's already
old and the consumer may have already lost interest. Many downloads are
available before the movie is even released in the theaters, and only sparks
more interest to go and see it when it comes out.
Business Model Demands
The motion picture industry appears to still be in its infant stages of
understanding the consumer - they're not even marketing to the right crowd
these days which you'll discover when the anti-piracy commercial plays in
the theater, after you've paid for a ticket. The business model consumers
are demanding is that of availability: The ability to acquire a movie on
medium or view the movie in the privacy of their own home when it's still in
the theaters or at least within a more reasonable time frame after the movie
has left the theaters. When the movie's old, the consumer is interested in
the whole story behind the movie. Releasing DVDs with additional footage,
deleted scenes, and other special features is also in high demand and is
likely to drive up sales.
Analysis of Software Downloads
Software piracy has been a problem since the invention of the personal
computer. The software industry, however, has yet to listen to the demands
of consumers which has resulted in much of the piracy taking place today.
The leading reasons individuals reportedly downloaded software were:
* To ensure compatibility with their system
* To ensure the quality of the full-version of the software
* Users demanded an un-crippled version to preview
* Users could not find the title anywhere
* The price was outrageous
Purchasing Requirements
Those reporting into the experiment claimed they have bought software when:
* The quality provided good enough to justify the price
* It was compatible with their systems
* To support the authors and ensure the company stays in business
* To own the original copy
* To receive technical support
* To purchase for corporate, large scale use
Business Model Demands
There is a matter of ethics among software sharers. Consumers demand good
quality software and the ability to preview it in all its glory. Given the
many reasons and advantages in purchasing the title, there is enough proof
to suggest that the quality of the software itself will guarantee its
profit. There is a significant market of users who would download software
should they find it useful to them, however these same users refuse to pay
for software that won't run on their system, is poor quality, or
misrepresented.
The software industry can benefit from listening to its customers. Providing
good quality demo versions is a must. Making the titles available to those
who wish to purchase via download may make a significant dent in piracy. Why
would a user drive 30 miles to the nearest city when they can download it in
the privacy of their own home? Finally, pricing that is commensurate with
the quality of the software being developed is vital to re-establishing
trust between the software manufacturer and the consumer. There are too many
overpriced titles on the market that don't live up to their expectations -
of course users are going to download software to try it when they feel
cheated already! Guaranteed refund periods will also help restore trust.
Analysis of Music Downloads
Music downloads have been a hot topic for many years and is at the head of
all file sharing controversy. Many failed attempts to commercialize in this
industry have led to much frustration, and the RIAA's financial beating of
small children and elderly couples has only hurt sales and turned an
industry once about loving music into one of litigation. A majority of the
users chiming in on the experiment reported purchasing one or many CDs for
an artist after downloading and listening to the them - it's that simple.
Sometimes a few tracks would do, while other users required both full albums
and time to listen and enjoy.
Purchasing Requirements:
The most prominent reasons for purchase were:
* To have a better quality recording
* To support the artist, or out of respect for the artist
* To own the jewel case and physical CD
MP3 technology isn't quite there yet for many users, who demand pristine
quality. A lot of users hate hacked up ID3 tags, misspelled filenames, and
frequently truncated or poor quality tracks that usually come with
downloading music as well. There's also something to be said about the
ownership of physical medium. The sense of ownership is still alive and many
users would prefer to own the physical medium rather than a CD-R written on
in sharpie. Finally, there's also a great respect for the artist and a
desire to see more music out of them. Consumers seem to relate with many
musicians and understand that they work for a living. Artists who have
earned the consumer's money get rewarded.
Business Model Demands
The biggest challenge in the music industry appears to be that of trust and
respect for the label. Many users displayed a distrust for the quality of
music they were downloading. This certainly coincides with the largest
consumer complaint about the music industry which is that there's no good
music anymore. Many labels, it seems, will record the sound of regurgitated
snot bubbles and call it music. Other labels will release a CD with one good
track and fill the rest of it with mediocre studio failures. The music
industry has lost the consumer's trust and therefore the consumer has now
demanded the right to preview music with more intense scrutiny - not only at
a music store, but in the privacy of their own homes, in good quality, for
prolonged periods of time to let it grow on them. The consumer no longer
sees themselves as purchasing a CD, but demands a business model where they
may invest in an artist. Imagine an open business model where consumers
trusted the industry enough to "donate their change to the artist"(of
course, everything would then sell for $15.01).
In order for the music industry to capitalize on file sharing, they must
make it just as easy to preview and purchase the music they want on line as
it is to download it for free. This is starting to happen - look at iTunes.
Who would have thought ten years ago that you'd get a free music download
with every Big Mac you purchased? The bigger challenge yet is gaining the
trust of the consumer. By suing the consumer for downloading music, many
formerly paying customers have refused to make another purchase until this
asinine litigation ends. By providing one golden nugget among 15 tracks,
consumers no longer accept the music they hear on the radio and demand they
listen to the album. Labels will publish anything today. Rather than
attempting to destroy the business model consumers demand, the music
industry would fair much better to feed it.
In summary, music file sharers are demanding a business model that:
* Ensures better quality in the music available
* Allows them to preview high-quality, full length songs in the privacy
of their homes
* Gives them time to let the music grow on them (perhaps some type of
rewards program giving them free downloads)
* Provides them with an easy way to purchase the music and support the
artist
* Ensures better credibility and promotes better trust among the music
industry
Summary
When consumers are fed up with an industry, they will be led to protest in
any way they can. If the industries discussed in this report are to ever
have content consumers again, they must adapt to the business model of the
consumer. There are countless consumers in the Internet community willing to
invest in long-term relationships with various artists or manufacturers. All
they require is that it is on their terms.
The consistent abuse of the consumer shows the consumer only one thing: if
you won't give us your money, we'll take it.
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