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Taking Steps to Fight Piracy in Online Video

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Are you watching Pirates of the Caribbean legally -- or is it a pirated version?

Are you sure? By some estimates, a quarter of today’s internet traffic is copyright-infringed media and intellectual properties being used and consumed illegally.

If you’re reading this site, you’re probably more likely to not only know exactly where your copy of a movie came from, but you’re also confident that it’s not a pirated version. Some consumers, on the other hand, may not realize that the movies they’re streaming or downloading are stolen goods or that the host sites where they obtained them are illegal operations. In many other cases, of course, people know full well that the way they acquired certain music or movies wasn’t legal. And then you have people who share files they’ve acquired -- both legally and illegally -- with their friends. Since file sharing doesn’t sound like a crime, and they’re not immediately apprehended or handcuffed like criminals, it doesn’t seem like a big deal. And anyway, everyone’s doing it.

There are roughly 150 million active users using BitTorrent, the world’s premier protocol for peer-to-peer (P2P) file sharing over the public internet. While BitTorrent users aren’t necessarily dealing in copyright-infringed content, this is a platform that lets them do it for free.

With broadband service, people can access big movie files and even stream them online courtesy of pirate sites. One infamous rogue site was megaupload.com, a Hong Kong-based online service that facilitated illegal file sharing and viewing of movies, TV shows, and other media. When the FBI took the site down in January 2012, it seized $42 million worth of assets from the owner and prevented further access by the site’s 180 million registered users.

There are huge profits in content piracy, with pirate sites and services pocketing revenues from advertising, pay-per-view fees, and subscriptions. Since pirate sites don’t pay to produce the content, they can charge less for it compared to the same content distributed via rightful channels -- or they can charge nothing for it at all but generate revenue by selling ads on their sites. Lamenting they can’t compete with free content, movie studios and record labels stress that content piracy threatens profits, jobs, creativity, and brand sanctity.

When asked to put a dollar value on losses from content piracy, industry experts say it’s difficult to do for many reasons. Not every illegal download or stream is a lost sale. New pirates are marauding internet waters every day, and piracy is a rampant problem impacting every aspect of today’s legitimate creative industries.

All Hands on Deck to Fight Piracy

To protect their creative works in the online environment, moviemakers, musicians, and other artists are enlisting the help of powerful, legitimate, infrastructure companies such as internet service providers (ISPs); credit card processors; and search engines that can stifle piracy-enabling sites by making it difficult for them to operate and process transactions. Content owners, such as motion picture studios, are also enlisting the help of law enforcement agencies (for instance, the U.S. Department of Homeland Security Immigrations and Custom Enforcement (ICE) task force or the FBI) and taking legal action against known offenders.

The Copyright Alert System is one example of a new, proactive initiative that enlists the help of ISPs to thwart content piracy. If content owners see their music, movies, TV shows, or other copyrighted works being shared without permission on P2P networks, this system enables them to notify the appropriate ISP of the internet protocol (IP) addresses involved. In turn, the ISP notifies the individuals with that IP address to stop the illegal file sharing. If that warning goes unheeded, the ISPs can take steps that negatively impact that subscriber’s internet experience, such as reducing bandwidth or quality of service.

“The Copyright Alert System pertains to peer-to-peer file sharing, such as ‘BitTorrents,’ not to ‘cyber lockers’ that host illegal content and provide links from which it can be streamed,” says Howard Gantman, vice president of global strategic communications for the Motion Picture Association of America, Inc. (MPAA), in Washington, D.C. The MPAA has been actively involved in a variety of anti-piracy efforts on behalf of its members including Walt Disney Studios Motion Pictures; Paramount Pictures Corp.; Sony Pictures Entertainment, Inc.; Twentieth Century Fox Film Corp.; Universal City Studios, LLC; and Warner Bros. Entertainment, Inc.

“While streaming media enables movie studios to make movies as accessible as possible, illegal sites that seek to profit from unauthorized distribution are hurting media professionals who work hard to innovate and produce entertainment content,” Gantman says. “So MPAA members who have been victimized by criminal activity are taking several steps to prevent others from profiting from illegal use of their content.”

In March 2013, the U.S. Court of Appeals for the Ninth Circuit issued a unanimous decision against isoHunt Web Technologies, Inc. for inducing users to illegally download and distribute copyrighted materials such as movies and TV shows. A separate trial is expected to determine the amount of monetary damages that isoHunt must pay to the plaintiffs. Despite the injunction, isoHunt continues to operate through private servers in Canada and is the fourth most popular torrent site on the internet, offering 11.8 million active torrents to approximately 59 million peers.

Piracy: A Growing Threat

“Content piracy is a growing problem worldwide that has to be taken seriously. The pirates are getting smarter. They keep coming up with more technologically sophisticated ways of stealing all kinds of intellectual properties from others,” says Jeff Kagan (right) a technology industry analyst based in Marietta, Ga. “It’s not just individuals; it’s also private companies in other countries that are behind much of this. And it poses a real threat to U.S. companies.”

One reason why the problem is a growing threat, Kagan says, is that pirates used to target physical media such as CDs, which were easier to protect. But now, there are so many new digital avenues open to them by virtue of the internet. Another reason, Kagan adds, is that “by the time the government updates rules and laws to protect content owners, the technology has already advanced beyond that point. Since the government doesn’t move fast enough to provide protections, content owners have to be smart enough to protect themselves, and that’s a challenge.”

