How to beat digital piracy

Aug 14, 2013

Table of contents:

1. Napster and the Music Industry
2. Engulfing other industries
3. What are the characteristics of susceptible industries?
4. What can you do to beat digital privacy?
5. Conclusion

For the past 10 to 15 years, the Internet has completely disrupted many of the most bureaucratic and monopolistic industries that we have as a modern society. Whilst piracy exists in many forms, the Internet has been such a powerful force because it irreversibly changes distribution and access.

For a long time, industries such as music, film, television and publishing have had dictatorial like power over the production, distribution and access to their content and media. The Internet destroyed that paradigm by creating new and decentralised forms of distribution and storage that allows anyone to have equal opportunity to reach consumers and a potential audience.

In the defence against piracy, many huge and former powerful companies have tried tactics ranging from technical protection through DRM to legal action in order to maintain order. However the strength of the Internet tide is just too strong to fight against.

I whole heartily agree that content creators should be paid for their work. But instead of fighting the tide, you need to work with it to produce work that can flourish.

In this post I will be looking at the challenges the Internet has created for content creators, where the opportunities lie going forward and how you should restructure in order to prosper in an online world.

Napster and the Music Industry

The music industry is probably your first thought when you think of online digital piracy. Napster, amongst many other online platforms, enabled Peer-to-Peer sharing of music files across the Internet. Whilst Napster is no longer available in its original form, the music industry could not stop the natural evolution of it’s business model.

For the last 10 years, the music industry has tried an assortment of methods to restrict the sharing of music files on the Internet whilst trying to preserve the higher margins of physical sales. When record companies could completely control the creation and distribution of new music, they could dictate pricing for an entire industry.

However, two of the most transformational characteristics of the Internet are creation and distribution.

Engulfing other industries

Whilst the music industry was the first monolithic giant to fall victim to the Internet, it will most certainly not be the last. The Internet has already started to infiltrate film, television and publishing and will continue to force evolution in nearly all parts of our lives.

As more and more low cost, Internet enabled devices are used through out the world, it is inevitable that a bigger part of our attention will be spent online. Whilst the first industries to fall were mainly entertainment and communication, it is surely only a matter of time before others follow suit.

I believe the Internet will have a transformational impact on nearly every modern industry, but the disruption will be greater for those that maintain certain characteristics.

What are the characteristics of susceptible industries?

So what are the characteristics of industries that are going to be most susceptible to distribution via the Internet? I think the biggest thing that is is going to change is the shift from centralised control to decentralised noise. This basically breaks down into three different areas.

Restricting information

If your business model is centred around restricting information, you are in a precarious position. The Internet has enabled everyone to have the world’s knowledge sitting in their pocket and so business models that try to restrict this flow will die.

Restriction is not necessarily limited to just knowledge. If your business model is focused on selling services based on a restriction of knowledge or access, you will find that someone will come along and render you obsolete.

Controlling distribution

If your business model relies on controlling distribution, or profiting by enabling others to use your distribution, you will find that sooner or later, your distribution is not all that important.

For a long time, distribution has been controlled by the physical and capital limitations imposed by moving ideas around. Many years ago, all distribution was through newspapers. Television and Radio had a big impact by allowing ideas to move through a wire, but the infrastructure of a television studio or broadcasting equipment restricted the disruption.

Finally the Internet has decentralised the flow of distribution by reducing the cost of moving ideas to anyone in the world to essentially free.

Gatekeepers to an audience

Business models that profit from being Gatekeepers to an audience is the final characteristic that I think will fall very soon. You can already see the decline in the falling sales of physical magazines or mass media broadcasts on television.

It has never been easier to create an audience around a niche topic and have direct engagement with them.

Services like Facebook or Google have had a major impact in the downfall of the old regime. But now Facebook and Google are becoming the new generation of Gatekeepers, and so it is important to not allow a service to become a middle man in your interaction with your audience.

What can you do to beat digital privacy?

