Dear Old Media Executive,

Come on. You’re better than this– running to your cronies in Washington to throw every 13 yr old and file hosting hermit in the slammer?

You’ve tried this before – I remember in 2005 when I was in college, seeing some loose-leaf pamphlets on the post-it board in the mail room threatening jail time for illegal downloading or hosting copy-written material. I think by now you’ve realized, it didn’t scare anyone straight – it just reminded us of the new album or movie we wanted to download when we got back to our room.

As the years passed, you saw the landscape moving even further beyond your reach. And instead of meeting the challenge with innovation, you’ve decided instead to play Caesar.

The maximum penalty would be five years in prison for a first offense of streaming 10 pieces of music or movies within six months.

I’m writing you to tell you that you’re fighting the wrong fight.

Piracy isn’t an issue of legality, it’s an issue of economics. People pirate digital media for a number of different reasons, but predominantly economic ones. Kids pirate content because they don’t have a fully matured sense of morality (which is why they’re tried differently in most courts), and because they usually have no disposable income. DVD peddlers in Chinatown and in foreign countries pirate content to feed their families or because they can’t afford the content – or because they don’t value the content in relation to other durable goods that are less price elastic.

The rest of us pirate content simply because we clearly feel the value of digital content has decreased as it has become considerably cheaper to distribute and consume. Here’s why we think digital content should be much cheaper than it was in 1995:

1. Distribution is cheaper / free.

CDs? DVDs? Print outs, posters, billboards? Gone. (Trees rejoice!) Shipment costs to merchants? Gone. Incorporating 50-100% cost markup from Walmart / BestBuy / Circuit City (well, in 1995)? Gone.

2. Creative marketing is far more cost efficient.

Traditional marketing has been turned on it’s head, and most creative online campaigns can generate customers for enormous discounts on the pre-digital age models. There are digital agencies who have this down to a science. If your internal team can’t figure it out, hire them.

You’ve got cash? Good. Acquire new digital services that are figuring out ways to engage consumers on the cheap.

3. Continuous engagement

In 1995, every new movie and album release required the same “needle in a haystack” marketing problem – in that it was like you had to start over every time you had a new release to find your consumers. With the advent of social networking and personal interest profiles, that’s all changed. By converting fans of movies, musicians, and television shows to Twitter followers and Facebook fans, you can interact with and engage your consumers 24 hours a day, 7 days a week. After they watch a movie or download a song, you have plenty of opportunities to convince them to buy something else– with insights provided by Facebook’s ad platform and page insights, you even know individual items your fans like so you can recommend them things they want! Heck, if you entertain them and throw them something special every now and again, they’ll probably even tell their friends, which is an ancillary marketing benefit.

4. Consumer targeting is lightyears ahead of where it was 10 years ago.

How many consumer studies / screening tests did you need to do back in the day to tailor your marketing campaigns? How much research to determine when and on which channels and radio stations to run your movie trailers? The ability to laser focus your marketing efforts on a single demographic is considerably easier today. Generating feedback through twitter and facebook and through online surveys is considerably cheaper and more effective as well. The good news? You’re not completely hopeless.

Hulu and VEVO (both joint-ventures between numerous large media companies) are tremendous success stories. They weren’t exactly “innovative” in the broader spectrum of new technologies, but you demonstrated that you could shift models quickly and you have benefited greatly. ComScore reported in Dec. 2011 that Hulu served more video ads than any other online video platform, and VEVO and Warner Music were the #1 and #2 channels respectively on Youtube by # of views. Don’t stop there, get creative with new business models.

Julian Sanchez of the Cato Institute argues that record labels aren’t doing quite as bad as they think. This is because even though digital downloads might be decreasing, that the overall average expenditure on music remains constant and that expenditures are just shifting:

[R]ecording industry numbers show large increases in concert revenues corresponding to the drop in recorded music sales. That suggests that, as people discover new artists by sampling downloaded albums online, they’re shifting consumption within the sector to live performances.

In other words, people have a roughly constant “music budget,” and what they don’t spend on the albums they’ve downloaded gets spent on seeing that new band they discovered.

Some independent artists have created very viable business models entirely on their own. Comedian Louis CK and English Rock Band, Radiohead implemented “pay what you want” models on content they produced themselves, with remarkable results:

You might say:

But we made Louis CK and Radiohead famous! We spent millions promoting their shows and music.

And, to a certain extent, you’d be right. You used to be a promoter and distributer. But, you’ve been replaced by the internet. Now, She handles promotion and distribution. Facebook and Twitter are the new distributors. Spotify, Boxee, and Netflix are the new media platforms. They’re the innovators and they’ve got the support of hundreds of millions of people around the world.

You’ve failed to realize that the world is considerably more connected than it was in 1995 and that traditional bureaucracy is a withering enterprise. Innovate or die.


The Internet

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