Comcast May Owe Content Owners $1.6B A Year Or More

Much of United States copyright law is a civil, not criminal in nature.  The ability of citizens and corporations to bring lawsuits in civil matters is good for society.  As an example, the removal of cancer-causing asbestos from many residential and office buildings in the United States was brought about by the use of civil lawsuits.  Building owners now use more expensive, but safer, materials to avoid lawsuits, benefitting society.  The same process was used to radically clean up America’s waterways.  Before many successful lawsuits against polluters, in the 1970s you could literally light many polluted lakes and streams on fire.  Corporations didn’t spend billions on treating water and disposing of chemicals out of altruism, they did it to avoid lawsuits.  Copyright laws allow authors, songwriters, singers, guitarists, software and game coders and publishers to be able to make a living, get investors, employ teams and maybe even make a fortune from their creative output.  The primary tool for copyright enforcement is and has always been the civil lawsuit.  Unfortunately, in our opinion, ISPs in the United States have a business model today where they get paid billions of dollars to provide internet service that now comes with unlimited illegal free movies, music, books, software and video games.  In the modern “open internet”, the ISP gets paid, but the content owner does not.  Now, rather than help content creators and owners in any meaningful way, it is our opinion that the largest US ISP is refusing to allow the nation’s copyright holders access to the only tool currently available to them to enforce copyright on peer-to-peer networks.

Attorneys for Comcast (CMCSAtold the court on June 1st, 2012 that:

“plaintiffs should not be allowed to profit from unfair litigation tactics whereby they use the offices of the Court as an inexpensive means to gain Doe defendants’ personal information and coerce “settlements” from them.”

In response, our opinion is that:

Comcast (CMCSA) should not be able to continue to profit from forcing content owners and creators to have their products distributed on their network without compensation.

ISPs have known for years that the legal framework in the United States was such that they either would have to assist copyright owners in curtailing peer-to-peer consumption on their networks, pay royalties or face the threat of lawsuits based on their vicarious and contributory liability to copyright owners.   If they are going to block copyright enforcement, then in our opinion, they need to return to the idea of paying royalties. Verizon (VZ) recognized this in 2002 when they offered to pay a $1 royalty per broadband subscriber per month for peer-to-peer music downloads.

It is our opinion that Comcast (CMCSA) is making billions from providing access to other people’s property.  Comcast’s last annual report states that it has 18.1 million high-speed internet subscribers generating $8.7 billion in revenue in 2011.  18.8% of all North American internet traffic was used for peer-to-peer filesharing in 2011 and more than 99% of that traffic violated the owner’s copyrights.  It is our opinion that if Comcast is going to profit from blocking content owners from suing subscribers who are illegally distributing their content, then Comcast at least needs to compensate the content owners: 18.8% of $8.7 billion is $1.63 billion potentially owed to content owners.  Comcast can afford to pay because in 2011, they had earnings of $19B on $58B in revenue.

How would that break down?  If we allocate by percentage of bandwidth used, Envisional 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.  (It would be hard for them to argue against this – this study was commissioned by NBC Universal now owned by Comcast.)  It is our opinion that allocated by bandwidth, Comcast may owe movie owners 35% of $1.63 billion or $572 million, owners of television shows $228.9m and may owe music copyright owners $47.4m – just for 2011.  To put this in perspective, Comcast has approximately 20% market share of US broadband households.  Therefore, we believe that if we allocate by bandwidth used, ISPs as an industry may owe movie owners $2.8 billion, owners of television shows $1.1 billion and owe music copyright owners $237m – just for 2011.  (Music files are much smaller than movie files, so an actual deal would not be based on percentages of bandwidth.)

Unfortunately, that still does not make up for the amazing losses all of those industries are facing due to piracy – this Comcast bandwidth is not just being used to consume media, it is being used by Comcast (CMCSA) subscribers to distribute media illegally to consumers all around the globe, everyday, all day long.  If we allocate on a per unit basis, we believe that there were 132 billion illegal uploads and downloads of music files in the United States and 11 billion illegal uploads and downloads of movie files in 2011.  It is our opinion that approximately 26 billion illegal music file uploads and downloads and 2.2 billion illegal movie file uploads and downloads occurred on Comcast’s network in 2011.  If we assume only one in twenty music downloads was a lost sale, at the average $0.99 price on Amazon, that is $1.2 billion in lost music revenue.  If we assume only one in ten movie downloads was a lost sale, at the average $4 price on Amazon, that is $880 million in lost movie revenue – just on Comcast’s network.  In our opinion, we start to see where $6B a year in lost music and $8B a year in lost home video revenue went – right into Comcast’s $19 billion in 2011 earnings. (We think the ratios of pirated files to lost sales are higher – but we would like to see the copyleft argue that they are lower than what we present.)

Lastly, Comcast (CMCSA) now owns NBC Universal.  We initially were excited that with the nation’s top ISP now owning a movie and television studio that some level of balance might enter copyright enforcement on the Internet.  This court filing shows that not to be the case.  Why isn’t Comcast / NBC Universal standing up for content owners, since they are a content owner?  Their own annual report says that piracy is decreasing their home video revenues:

“piracy and intense competition for consumer discretionary spending and leisure time, are contributing to an industry-wide decline in DVD sales both in the United States and internationally, which has had an adverse effect on our filmed entertainment business€ results of operations.”

Why aren’t more movie studios standing up to Comcast (CMCSA)?  Because as piracy has increased and home video sales are collapsing due to piracy, movie studios are more dependent than ever on the pay-per-view (PPV) and video-on-demand (VOD) revenue streams from the cable providers like Comcast and many other ISPs.  PPV and VOD are the next revenue windows after theatrical release.  DVD revenue used to offset potential losses from movies that underperformed at the box office.  Now, if movie studios are too aggressive in enforcing the law, they may end up suffering in negotiations on PPV and VOD revenues with the cable companies who in our opinion, also sell services that provide their products for free.

In our opinion, Comcast (CMCSA) now profits from “shielding” their subscribers from content owners who are trying to stop illegal distribution on Comcast’s network.  Many of the companies trying to stop their content being given away for free are Comcast’s competitors.  Is it possible that enabling piracy has become the secret weapon to provide unfair competitive advantage to Comcast?

Piracy appears to us to have given Comcast/NBC Universal an amazing ability to unfairly compete against other content producers who do not have the profitable revenue streams from selling internet services that come with illegal free content.  Comcast/NBC Universal does not seem motivated to help stop massive illegal distribution of Disney (DIS), Sony (SNE), Warner Bros or Paramount (VIA) product on their networks.  In our opinion, this legal position may show that they are motivated to profit from those who are willing to pay for content but also willing to let their subscribers take their competitors’ product without restraint – they make money either way.  Better yet, by communicating to the market that you can’t get caught for downloading and distributing movies on Comcast, they may gain more market share.

Who is the biggest loser here?  The honest consumer.  By Comcast (CMCSAeliminating the tools content owners need to enforce copyrights and with p2p “filesharing” forecast to double in data volume by 2016, the end result will be more expensive prices for honest people.

If the movie and television studios who do not own internet networks and lack a revenue stream from their stolen content start to collapse the way EMI and other music labels have (Home Video is down 25%, where music was in 2005), Comcast might scoop them up for a song  and we will have a smaller consolidated ISP / content monopoly that employs less people and makes less quality content.  Copyright was one of the barriers to such consolidation that increased access to markets.  Without copyright, we will just get more power in the hands of fewer players.

Advocates for weaker copyright claim that copyright restrains innovation.  Is this innovation?  Is this the bright future of the “open” Internet?