Why do people pirate media outside the USA?
José Elías - May 28th 2006
Note: You may find a spanish version of this article here.

This article was written for studio execs, both in the movie and music business. It is meant to be a concise and honest account of why people pirate media in countries outside the USA (but as you will see, may things apply directly to the american market).

The 3 top reasons why people pirate media outside the USA are the following: (1) Price, (2) time it takes for media to reach such countries, and (3) DRM (Digital Rights Management). Let's explain each.

First, price is a huge barrier for most countries outside the US. Most hollywood execs do the math without regard for the economic realities of each country. In the Dominican Republic where I live for example, the average annual salary is well under $2,000 dollars. When you take this into account we may ask, how can a studio exec expect someone to buy a US$20 DVD or CD when US$20 represents 1% of their annual income? it's like telling someone in the US who makes US$30,000 a year to pay US$300 for a movie.

The second big issue is the time it takes for movies and CDs to reach countries outside the US. Most of the time, people are completelly aware that a certain movie just openned in the US, and they want to see it. Studio execs should understand that human curiosity is a powerful innovator. So how do people outside the US "innovate" so they can see a movie which they know millions of people are enjoyin in the US and they can't? They pirate the movie so they can see it as well. This is common practice even among people who can afford and would be willing to pay for the movie in theaters, but are dying to see it and don't want to wait, so they pirate it. It's common practice here that by the time a movie arrives in theatres that most people have already seen the movie pirated or on an imported american DVD.

This second issue also has another interesting side effects for DVDs and region codes. Hollywood execs think that region codes work, but in practice they only encourage piracy for the same reason outlined above: DVDs are usually released in the US before anywhere else, and people want to see such movies, so pirates come into play and give people what they want. Supply and demand.

Expanding on the second issue, do studio execs realize that in countries like the Dominican Republic nobody buys Region 4 (latin america) DVDs? As a matter of fact, 100% of all video stores offer ONLY region 1 (USA) DVDs for rent. The only Region 4 DVDs people buy or rent are the ones that come ready to play on both Region 1 and 4. Note that for this reasons, 80% of all DVDs players sold are region 1, and 20% are multi-region. Another fun fact: Almost all DVDs people buy are imported directly from the US via courier services using stores like Amazon. This is a big problem for such countries, as the american versions sometimes do not have subtitles in their native language, but even then they prefer to see the movie first that way, or go to the internet and download subtitles.

The third reason, and this applies more to music than movies, is DRM, and for this let's use the iTunes music store as a prime example. I don't know if Apple has ever acknowledge this publicly, but even with the huge success of the iTunes music store and the iPod players, 99.999% of all songs in all the iPods in the world do not contain music bought from iTunes. Why? The most often reason told to me: Users cannot play the songs anywhere they want, they feel restricted to what they can do with what they feel should be their property. They are afraid that they will lose their money if they change machines or music players.

Let's talk a little more about this.

It's true that if DRM did not exist that people would copy songs from each other, but then I pose the following question? Wasn't this the case with music tapes and VHS tapes? and wasn't the market healthy enough then?

Studio execs would quickly point out that the market for DVDs is much bigger than VHS, citing the wrong reason, DRM, when the real reason is that DVDs offer much better quality than VHS and tons of extra features and alternate languages, and that's why they are overtaking VHS.

When you think about it with an open mind, you'd realize that copying is a good thing. Look what it did for Microsoft Windows, look what it did for so many bands during the years. Copying is a form of free advertising and marketing. Combine this with affordable media prices (say, $3 dollars for a movie and 25 cents for a song) and there would still be a huge market of people willing to buy things legally as it represents something valuable and worthy for the money they pay. Of course, these low prices are a no-no for studio execs, specially when they take out their calculators and do the math; but they're doing the wrong math. They should factor in the much bigger audience of new buyers who would have never bought anything, or existing buyers who would be buying more. Only after factoring these things should they do the math. The numbers will actually be much bigger than with the existing DRM scheme.

In the end remember this: Let the market reach an equilibrium point by itself, not by forcing it with DRM tactics. Right now studios are forcefully increasing prices out of greed (hey, making a DVD or CD is way cheaper than making a music tape or VHS tape, and still they are sold more expensive, what gives?). Studio execs would probably say that nowdays marketing is much more expensive than before, but have they stopped and think that if they let people copy their media that they'd be getting way more marketing, for free? Nothing beats word of mouth, see what it did for Titanic.

History has clearly shown that if you let the market decide, everybody wins, it's simple game theory.

Now a side note regarding HD-DVD and Blu-Ray: Studios included a special flag that can optionally cripple the resolution output of the player if the receiving monitor is not DRM-equiped. More specifically, the image would downgrade to 540 lines (as opposed to 1080 lines). Now, do studios really think that by not giving pirates a full-resolution output that they would stop piracy? Not in the very least. Look at mp3 files, they sound worse than CDs, yet they were a huge success because in the end people only care about the song itself first, and second about its quality. The same happens with movies, 540 lines of digital video is actually better than most existing pirated movies on the internet, and more than enough quality for people to watch at home, so this is a scheme that simply will not work.

So what is my proposed solution: (1) lower prices, (2) release movies and songs in all global markets simultaneously, and (3) get rid of DRM. Note that if you do 1 and 2 that you will have no need for DRM, as people will not be copying anything, and the ones who do will most likely be people who would never bought it anyways, and so is better to allow them to copy such media as they will be providing free marketing in exchange for a free movie viewing or music listening experience.

Want a compromise? Allow people to copy those 1080p DVDs into as many copies they want but at 540p resolution, that way if you really like the movie then you'd go to the web and buy the full'resolution edition for $3. Do a similar thing for songs: allow as many copies with lower sound quality as people want, and charge for the full-quality version. Note that this strategy will only work if you if you keep prices low.

So am I going crazy by suggesting these things? No, I think the big studios would be crazy not to take them seriously...

You may contact me at elias@reinventa.com

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