“We absolutely believe that piracy is the single biggest danger facing the industry. If we don’t tackle it, we’ll be out of jobs in 10 years.”

John Woodward, CEO - UK Film Council

Remember when …

There was once a time when seeing the next blockbuster was something of an enjoyable ordeal. A mission that required as much stamina to accomplish as it did to control your enthusiasm during the months of publicity mega-phoning.

Arriving hours early at your local cinema, everyone queuing up the street, praying the tickets didn’t run out before you’d shuffled to the kiosk, crowding into a packed theatre – all to enjoy the latest film glamorous Hollywood had to offer. Loud and proud on the big screen, there was no film viewing experience to touch it. Nothing compared to being flown through the silver screen.

Then you’d go through whole trial again as soon as possible. If you wanted to see the film quick you had no choice. Back in those nostalgic days we were a captivated and captive audience, paying for the privilege.

The times, they have a-changed. Rapidly.

Last Wednesday in the UK, Dixons announced that it would no longer sell VHS units – it’s not worth their time anymore. DVD players have become now standard for private movie watching. Home-based hardware is getting better and cheaper all the time, so people across the global territories are paying for DVDs to bring a high quality, theatre-challenging experience into their homes, rather than just visit the cinema - and to get much more, with endless repeatability and worthwhile extras enhancing the film package.

With the exponential developments in computer and digital technology, the celluloid film has also moved from the untouchable realm of the big theatre screen to the ethereal digital world, infinitely accessible by the masses around the globe.

Crucially, as a result of these advancements people are now choosing to pay far less to see and own movies than the industry would have them – if at all. Film piracy has become a worldwide, consumer-led phenomenon that’s been leaving the industry in its dust.

On 11th January, with their DVD and film revenues hemorrhaging daily, representatives of the European film industries met in London to discuss the threats posed by this piracy and how the blood-loss could possibly be stemmed.

Bleeding wounds

Darcy Antonellis (senior Vice President of Warner Bros. Worldwide Anti-Piracy Operations) gave a few examples of the losses incurred by WB. Last year, [i]Shrek 2 DVD sales were much less than expected and Harry Potter 3 shifted less than half the number of units of its prequel. Twelve months ago, a random sampling of 1,000 people in France showed that 12% wouldn’t buy The Matrix Reloaded as they already had a pirate copy before the legitimate release date. This is “what kids now see as respectable behaviour,” added Antonellis. As the pirates beat the dates of most theatrical releases, the box office is taking a slashing too.

As piracy affects revenues, there is real fear that distributors will start suffering as colossal losses as the music industry did with CD sales. With Gregor Pryor, of Music Choice Ltd, warning, “online piracy has cost the music industry billions of dollars,” representatives heard that in 2003 piracy cost film businesses £3.7 billion.

As a result, the security weaknesses in DVD distribution are being put under the scalpel themselves.

Hard and Soft cuts

“Camcording still remains as the first copy that’s made and is subsequently used as a master to make hard copy,” said Antonellis, examining the piracy chain.  “We protect the film pre-release until someone camcords in the theatre, then the piracy distribution starts.” Once a soft copy is made in one country, pirate copies flood around the planet faster than the next theatrical release. With this, people then don’t see the need to pay for the high priced cinema ticket – especially if the film wasn’t that good!

“The bulk [of camcording] is in the US,” she continued, “but the behaviour repeats in other territories when we release there too – as with Harry Potter 3.”

To combat this, we are seeing more distributors organising simultaneous global theatrical releases – ‘date and day’ releasing. However, once the soft copy is out there, the revenues of legitimate DVD distributors and retailers are already threatened.

“The situation’s horrendous,” said Alex Sparks, MD and Senior Vice President of Blockbusters. “With 700 stores around the country we’re certainly on the frontline experiencing it.” He continued: “People want the hot stuff that’s at the cinema. I think sales go down because they’re saying, ‘I’ve seen it already.’”

