I Drink Your Milkshake

A popular myth propagated on nearly a daily basis by online bloggers is that the entertainment industry unfairly wields its power to block innovation and that piracy is either its own fault or unharmful.  In fact, the reverse is true.  The entertainment industry has been besieged  by far more powerful forces that make high margins by distributing content without compensating the creators,investors and owners who made the content.  In our opinion, the numbers presented here speak for themselves.

“It’s easy to forget that it was the magical beauty of Napster, the then-illegal music-sharing service, that spurred many of us to sign up for DSL and cable broadband connections. Napster’s popularity made it clear for the first time that broadband was a platform, no different than, say, Windows or the PlayStation. That’s because it allowed for new applications to be developed and run on top of it, applications that consumed bandwidth — and in turn, driving demand for even more of it.” - GigaOm

“Peer-to-peer technology, . . .  boosted their business, increasing the demand for broadband and upgraded services” – NYU Law Journal

It appears to us that ISPs, search engines and internet advertising networks are in the midst of unfairly using their control of distribution networks to gain control over the content producers.  This is exactly how Standard Oil came to be split up into several smaller oil companies.

Search engines, internet ad networks and ISPs make 10 times more money than the music and movie industries depending on how you size them.  Annual revenues: Google $44B, Verizon $120B, WMG $2.4B.  The US movie industry home video and box office was approx. $28B in 2011, down from $37B in 2006.  Music was $6B in 2011 down from $12B in 2000.  According to Sandvine 18% of US Internet traffic is P2P filesharing and 5% is used for sites like Megaupload.   Search engines, internet ad networks appear to make millions if not billions from selling ads to point people to these links without compensating content owners.  It appears to us that US citizens are being trained by search engines that stealing content is the “new normal.”  Type “Adele discography” into Google and see it autopopulate the word “tpb” – the pirate bay.  ISPs make a lot of money providing the networks used to distribute this content without permission.

The United States telecom industry generated $367 billion in service revenue in 2010 and is forecast to grow to $443 billion in 2016.

United States internet advertising industry generated $28 billion in 2011 and is forecast to grow to $40 billion through 2015.

While US broadband internet penetration grew from 5 million subscribers to 80 million in 2009 and 85 million in 2010.

Recorded music revenues dropped by half even though actual music consumption measured by total downloads on P2P networks and cyberlockers is in the tens of billions.

Source: Mashable

The US Home Video Market (DVD, Blu-Ray, PayTV, VOD and Streaming) has declined 26% from $25B in 2006[1] to $18.5B in 2011.[2]  The first BitTorrent search engines debuted in summer of 2004.[3]



[1] December 2008 Futuresource http://forums.highdefdigest.com/high-definition-smackdown/117934-futuresource-consulting-blu-ray-top-50-sales-2014-od-still-33b-72-share.html

[2] http://www.isuppli.com/Media-Research/News/Pages/Network-Delivery-of-Video-Fails-to-Live-Up-to-Hype-in-2010.aspx

[3] http://mozy.com/infographics/a-history-of-bittorrent/

 

ISP Responsibilities

Internet Service Providers Have Legal and Ethical Responsibilities To Help Mitigate Massive Distribution Without Compensation

According to Sandvine, in March 2011, P2P filesharing accounted for 61.4% of North America’s daily upstream traffic and overall 18.8% of North American network traffic was used for peer-to-peer file sharing.  According to Envisional, all of the top 10,000 torrents (filesharing compilations) that they sampled violated copyright. They found that 35% of BitTorrent traffic is used to illegally upload and download movies (non-pornographic), 14% for television and 2.9% is used to do so with music.

In plain english, 61% of all files being uploaded on ISP networks in 2011 in North America were pirated movies, music, television, games, books and software – just the ones on P2P networks not including cyberlockers and hosting/streaming sites.

ISPs willful blindness of their responsibilities has gone so far that influential tech blogs now state “Generally speaking, your ISP doesn’t give a single damn about copyright violations going on in torrent transfers.”

