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Tuesday, September 17, 2013

Content Creators Use Piracy to Gauge Consumer Interest

You would think that Netflix, HBO and the like don’t think too highly of video piracy Web sites. After all, two of the biggest hits on Netflix â€" Orange Is the New Black, a show about a women locked up in prison, and House of Cards, about a conniving politician â€" are among the most pirated content online. HBO’s Game of Thrones was the most pirated show of 2012.

But last week, a senior Netflix executive said the company itself used pirating Web sites  â€" to determine the genre of new shows viewers might be interested in, and the type of content Netflix produces or licenses.

“With the purchase of a series, we look at what does well on piracy sites,” Kelly Merryman, vice president of content acquisition at Netflix, told the Web site Tweakers, a Netherlands-based news outlet. “Prison Break” is exceptionally popular on piracy sites,” Ms. Merryman said, while noting that this was part of the reason Netflix decided to license the show.

While piracy proponents have been arguing that companies should embrace illegal downloads for some time, it seems that companies like Netflix are finally agreeing.

Laurence H. Tribe, a professor of constitutional law at Harvard Law School, said Netflix, HBO and others can gain important information on customers by paying attention to online pirates.

“I have little doubt that some companies are starting to see how they might benefit from the information they can reap by being subjected to online piracy,” Mr. Tribe said in an interview. “Whether they see those benefits as large enough to offset their losses discounted by the high costs of constructing sufficiently strong anti-piracy protections is likely to be a function of a hard-headed, context-based cost-benefit calculation framed by imagination.”

In the past Reed Hastings, Netflix’s chief executive, has seemed nonplussed by the reality that people illegally download shows from his company.

“Certainly there is some Torrenting that goes on and that’s true around the world, but some of that just creates the demand,” Mr. Hastings told Tweakers in an interview when asked how he feels about people pirating content on the site. “Netflix is so much easier than Torrenting.”

In the interview, Mr. Hastings implied that pirating builds demand, and then when the service becomes available in a new country, people switch to the easier, paid product. ”In Canada BitTorrent is down by as much as 50 percent since Netflix launched three years ago,” he said.

It seems that Netflix isn’t alone in lauding piracy Web sites, or at least nodding to the importance of them as a barometer for the public’s interest in a show.

Earlier this year Time Warner’s chief executive, Jeffrey L. Bewkes, said on an earnings call that pirated content can be “a tremendous word-of-mouth thing.” While talking about HBO’s Game of Thrones, Mr. Bewkes said the discovery that the show was the most pirated TV brand of 2012 could be “better than an Emmy.”

Even the music industry is learning that piracy can pay. According to a study issued in March by the European Commission’s Joint Research Centre, a scientific and technical arm of the European Commission, illegal downloads of songs do very little to harm music industry sales.

The study of 16,000 Europeans found that “piracy can actually provide a boost to music revenues online, irrespective of the genre, and that it should not be viewed as a pressing issue by the industry at all.” In many instances, the study found, if the music was available in a digital form for a fee people would be willing to pay for it. This is the same reality HBO and Netflix seems to be learning, too.

Of course, as I’ve noted before, some of this could be content producers choosing to throw their hands in the air when it comes to illegal downloads. Stopping online piracy is like playing the world’s largest game of Whac-A-Mole.