Digital Music

Why Piracy Is Good For Innovation

This guest essay is written by Robbert van Ooijen. He recently graduated on online music and music piracy at the master New Media & Digital Culture at the Dutch University of Utrecht. Van Ooijen also blogs at HaveYouHeard.It.

image from www.levelfortytwo.com Last Tuesday, ARS Technica reported about the US government’s upcoming list of the world’s “notorious markets” for copyright infringement and counterfeiting, compiled from rightsholder complaints. While the odds of calling out the world’s most notorious markets is further discussed on ARS Technica, the upcoming watchlist of disreputable services is something to keep an eye on for entrepreneurs, online services, and maybe even the entertainment industry itself. Not because it will list possible no-go areas, but because the list can function as a valuable source for innovation. Let’s learn from piracy.

When we talk about piracy practices we often just look at the negative sides to it. Most of the time it is presented as stealing, as being in conflict with existing laws, or it is depicted as unfair competition. In the recent Gallo-report that was adopted by the European Parliament it was even stated that continued intellectual property infringement, often referred to as piracy, will lead to a fade-out of innovation. While this is one way to look at it, this post aims to illuminate another side of piracy and shows that it can also be regarded as useful source for market insight, a creator of new markets, and an inducement for innovation.

The term piracy often refers to the unauthorized reproduction of copyrighted or patented information such as music, software, and movies. Therefore, most of the time piracy has the connotation of stealing and is looked upon as an unethical practice. Because of this negative connotation, piracy at first sight seems to have little to do with legitimate business. However, taking a closer look at piracy practices throughout history reveals that piracy has had a profound impact on the emergence of new business models, technology, and innovation. Look for example at how the English radio pirates in the 1960s helped to establish English pop radio.

In the stacks of books, articles, and reports that have been written about piracy however, little can be found about the positive aspects of piracy. The insights of David Y. Choi and Adrian Johns on which the following is based, therefore provide a refreshing vision on the innovative forces of piracy. Without engaging in the moral discussion on piracy, we can also ask the question: what can be learned from piracy?  

Piracy can be a useful source for market insight

To start with, piracy practices can be used as a source for market insights. The most famous online music example of this probably is Napster. When looking at its impact in the history of music piracy, it seems as if you can speak of a period before Napster and a period after Napster. This has a reason. The P2P file sharing service revealed the massive demand for online, digital music. It proved that there was a desire to have access to digital high quality recordings, a wide selection of music, and a service that was easy to use. Something that the hardly existent legal services at that time didn’t offer. Napster turned out to be a valuable source to get insight in the potential market for online music and revealed the desires of the music consumer.

Another example is the success of paid Usenet groups, that will undoubtedly appear on the notorious markets list. The characteristics of these newsgroups can also function as source of market insight. The groups provide quick access to a service that has a wide selection of entertainment products. In this business model, people pay for the service rather than for separate products. The business models of Spotify and MOG that are also based on paying for a service rather than for separate entertainment products show that this pirate based business model can also be applied in a legal context.  

Piracy helps in creating new markets

Napster not only was a valuable source to find out the desires of the music consumer, but the service also helped in establishing a new market for online music. This market that emerged did not only consist of comparable illegal services such as KaZaA, but also contained legal services that could use the insights that were provided and the market that was established by Napster. The most famous legal example of this probably was the iTunes Music Store that after its successful launch in 2003 proved that people were also willing to pay for music online.

The initial legal struggles of user generated content sites such as YouTube are another example of how semi-legal services helped to establish a new market. In this case the illegally uploaded music videos helped to the consumer to get used to listen to music online instead of having to download it to a hard drive. Streaming content instead of downloading it is already becoming a common activity that is being offered by lots of legal services. 

Piracy can form an inducement for legal, innovative business models.

Finally, practices and services that are depicted as piracy can eventually evolve into legitimate businesses themselves. Napster tried to accomplish this but eventually failed to establish a successful legal service. YouTube initially had struggles with pirated clips but eventually closed a deal with royalty collecting societies and music labels. Another example is Grooveshark. This streaming music platform has often been described as a pirate service but is trying to make the transition from an semi-legal service to a legitimate one.

These examples show that pirate services can also be viewed as an engine for innovation. If piracy practices are regarded as a source of innovation rather than as a solely negative thing then entrepreneurs, politics, and the entertainment industry can all benefit from piracy cultures. What can the upcoming list of notorious markets teach the entertainment industry?