Doing the math based on traffic figures supplied by Cisco (CSCO), this leads to some staggering numbers of copyright violations per household in the United States.(1) If every household were participating, and if each transaction requires one upload and one download, that would mean that on average, US households illegally download 132 movies each year. In other words, every household watches a movie illegally every five days on average. If half the households are participating, this means that they watched an illegal movie every 2.5 days.

Prior to the Internet, distributing movies illegally was pretty serious stuff. How is it that this can go on unchecked? One problem is that the illegal activity is taking place within the zone of anonymity facilitated by the ISPs. Copyright holders can prosecute claims against individual internet users, but doing so is usually not cost -effective.

ISPs have both ethical and legal responsibilities.  Their ethical responsibilities flow from the fact that they provide the platform on which people deprive content creators and owners of their property.  Just like the owner of a toll road or a warehouse, if they are is a position to block entry to stop the transportation of stolen merchandise, it would be unethical not to do so.  Today, ISPs receive millions of notices of subscribers who are repeatedly illegally distributing copyrighted materials.  Many ISPs respond to these notices, but many do not.  The purpose of this web site is to raise awareness that the information exists and if ISPs acted on the information that they have, then 18.8% of North American internet traffic would not be used to distribute copyrighted materials without the owner’s consent.

If the tables were turned and an ISP was informing an apartment owner that they needed to block access to a subscriber who was illegally tapping into a cable line to steal internet service, they would expect the apartment owner to play their part in preventing the resident from accessing the junction box or utility closet.

Perhaps a greater problem lies in the ISPs’ current interpretation of their legal responsibilities. Parties who facilitate copyright infringement, such as by providing network facilities, over which the activity can take place, can be found liable equally with the “direct” infringer. Congress, acknowledging the potentially crushing liabilities that could jeopardize the very existence of the ISPs, included within the Digital Millennium Copyright Act in 1998 provisions that give ISPs conditional “Safe Harbors” from this third-party liability that otherwise would arise from their subscribers’ copyright infringements. In order to qualify for their “Safe Harbor,” the most significant thing that these ISPs must do is to is to terminate the accounts of repeat copyright infringers. In practice, with 18.8% of North American traffic being used to distribute movies, software, games and music and with each American household consuming a movie illegally an average of every five days, it does not appear that many repeat infringers are being terminated.

If, as it appears, repeat infringers are not being appropriately disconnected then the ISPs don’t have the benefit of their “Safe Harbor.” This leaves ISPs open to monumental liability.

There are many proponents of file sharing. Many bloggers and “digital rights” groups regularly advocate that filesharing is somehow not distribution even though the end user has complete possession of a new copy of the product after the file is “shared.” We believe that these views simply do not match current laws in the United States.

When copyright owners choose to take peer-to-peer copyright cases to court, they win. As of February 2012, most of the 30,000 such cases filed settled out of court for between $3,000 and $5,000. Two cases have been tried. Jammie Thomas received a judgment for $1.5m for distributing 24 songs and Joel Tenenbaum received a judgment for $675,000 for downloading and distributing 31 songs.

Lawsuits against ISPs based upon these theories have not started in earnest. But there is plenty of precedent. Courts have found businesses that have been involved in contributing to copyright infringement liable for damages. In Fonovisa vs. Cherry Auction, a swap meet run by Cherry Auction was held liable to Fonovisa (the copyright owner) for damages. “As the Court observed, ‘it would be difficult for the infringing activity to take place in the massive quantities alleged without the support services provided by the swap meet,’ including the provision of space, utilities, parking, advertising, plumbing and customers…The Ninth Circuit expressly rejected defendant’s argument that the financial benefit prong of the test for finding vicarious liability could only be satisfied if the defendant earned a commission directly tied to the sale of a particular infringing item.” The Fonovisa case and its spawn provide fertile ground for copyright holders that decide to look to seek redress against ISPs for infringements being perpetrated by the subscribers that are providing the ISPs’ profits.

A medium sized ISP in the United States with just 1 million subscribers would have 1.2% of US broadband market share corresponding to 132 million occurrences of illegal movie distributions in a year. If a movie studio could prove that 100,000 infringements occurred on their network by repeat infringers and a judge awarded just $3,000 per infringement, a small ISP in the United States could be faced with a $300 million judgment. On the other side, if a studio proved 10,000 infringements and was awarded just $30,000 per infringement (still substantially less than the statute), that would result in a $300m judgment.