With the soft master copy uploaded on the net, within 24 hours hard copies are then sold on the street with pre-prepared packaging in any territory at dirt-cheap prices. Of course, ripping from a legitimate original disc (once obtained) as the master is another route which the pirates can take.

The significantly improving quality of pirate hard copies and packaging offers attractive alternatives to the real deal, months before it is available in stores. Research has shown that even if the quality of the pirate disc is substandard, some viewers will accept this because they paid so little (or nothing) in the first place.

The most prevalent traffic of pirated, copyright infringing soft copy is peer2peer file-sharing. Analysis commissioned from market research agency IPSOS has shown that this is becoming common across most demographics of people accessing the net, who know its illegal but hold “a soft moral obligation to this.” Quality and download times are determining most people’s choices more than anything else, as it is perceived as a victimless crime with no fear of prosecution. It appears to be most common amongst European teenagers, with 24% of young women and 35% of young men downloading movies illegally (compared to 16% of all net users).

The essential point here is that to watch the film the downloader is accessing digital content. There may be no need for the actual DVD disc anymore – unless he actually wants to burn his own copy. The issue shifts to managing the physically shapeless digital data. More of this later.

Stitching up its wounds

So, the industry is fighting back at hard and soft pirate copy. How?

A multi-disciplinary, long-term strategy has already begun, supported by relevant film producers and bodies (such as the Federation Against Copyright Theft, the Motion Picture Association, the Motion Picture Association of America, etc), encompassing a number of initiatives, such as:

• Security will continue to tighten across the film production, post-production and distribution processes to prevent leakage.
• Theatrical day ‘n’ date releases will continue, followed by accelerated DVD releases to close down the pirates’ window of opportunity. (Simultaneous theatrical and DVD releases were briefly speculated, but this was scoffed at due to costs, and, one imagines, because of the potential of lost theatrical revenue).
• Governments will be lobbied to pass tougher piracy and copyright legislation nationally and local authorities pushed to take prosecuting action against localised pirating networks.
• Localised law enforcement bodies will be called upon to press for convictions.
• More raids (such as on eDonkey and BitTorrent) and lawsuits will be pursued, along with the faster suspension of auction sites, such as eBay, when pirated goods are being sold. There will be as much publicity as possible to make people aware of these when they happen.
• Aggressive advertising to highlight the issue in people’s minds. Adverts are already showing with much more regularity in cinemas and on rental stores’ internal TV systems. Some companies are also releasing these ads with their films.
• Education and public policies will be pursued, aimed squarely at changing the public’s understanding of the issues. They are looking to convince consumers that some pirate goods are linked to organised crime (and possibly fund offshore terrorism, etc), that there are victims (be it illegal immigrant street-sellers, or through effects on local economies as independent video stores fold, shop workers are laid off, etc), and to reinforce the illegality of piracy and content theft and that people can and will be prosecuted. Some companies have already instigated outreach programmes in schools and universities, institutions where filesharing networks are very well established for younger consumers.
• Customs and Excise work will continue to be supported (1.69 million illegal discs were seized coming into the UK last year) across Europe – a 2328% rise in three years.
• ‘Cam-jamming’ technology is being developed – ways of actually disrupting the digital camcording that takes place in theatres whilst not impacting on the visual experience for the cinema-goer. This is seen as an integral part of the coming digital cinemas and may well involve direct modifications to the projectors.

In all, these are disparate approaches but they all move in the same direction, they all share a common sense of urgency.
 

Price Dice

“Criminal groups and increasingly entrepreneurial citizens are now making a lot of money,” surmised Raymond Leinster, Director General of FACT.

The industry admits it won’t be able to beat the pirates; they just want to be one of two steps behind them. With pirated discs, however, it faces a doomed inevitability over pricing.

The industry has to back the whole process of making the movie through to retailing the disc; the pirate just copies the end result. With obviously much lower overheads, the pirate discs can be sold on for a tiny fraction of the legit retail price tag.