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8 Comments

  1. Great article! I am vehemently pro-copyright protection, but even the RIAA can’t deny that there are extremely valuable learnings from digital piracy – marketing, distribution, social music discovery, etc.
    The easiest analog in business is the R&D arm. R&D is a cost center – doesn’t create any profits for the company, but allows the business to find out information about its customers and develop technology to capitalize on an evolving market strategy.
    However, piracy is more like a community R&D arm that no one has control over. And it’s not a cost center in the sense that businesses don’t pay for these learnings, but pay by the cannibalization (to whatever degree, we can argue) of their revenues.
    I still feel that piracy has thrived in the new digital environment solely because record labels failed to move quickly enough in the late 90s AND more importantly, because government regulation is lagging desperately behind technological innovation, but if we’re going to make lemonade out of these lemons, we should be pouring resources into understanding how access to free content changes consumption patterns and what we can learn about how we market and distribute music.
    And, shameless plug: if you pirate something that you like and are going to continue to listen to, don’t be a dick: BUY IT. Going to the show doesn’t justify it. Buying a shirt doesn’t justify it. Those verticals all have separate costs of goods, separate value chains with other people’s hands taking out large percentages and royalties. If you like something and want that artist to make more music, YOU HAVE TO BUY IT!!!

  2. I like the comparison that you make between piracy and a Research & Development arm! Without wanting to dive into the downloading vs buying discussion, your comparison stresses the point that I wanted to make. Instead of solely condemning and fighting it, a lot of entertainment companies and services could learn valuable lessons from piracy cultures on several levels.

  3. Great points! Another way that music pirating has become a credible factor for the promise of the record industry is to find statistically the needs & wants of the consumer as far as the types of content that are being downloaded, the favoritism towards genres that are being downloaded. Artists can also benefit from downloading to give listeners a taste of what is to come pre-album launch which is a concept yet to be embraced by label-heads. I enjoy hearing about the influences that are often trumped by the negative aspects. Great article overall.

  4. Soooooo if you are lazy and want to take shortcuts on your business model and not pay for the content that you make money off of directly or indirectly be a pirate.
    You are obtuse. All of the “positive” side effects of piracy could have been created by legal innovation. It is just sheer laziness and corner cutting that is at the root of these practices.

  5. Are you serious? Music theft (calling it piracy is too nice) has devastated musical innovation and it is only getting worse. If you make it impossible for musicians to earn a living from making music, they will forced to get day jobs to support themselves. What happens to the music then? What about sound engineers, producers, marketers, promoters, etc.? Without monetization, you don’t have a music.
    Piracy offers nothing constructive to music marketing because it distorts the demand curve. It did nothing to establish a digital music market, because it wasn’t a market. A market assumes voluntary transactions, not outright theft.
    What does it tell us? People like free music. We didn’t Napster to tell us that. Something else it told us is that people are willing to steal whatever they want if they feel there is little chance of suffering any consequences. That is more than a little disturbing. It tells us that concepts like right and wrong are little more than societal constructs which are abandoned when convenient.
    If you think there is anything positive about stealing music and other copyrighted materials, you are simply wrong. It denies artists just compensation for their work. It denies society the benefits of having artists practicing their craft. It denies thousands of people the opportunity work in a viable industry.
    Instead of spending your time and effort trying to defend the indefensible, why don’t you take a shot at actually defending the people who are being devastated by the theft of their hard work.

  6. most people will buy it if they like it. but it can be hard to tell whats good and whats crap.
    is there any difference between a music video on youtube for free or a downloaded music file.
    there are hundreds of free or cheap alternatives poping up now that are almost exactly the same as pirating. eg netflix, spotify and pandora. Piracy has changed the structure of files from physical to digital, in a way that has made it cheaper for consumers and more flexible, whilst still giving artists almost the same profits as before. Also though it has been a rocky road to get here it will decrease as this new age takes hold and adapts

  7. Ok, you seem pretty sure of yourself here. Name one artist who is failing to make ends meet from piracy. Just one, any of them. Piracy is viable because the music is widely known enough that (read, already established in pop culture) it can be uploaded by a zillion people to be downloaded. That’s how torrenting works, a lot of people with the file send it to the people without the file. So if no one has it or only a few people have it, then it’s impossible to pirate. Think of like an illegal tax. The imaginary revenue (because proving that the people who pirate would have bought it anyway is difficult) is always a fraction of the people who buy it.
    My favorite opinion of piracy comes from the creator of Game of Thrones, whose final episode this season became the most pirated piece of media ever. When asked how he felt about it, he said that he regretted the fact that so many people had to watch his masterpiece in lower quality than those who saw it on HBO. Food for thought.

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