Legislative vs. Voluntary Piracy Enforcement

Many recent legislative efforts to curtail online copyright infringement have been unsuccessful largely because opponents expressed concern that copyright protection measures would put too much power in the hands of law enforcement, ISPs, and other gatekeepers to restrict access to entire internet domains even if copyright infringement only occurred on a single blog or webpage. Also, if search engines were required to delete domain names, this could result in unprecedented internet censorship.

Among these recent bills is the Combating Online Infringement and Counterfeits Act (COICA) that failed to pass the U.S. Senate in 2010. It was later reissued as the Protect IP Act (PIPA), which -- along with a similar, concurrent House bill, Stop Online Piracy Act (SOPA) -- stalled on Capital Hill due to vocal opposition and protests.

“SOPA and PIPA were efforts at combating infringed materials and counterfeit goods and they didn’t pass because they received a lot of ‘push-back,’” says Daniel Castro (right), senior analyst for the Information Technology and Innovation Foundation (ITIF) in Washington, D.C. “While these bills offered legislative protections, we were beginning to see many in the industry initiate voluntary efforts.”

For example, search engines volunteered to take down links to pirated content, and ISPs and large networks tried to be more rigorous in enforcing their standards, such as prohibiting advertising on sites that are engaged in piracy. Credit card processors volunteered not to process payments for sites that sell infringed materials.

“Since many perpetrators operate illegal file sharing or streaming services for profit -- including ad revenues, pay per view, and other models -- legal authorities can use these commercial transactions to figure out who they are and content owners can take legal action against them,” Castro says. “Going after the biggest violators can have a positive impact on content piracy.”

In “Targeting Websites Dedicated to Stealing American Intellectual Property,” written testimony Castro submitted before the Senate Committee on the Judiciary, U.S. Senate in February 2011, he stated, “[A]ll too many internet users are choosing to download pirated digital content from illegal sites or peer-to-peer (P2P) networks. The problem has become [so] pervasive that at least 1 in 4 bits of traffic on the Internet is related to infringing content.” He attributed this fact to David Price’s report, “An Estimate of Infringing Use of the Internet,” published in 2011.

In his Senate testimony, Castro adds, “Internet users can easily go online and, with just a few clicks, find pirated copies of full-length Hollywood movies or television programming to watch for free. ... While the exact cost of piracy is difficult to measure, the impact is substantial, with one estimate finding that the U.S. motion picture, sound recording, business software, and entertainment software/video game industries lost over $20 billion dollars in 2005 due to piracy, and retailers lost another $2 billion, for a combined loss of over $22 billion.”

Castro attributed these estimated losses to a Stephen E. Siwek September 2007 report for the Institute for Policy Innovation. When asked how he felt the numbers might look today, Castro says, “That $22 billion figure included physical goods. But digital versions are easier to pirate, so [the situation is] constantly in flux and industries are trying to adapt to the real situation they face.” While it’s difficult to quantify losses due to piracy, Castro adds, “There are lost sales and other losses from legitimate business models that can’t compete with free.”

Making a Difference in Online Piracy

In reading through all the recent papers and articles about content piracy, it’s easy to quickly become overwhelmed by the scope and magnitude of the problem. Similar to the arcade game Whac-A-Mole, some believe there will always be new pirate sites springing up no matter how many you stop.

“But our position as a business is that it is possible to make a positive difference,” says Peter Lewinton, founder of KLipcorp IP Ltd., in London. “We’ve got two long-term case studies that show we can reduce piracy by about 60-percent ... and that therefore it is worth trying to manage piracy.”

Based on their success taking down pirate sites, KLipcorp offers a variety of metrics to help clients determine the potential value of that illegal channel’s audience to their business.

“There’ll always be a certain number of people watching pirated material who basically can’t afford to buy it. So even if people reduce piracy down to zero, they will not achieve 100% conversion to paying customers,” Lewinton says. “We can provide conversion factors and benchmarks that help measure the value of that recovered audience to the rightful owners.”

Leveraging its proprietary technologies, KLipcorp offers content owners and rights-holders a service that tracks content piracy, identifies perpetrators, gathers evidence, and, most importantly, takes action to discourage or curtail their illegal efforts. Strategies include focusing on entities that facilitate distribution of pirated content rather than individual consumers, putting perpetrators on notice, and taking legislative or legal action.

KLipcorp also tracks digital advertising placed around pirate sites and illegal content. “In some instances, the rights holders themselves are unwitting victims of agencies that place their ads around pirated versions of their own content. Ad agencies are perhaps sometimes motivated by the higher profit margins in those transactions,” Lewinton says, “Since pirates have no rights costs and very limited production and distribution costs, they can afford to sell advertising for a fraction of what a traditional media company would sell it for.”

Vibrant Legal Marketplace: The Piracy Alternative

According to the RIAA (Recording Industry Association of America), music industry revenues in 2012 were relatively steady at $7.1 billion after years of declines, and digital distribution accounted for roughly 60% of the total U.S. market. Digital growth can be partly attributed to new legal access models, including subscription services such as Rhapsody and streaming radio services such as Pandora and Spotify.

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