“People just want to buy it cheaper, to get something for nothing. The industry cannot compete with piracy pricing. They have an 800% profit margin,” commented Dara MacGreevy, Regional Director of the Motion Picture Association. “

In comparison, Rob Jongmans, Exec. Vice President of Buena Vista Home Entertainment Europe, broke down the costs behind a legit DVD:

“33% goes to distribution costs - disc manufacture, packaging, shipping, advertising, marketing, etc; 27% is taken by the government; 19% goes on retailer costs [staff, mark-up, etc]; and 17% goes towards the film’s production costs. Leaving 4%. This is what the studio uses to invest in new productions.”

“The Hollywood cat isn’t really that fat,” he concluded.

Whether the average DVD buyer would believe such statements, though, is debatable and the lowest price will always win out.

“One of the biggest challenges is to remove the rose-coloured glasses of the consumer who has no sympathy for big Hollywood studios,” added Jongmans. So, it is clear what routes some advertising campaigns will embrace.

“The alternative to internet piracy is not in DVD. The future is in the internet.”

Tim Kuik, Director of BREIN (private Anti-Piracy organisation in the Netherlands)

The above are really short and mid-term strategies to manage the flow of pirate discs and loss of money. But the industry cannot compete with the pirate disc manufacturers indefinitely and they will never better or even match their prices. The most efficient damage limitation exercise is aimed at ultimately doing away with the source of that damage – the DVD. The key lies in the long-term approaches to combating illegal filesharing.

‘To infinity, and beyond!’

A study by the OECD (Organisation for Economic Co-Operation and Development) in 2003 showed that peer2peer video sharing and its software was continuing to grow, despite prosecution and negative publicity campaigns.

Last year their research showed that illegal movie and TV downloads accounted for more than 34% of downloads over peer2peer networks such as KaZaA, Limewire and Bearshare.

This trend is likely to continue as more people access appropriate bandwidths. Arash Amel, Screen Digest’s senior analyst, said, “In 2004, total broadband households outstripped digital pay-TV households in Europe for the first time. By 2008, he concluded, “about 200 million households will be looking to have broadband.”

Very swift advances in broadband or increased bandwidth speeds are going to lead to seriously competitive subscription charges to access them. Much more efficient downloading technologies are coming too, of course. So, it's just going to get cheaper and easier for people to download more content and with more quality.

So rather than fight against the progressing technologies that are enabling illegal film-sharing, the industry is sucking in its communal gut to embrace the online media models. It is inevitable for its survival. They want to get in on the activities that illegal downloaders are enjoying and turn them legal, for a price.

Film companies are already getting the Internet Service Providers on board quite easily. The revenues that the ISPs were getting from subscriptions to customers (to access broadband etc) have levelled off. With that bandwidth market looking to get aggressively competitive, prices will fall even more and the ISPs are looking to get that revenue back (and to capitalise on their initial investments in setting it up). As a result, they're looking to sell quality content that customers will want. And we want movies and everything that goes with 'em!

In the future there will be intensive investment in and marketing of online services, to tempt consumers to pay for film content at competitive prices and to stick with a favoured brand or two. The aim is to improve on the services that pirates offer.

“Pirates are very good at providing decent copies of things, but are very hard pressed to provide a subscription service – it must exist over time,” said Rob Schuman of Cinea (a subsidiary of Dolby Labs).

Looking again to the music industry, Greg Pryor said, “Apple has shown that online content can make money for the industry. People will buy innovative and exciting content.”

Good news for the consumer then if the film industry moves to online distribution, as it will have to provide services that are so much better than piracy networks that people will be willing to pay for them again.

Indeed, Movielink offers online film within the US already, and people are waiting to see how successful it will prove.

People will still want to share the content they’ve bought and will always find a way. Again, the industry is looking to support this, rather than fight against and criminalise its customers again. Effective but flexible Digital Rights Management technology (DMR) is the key to making this workable. Once it can ensure digital content will be sold and distributed securely, there will be no turning back.