We believe that Internet Service Providers should be making their shareholders aware of these risks and disclosing the steps they are taking to maintain their Safe Harbor by reducing the number of repeat infringers that clearly exist on their networks.

(1) Cisco states that North America used an average of 9,947 Petabytes (1 million Gigabytes) a month in 2011, which would mean that 7,899 Petabytes were used to illegally use movies, 3,141 Petabytes to illegally use television shows and 650 Petabytes were used by illegal music consumption in 2011. Assume that the average movie is 700 Megabytes. If we divide 7,899 Petabytes (1 million Gigabytes) by 700 Megabytes, we get 11.2 billion movies uploaded and downloaded illegally in 2011 (infringements). If we divide 11.2 billion movie infringements by 85 million broadband subscribers in the United States, we get an average of 132 movies uploaded and downloaded per household in the United States in 2011.

US Internet Piracy Is On The Rise [STATS]

In 2011, piracy in terms of volume of data used for illegal filesharing grew by more than 20% over 2010.  We calculate that in the US in 2011, there were 132 billion mp3s illegally downloaded and 11 billion movies.

According to Global Internet Spring Report 2011 from Sandvine, in March 2011, P2P filesharing accounted for 61.4% of North America’s daily upstream traffic and overall 18.8% of North American network traffic was used for peer-to-peer file sharing.  In plain english, 61% of all files being uploaded in 2011 in North America were pirated movies, music, television, games, books and software.

On a percentage basis, overall P2P traffic as a percentage of total traffic shrank from 19.2% in 2010, but in that year global internet traffic grew from 20,197 Petabytes to 27,483 Petabytes.  So overall data volume used by P2P continued to grow 20% year over year.  This was widely mischaracterized in the Copyleft press as a decrease in piracy.  On a data volume basis, i.e. number of files downloaded, piracy continues to grow.

Cisco forecasts that P2P will triple between 2010 and 2015.

According to Envisional, all of the top 10,000 torrents (filesharing compilations) that they sampled violated copyright. They found that 35% of BitTorrent traffic is used to illegally upload and download movies (non-pornographic), 14% for television and 2.9% is used to do so with music.

Piracy has grown at more than 20% annually since 2005.

Piracy Growth 2005 to 2011

The chart above was generated from data by Cisco in its “Global IP Traffic Forecast and Methodology, 2006-2011” and featured at www.satmagazine.com.  The 2005 data in the chart is actual, the 2010 actual figure exceeded this forecast at 14,955 Petabytes with 24% of global traffic used for P2P in 2010.

Doing the math based on traffic figures supplied by Cisco (CSCO), this leads to some staggering numbers of copyright violations per household in the United States.(1) If every household were participating, and if each transaction requires one upload and one download, that would mean that on average, US households illegally download 132 movies each year. In other words, every household watches a movie illegally every five days on average. If half the households are participating, this means that they watched an illegal movie every 2.5 days.

(1) Cisco states that North America used an average of 9,947 Petabytes (1 million Gigabytes) a month in 2011, which would mean that 7,899 Petabytes were used to illegally use movies, 3,141 Petabytes to illegally use television shows and 650 Petabytes were used by illegal music consumption in 2011. Assume that the average movie is 700 Megabytes. If we divide 7,899 Petabytes (1 million Gigabytes) by 700 Megabytes, we get 11.2 billion movies uploaded and downloaded illegally in 2011 (infringements). If we divide 11.2 billion movie infringements by 85 million broadband subscribers in the United States, we get an average of 132 movies uploaded and downloaded per household in the United States in 2011.  If we divide 650 Petabytes by an average mp3 file size of 5 Mb, we get 132 billion mp3s downloaded in 2011.  If we divide 132 billion mp3s by 85 million broadband households, we get an average of 1,531 mp3s downloaded per US household in 2011.  The most popular illegal downloads in 2011 were entire artist discographies and “top 500″ compilations which are usually compose of hundreds of songs.  It would only take an average of five such downloads per household to explain this figure.