The majority of this post has been focused on why the Internet is destroying these once highly profitable industries. This goal of this post is not to show you that these industries are dead, but actually, why you need to completely rethink your business model if you fit into one of the characteristics listed above.

You can’t fight a strong tide, and so trying to fight against the rising tide of the Internet is going to be futile. Things change, and so business is all about recognising the rising wave before everyone else. Clinging on to the old structure will be the quickest way to kill your business.

Trying to stop digital piracy is going to be like a game of cat and mouse that you will never win. It doesn’t matter what technology you come up with to stop piracy, you are fighting against the entire Internet of people who will always be just one step behind you.

The only way to survive is to restructure your business model so that you are swimming with the tide of change.

New forms of distribution

For example, instead of fighting against people sharing your work, embrace it and use it as a new method of distribution. Instead of thinking that people spreading your work illegally is a bad thing, look it as an amazing opportunity to massively increase your distribution to a new audience.

Once you change the context of the situation, your problem becomes, “How do I get more people to share this stuff?”.

In an increasingly noisy world, building your own distribution channel where you can talk directly to your audience is going to be critical for success. You can’t rely on paying the old gatekeepers for access and you should not rely heavily on the new guard of Facebook or Google.

Instead, invest in creating your own channel and build a direct relationship with the people who care enough to spread your work.

Shift what you monetise

A beautiful outcome of piracy is that it is a direct feedback mechanism with your audience. If you produce something that is spread by your audience, you know you have created something that they want.

The opportunity therefore becomes, how do I shift how I monetise this thing?

For example, music single sales are at their lowest of all time despite greater access, opportunity and distribution than there has ever been in the history of time. I believe that record labels and artists would be wise to give away their music for free in order to grease the wheels of this distribution and reduce friction for their new work to spread.

Whilst you would lose money on the passive fans who would listen to your music for free, there would be a greater opportunity to earn revenue from the diehard fans who attend gigs, buy merchandise and who seek out unique opportunities to interact with their idols.

By rethinking the business model, you don’t have to serve the low profit customers, and instead you get to focus entirely on the people that you should really care about.

Create huge amounts of value for free

The old rules of marketing rely on established distribution channels to try to convince potential customers that they should purchase your product.

Hopefully by this point, you should realise that this is a dying technique.

Firstly, as I mentioned above, these established distribution channels won’t be around for much longer.

Secondly, consumers don’t give a shit about your product, your company or what you are trying to convince them to buy. Nobody wants to be sold something and so this technique is a relic of the old world.

Instead, you need to build a relationship of trust and engagement with your audience where that individual becomes bought into your mission as a company. Once you have built this reputation for delivering high quality products and services, your customers will choose you over the rest of the market.

To do this, you need to start giving away an immense amount of value without trying to monetise it. Building an audience is incredibly hard, but it will be the difference between success or failure.

This strategy is already big in the intersection of Content and Commerce, but I believe it will become increasingly important in all industries.

Conclusion

Whilst many of the largest companies and governments in the world would have you believe piracy is a bad thing, it is actually just a signal from the market that things are changing. The reason these companies make it seem like an evil is because it is disrupting their cushy high margin business models that allow them to control entire industries for their benefit.

Whilst there will always be the small minority of people who are willing to accept lower quality products for lower prices, these aren’t the people that you want to engage with. Instead of trying to stop them, just let them get on with it.

Instead, you should focus your attention on creating greater value for the people who really just want better convenience and better products and services that don’t fit into the centralised control of incumbent industries.

For further reading on this topic, I would highly recommend that you check out the case study of how Tim Ferriss used The BitTorrent Publishing Model to launch and sell his new book, The 4-Hour Chef. Tim is an ideal spokesperson for this opportunity because he is a content creator who is embracing the changing tides instead of fighting against them.

And of course, if you are interested in the disruption of offline business, you should read my posts Killing offline businesses online and How to use the unique characteristics of the Internet to achieve success.