Innovation and Piracy

Last year, Wolfe Video introduced a revolutionary new distribution model, WolfeOnDemand, a worldwide pay-per-view service that allows fans to become distribution partners and earn revenue doing so.  Wolfe developed this approach in response to the damaging effects of online piracy, which threatened the nearly 30-year-old company’s existence.

According to a Wall Street Journal article, despite adopting innovative consumer-centric business models, Wolfe has still been hard hit by illegal distribution sites, losing over $3 million in revenue due to stolen films.  The 12 person company additionally spent $30,000 last year sending out takedown notices to infringers of its films.

The WSJ article, As Pirates Run Rampant, TV Studios Dial Up Pursuit, examines the multi-million dollar online theft industry, including the efforts of film studios large and small, to combat the ever-growing threat.  

Per the article, large corporations like NBC Universal “ha [ve] nearly doubled the size of [their] full-time antipiracy staff “ working around the clock to send “tens of thousands of takedown notices a week to website operators.” 

While it might be possible for a large company to combat online infringement by hiring scores of employees and vendors to implement multi-million dollar anti-piracy efforts, for small entertainment businesses like Wolfe video, the expense of sending out DMCA take-down requests is a massive blow to their bottom line.  The $30,000 that Wolfe spent on takedown notices in 2012 represented half of the company’s profit, and led to cuts across the board, from scaling back on marketing to staff salaries. The owner stopped drawing a salary altogether. 

What’s more, Wolfe serves the LGBT market for films. Beyond entertaining audiences, Wolfe brings realistic and meaningful films to an otherwise underserved community.  When companies like Wolfe who serve niche audiences, are affected by piracy it threatens entire communities. Poor (legal) distribution prospects not only threaten distributors like Wolfe, but adversely impact financing for the film projects to begin with.  Films are not made without financing, so piracy literally threatens to silence the voices of entire communities.

Sadly, despite innovation in distribution models, like the one developed by Wolfe, and the ever growing availability of programming in a variety of formats at price points to suit different pocketbooks, the problem of illegal downloading continues to grow.  According to the Journal story, the expansion of high-speed internet access has contributed significantly to the increase in the prevalence in the downloading of film and television.  Some steps are being taken to address this issue, but more remains to be done.  For instance, as a result of a voluntary agreement with a number of Internet Service Providers (ISPs), a new Copyright Alert System was recently launched to let consumers know when they have downloaded infringing material.  This is an important educational tool, as many consumers are not even aware that what they are doing is illegal, because they are either uninformed, or they are misled by a website that appears to be “legit” because of the presence of advertisements by well-known brands.

Unfortunately online-ad networks continue to fund these infringing website operations through ad revenues, which only adds to the problem.  (You can sign a letter asking top CEOs to pledge that they will work to ensure their companies do not advertise on such sites here.)  

I am sure the Wall Street Journal article will generate the predictable commentary about how the solution to online theft lies in developing new business models.  Wolfe Video did just that, and the results do not bear out the claims that piracy is all about failure of imagination.  Moreover, I have yet to hear anyone explain what is innovative or new about stealing the creative work of another and monetizing it through ad sales.  What the Wolfe Video experience reminds us is that with culture as with many things – you get what you pay for.  If we wish to see independent businesses built on helping communities find their voices succeed, we need to ensure they continue to have a way to pay the creators who tell those stories.