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Cashing In On File Sharing A Report from the File Sharing Experiment Last Update: Sunday, September 12 2004 Please notify me of any corrections or suggested additions 
Jonathan A. Zdziarskijonathan@nuclearelephant.com Machiavelli would have been proud. The Recording Industry of America has raped and pillaged its heart out to put the fear of God into many unsavvy Internet users and the message, 'We know where you live' to would-be file sharers. File sharing has now become taboo to many; 87 year-old women who mortgaged their houses to pay settlements aren't likely to bother us again, and thanks to the RIAA, many 11 year old girls will now grow up knowing that if you share music, somebody's going to come and hurt mommy and daddy. In spite of scheduled beatings for the elderly, the RIAA has failed to put a stop to the majority of Internet users who continue sharing files. As sharing continues to grow, music sales ironically appear to follow in an upward parallel. How can this be? Hasn't the RIAA been preaching a different sermon? The RIAA insists that music labels have been severely crippled by file-sharing networks. In light of industry earnings reports (which have shown a dramatic increase in sales), there is no other explanation: this must be reverse-psychology to trick us smarter fellows. The conflicting stories between killing and blessing the music industry with file sharing have sparked interest among many file-sharers who don't buy the three-legged puppy image of the music industry. On July 31 2004, I decided to conduct an experiment to determine the motivation behind file sharers and establish proof for a long-believed philosophy many have about file-sharing: that it actually benefits the industry. Not just the music industry, but the movie industry and television industry as well as others. It has been a long held belief by some that the reason users are file sharing to begin with are because they are disenchanted with today's business model for entertainment, and are finding an alternative solution. In order to evaluate this philosophy, the file-sharing experiment was designed to allowed people to submit the names and cost of items they wouldn't have normally purchased if they hadn't first downloaded it over a file-sharing network. Each purchase required an explanation upon submission and, although establishing financial numbers was not the goal of the project, there was surprisingly over a quarter of a million dollars of merchandise reported within the first 24 hours of the project's appearance on Slashdot. Each submission has been analyzed by hand and bogus or questionable entries falling into the test window were discarded. The goal of this report is not to attempt to justify file sharing, but explain it. With a bit of creativity, the industry can overcome filesharing by giving consumer what they need. This report also is not intended to report on some level of statistics. Clearly, only individuals who purchased items reported into the experiment, therefore this report is only useful for explaining the reasons why individuals initially downloaded something that eventually led to a purchase. What this report does offer is a starting point for industry executives to build a new business model on top of, in an attempt to win the consumer back. Further analysis of the data showed many things which will be shared in this report. The data as a whole screams one common observation: there is a captive audience and a viable market in reaching the file-sharing community to generate revenue (without litigation). Because of the vast selection of media available to file-sharers, many are finding themselves exploring new music, movies, and even software they would not have normally considered in their purchases. There is demand, and demand creates market. The key to finding the market is adapting to a new business model - one that serves the enlightened consumer. Digital media provides a means of gratification that is usually only somewhat temporal, like sex or good barbecue. This presents a window of days or possibly months at the latest. The industry has an opportunity to take advantage of this desire for entertainment and use it to turn users into consumers. The rest of this report discusses the how, straight from the voice of the consumer. If the industry is indeed losing money to piracy, the root of the problem does not appear to be piracy itself but rather the industry's failure to listen to its consumers. There are many users who can and are making purchases thanks to file-sharing. The "epidemic", as the industry would call it, is far too widespread to be an issue of ethical decay among consumers but rather one of obligation and civil disobedience. The industry has, thus far, failed to adapt to the business model consumers demand and when that happened, consumers took it upon themselves to find an alternative solution. The experiment has shown, if anything, that there are many users today who are ethical enough to purchase media even after they're in possession of it - if they believe it is worthy of their money. File-sharing has spawned not from selfishness, but from the demand of a simple proverb: treat others as you would want to be treated. We'll see in this report the many things holding back consumers from traditional purchases, and what drives today's consumer into making purchases. Analysis of TV Series Downloads The first category analyzed included users who reported the purchase of a complete TV series as a result of file sharing. The TV series on DVD has become a very popular and only lightly tapped area of the television industry lately, but it's growing in spurts. While the industry may not be as widespread as the movie industry, the revenue generated on DVD purchases can be multiplied up to 4000% or more per complete series. This industry seems to be only prospering from file sharing, as the major challenge in selling a TV series on DVD is hooking consumers who like the show; the average Joe isn't going to blindly purchase a $60 DVD collection. Purchase Demands A majority of users who purchased a TV series did so after downloading a few episodes from a file-sharing network. Users became consumers after they purchased the series for shows they became hooked on, or at least liked. The most common reasons for purchase fell into the following categories:
1. Users get bored sitting in front of their computer in the office or even at home. 2. They download a few episodes of a TV show, enjoy it, and boom... 3. Industry earns anywhere from $50 to $700 off of that one individual The sales opportunity this presents is quite simple, but the catch is that it relies entirely steps one and two - the user previewing and liking the TV show. We know a few things about the consumer from this:
Business Model Demands The industry can easily capitalize on file sharing and increase sales by adjusting their business model to meet the consumer's demands:
Analysis of Movie Downloads Full-length movie downloads have also led to many sales. File sharing as related to the movie industry appears not to be one of trust or preview, but one of convenience and timing. Many consumers haven't got the time to hire a babysitter and go to the movies as often as they would like to. Purchasing Requirements The primary reasons a majority of contributors reported to purchase a movie included:
The motion picture industry appears to still be in its infant stages of understanding the consumer - they're not even marketing to the right crowd these days which you'll discover when the anti-piracy commercial plays in the theater, after you've paid for a ticket. The business model consumers are demanding is that of availability: The ability to acquire a movie on medium or view the movie in the privacy of their own home when it's still in the theaters or at least within a more reasonable time frame after the movie has left the theaters. When the movie's old, the consumer is interested in the whole story behind the movie. Releasing DVDs with additional footage, deleted scenes, and other special features is also in high demand and is likely to drive up sales. Analysis of Software Downloads Software piracy has been a problem since the invention of the personal computer. The software industry, however, has yet to listen to the demands of consumers which has resulted in much of the piracy taking place today. The leading reasons individuals reportedly downloaded software were:
Those reporting into the experiment claimed they have bought software when:
There is a matter of ethics among software sharers. Consumers demand good quality software and the ability to preview it in all its glory. Given the many reasons and advantages in purchasing the title, there is enough proof to suggest that the quality of the software itself will guarantee its profit. There is a significant market of users who would download software should they find it useful to them, however these same users refuse to pay for software that won't run on their system, is poor quality, or misrepresented. The software industry can benefit from listening to its customers. Providing good quality demo versions is a must. Making the titles available to those who wish to purchase via download may make a significant dent in piracy. Why would a user drive 30 miles to the nearest city when they can download it in the privacy of their own home? Finally, pricing that is commensurate with the quality of the software being developed is vital to re-establishing trust between the software manufacturer and the consumer. There are too many overpriced titles on the market that don't live up to their expectations - of course users are going to download software to try it when they feel cheated already! Guaranteed refund periods will also help restore trust. Analysis of Music Downloads Music downloads have been a hot topic for many years and is at the head of all file sharing controversy. Many failed attempts to commercialize in this industry have led to much frustration, and the RIAA's financial beating of small children and elderly couples has only hurt sales and turned an industry once about loving music into one of litigation. A majority of the users chiming in on the experiment reported purchasing one or many CDs for an artist after downloading and listening to the them - it's that simple. Sometimes a few tracks would do, while other users required both full albums and time to listen and enjoy. Purchasing Requirements: The most prominent reasons for purchase were:
MP3 technology isn't quite there yet for many users, who demand pristine quality. A lot of users hate hacked up ID3 tags, misspelled filenames, and frequently truncated or poor quality tracks that usually come with downloading music as well. There's also something to be said about the ownership of physical medium. The sense of ownership is still alive and many users would prefer to own the physical medium rather than a CD-R written on in sharpie. Finally, there's also a great respect for the artist and a desire to see more music out of them. Consumers seem to relate with many musicians and understand that they work for a living. Artists who have earned the consumer's money get rewarded. Business Model Demands The biggest challenge in the music industry appears to be that of trust and respect for the label. Many users displayed a distrust for the quality of music they were downloading. This certainly coincides with the largest consumer complaint about the music industry which is that there's no good music anymore. Many labels, it seems, will record the sound of regurgitated snot bubbles and call it music. Other labels will release a CD with one good track and fill the rest of it with mediocre studio failures. The music industry has lost the consumer's trust and therefore the consumer has now demanded the right to preview music with more intense scrutiny - not only at a music store, but in the privacy of their own homes, in good quality, for prolonged periods of time to let it grow on them. The consumer no longer sees themselves as purchasing a CD, but demands a business model where they may invest in an artist. Imagine an open business model where consumers trusted the industry enough to "donate their change to the artist"(of course, everything would then sell for $15.01). In order for the music industry to capitalize on file sharing, they must make it just as easy to preview and purchase the music they want on line as it is to download it for free. This is starting to happen - look at iTunes. Who would have thought ten years ago that you'd get a free music download with every Big Mac you purchased? The bigger challenge yet is gaining the trust of the consumer. By suing the consumer for downloading music, many formerly paying customers have refused to make another purchase until this asinine litigation ends. By providing one golden nugget among 15 tracks, consumers no longer accept the music they hear on the radio and demand they listen to the album. Labels will publish anything today. Rather than attempting to destroy the business model consumers demand, the music industry would fair much better to feed it. In summary, music file sharers are demanding a business model that:
Summary When consumers are fed up with an industry, they will be led to protest in any way they can. If the industries discussed in this report are to ever have content consumers again, they must adapt to the business model of the consumer. There are countless consumers in the Internet community willing to invest in long-term relationships with various artists or manufacturers. All they require is that it is on their terms. The consistent abuse of the consumer shows the consumer only one thing: if you won't give us your money, we'll take it. |
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