However, at present painfully slow speeds and disrupted downloading can frustrate getting movies from the net – and the industry knows people will be turned off paying for such a sketchy service. But not for too long…

‘It is inevitable, Mr Anderson.’

‘Internet 2’ is on the digital horizon. Already in use in some academic and research institutions around the world, it is still very specialised but is effortlessly shifting enormous amounts of data. Earlier this month two separate international teams announced new Internet2 Land Speed records by sending over 6 gigbits of information per second across half the planet.

The film industry, conscious that it needs to be ahead of the game next time round, is waking to the possibilities that the next net revolution will herald. The future of films at home is online. The present problems involved in easily and legally distributing films to consumers in their own homes will eventually be resolved.
 
As a precursor to this technology, the Advanced Access Content System has been developed, backed by a consortium of, amongst others, IBM, Microsoft, Intel, Sony, Warner Bros and Disney. The AACS aims to be a universal DMR system that will allow authorised copying and sharing or content, and will provide safe environments for businesses to supply content (i.e. films) direct to the next generation of DVD players and recorders.

Once they can figure out how to protect it and get us to pay for it online, it will be so much cheaper than making, marketing, distributing and retailing DVD to us, and make the (pirate or legit) hard copy market redundant. For years the industry has seen the DVD as a ‘golden goose’, or rather a ‘cash cow’ to be milked for every drop, but is already predicting slumps in the market:

“There was 12% growth last year,” said Marek Antoniak, MD of Columbia Tristar Home Entertainment. “There may be growth this year but less than 12%. Probably in 2006 the market will mature.”

From then on the only way for sales is down.

... here lies the DVD, R.I.P.

It is ironic that the internet so effectively enabled the piracy of films and now may play a significant role in its demise. Is piracy driving the DVD to a premature end? The industry may well force-feed us this notion as part of its campaigns, but I see this rather as the positive evolution of the technology. ‘On a long enough timeline, the survival rate for everyone drops to zero.’

While the next generation of DVDs, such as HR and Blu-Ray will get here first, they will eventually be surpassed by the soft digital format. iPods and the like mean people no longer collect CDs; in a very foreseeable future, your movie collection will be similarly stored. Your amalgamated home entertainment systems and the delivery of media and films to it will be the key.

Screen Digest’s chief analyst Ben Keen argued, “The technology for unlocking doors is more important. Letting people move the content to other devices in the home that are authorised for this and to devices outside of the homes that can be used for sharing. This needs to be embraced with maximum flexibility, supported by the new technologies.”

Ultimately, the film industry is on the cusp of a paradigm shift. It is facing real challenges to its established business models, just as it did when television threatened in earnest after WW2. Online media and its exponential advances are forcing the change. Having seen the music industry get sufficiently burnt, you can rest assured that the Movie Men are not going to be sluggish.

But neither will the pirates.

‘What are we holding onto, Sam?’

Well, it’s still going to take a while to get there. The sky is clear at present so DVDs will continue to be released in their hundreds of thousands and provide the best format for watching films at home.

The HR and Blu-Ray discs will give superbly improved quality and storage capabilities but any new hardware will almost certainly play your old discs as well.

It’s likely that we’re going to get new films on disc more quickly and some more reasonable pricing may seep across the market as distributors look to keep paying customers loyal. As the cash cow dries up, the DVD market can only become even more consumer-led. Distributors know that wavering prices, lame packages and repeated releases are frustrating the paying customer (who doesn’t feel cheated when they have to double-dip?). So it’s possible that the quicker first time releases may also be more accomplished, comprehensive and attractively priced than ever before. And we can only benefit from this.

The industry knows that if they don’t deliver, all those customers will just 'look' elsewhere.

Purchase From... Amazon.com (USA) Amazon.co.uk (UK) Play.co.uk (UK) Links:

Editorial by Paul Griffiths