Film studios ... not dead yet.

A few years ago I ran a series of posts (starting with this one) questioning a 60 Minutes piece on online video piracy.  My take was that 60 Minutes was parroting the MPAA's stand on piracy at the time without critically examining it as one might expect from an investigative news program.

I stand by that.

In one segment, director Steven Soderbergh doubted whether films like The Matrix could be made any more, since piracy was putting the studios out of business and keeping them from financing original works from outsiders.  At the time of that interview, Avatar was on its way to grossing an all-time record 2.8 billion dollars on a budget of $237 million.  Granted, James Cameron is not exactly a hollywood outsider (more on that below), but if the studios aren't financing new faces, it doesn't appear to be for lack of money.  Six of the top ten highest-grossing films have been made since that interview, and ten of the top twenty.   Comcast (owners of Universal) has nearly tripled its stock price.  Disney, Time-Warner and Viacom (owner of Paramount) have approximately doubled.

Overal box-office grosses have been basically flat since that interview, which would indeed be bad news for studios, if that were the only way that they made money.  But it isn't.  Video on demand and DVD/Blu-ray releases, with much lower overhead than the box office, have been a standard part of movie releases since before that interview was done.

Home video numbers seem harder to come by than box office grosses, but there's no doubt that, however much illegal copying may be going on, there's plenty of legal rental going on as well.  It doesn't look like the ability to copy bits online is hurting the film industry any more than the ability to copy them on videotape did.

In fact, the folks at South by Southwest seem to think that video on demand is actually helping get original films from outsiders made and seen.  The title of the panel, How I Learned To Stop Worrying and Love VOD, is itself instructive.

Nor do I think anyone seriously sees this as a triumph of the brave heroes at the MPAA against the evil pirates.  Rather, the industry has adjusted to the new technology and figured out how to make money off of it.  Which is their job.

No monopoly on BitTorrent hype

Google tells me that a few people have turned up this blog by searching for "60 minutes bittorrent". I couldn't replicate that effect, perhaps because I didn't dig deeply enough into the hits, more likely because other hits have taken Field Notes' place, but I did turn up some other interesting tidbits:

• The top hit was for a BitTorrent site offering downloads of 60 Minutes, including a couple of files dated 11/1, presumably the episode in question. I'm not going to include the link here, as I don't see any indication that the particular site has permission to distribute that content. However ...
• A few pages further down, past several other unfriendly headlines, is a piece entitled Leslie Stahl Needs to Get A Clue About P2P. Hmm ... I wonder where they stand on the issue? Deftly dodging the various popups, I was reminded that BitTorrent (the company) partnered with several of the major studios back in late 2006. However ...
• I'm hard-pressed to find any legal BitTorrent service for movies from the major studios -- something, for example, where you pay $X and then download the movie of your choice, duly uploading bits of your previously-purchased movies to other paying customers. Maybe it's there and I missed it, but neither BitTorrent's site, Fox Movies' site nor a general Google search turned up anything likely. By contrast, Roxio's Cinema Now delivers movies in a large variety of ways, but all of them involve a dedicated device.
• Conversely the handful of BitTorrent sites I clicked through to explicitly don't charge anything (and handle an, ahem, wide variety of content).

So ... BitTorrent seems like a fine way to distribute bulky content -- whether legit or illicit -- for free, but not so good for paid content. No great surprise there. But, just as 60 Minutes deserves grief for putting forth the MPAA party line as an investigative report, and the MPAA for claiming loss of revenue it could never have realistically had in the first place, it comes off as disingenuous for someone defending BitTorrent to claim that the movie industry is actually benefitting from BitTorrent, based on a 2006 press release.

60 Minutes and the MPAA: Part VI - What now?

Along with passing along the $6 billion/year figure, Steven Soderbergh tells 60 Minutes that, thanks to piracy, movies that got made in the past could not be made today. He cites The Matrix as an example.

"The chances of a movie, for instance, like 'The Matrix' being made shrinks. Here's a guy, here's a movie, two guys, they've made a small independent film. Warner Brothers gives them $75 million to make this script that nobody can understand, right?" Soderbergh said. "Wouldn't happen today."

Now, I'm not going to claim I know anywhere near what Steven Soderbergh knows about getting movies made. I will go so far as to claim I know next to nothing. And yet, looking at the Yahoo! box office grosses, I can't say I see anything amiss.

Clearly all kinds of movies are still getting made, including some pretty expensive-looking ones. A lot of them stick pretty close to the usual formulas, but that's always been true. Movies by unknowns? I wouldn't know, but I'm quite sure that intersting movies by intersting people with interesting viewpoints are still getting made.

But what about the future? The movie studios are understandably worried, particularly in light of what their brethren in the music business have been going through. But every industry is unique. Movies are not the same as songs and albums. Nobody goes to a "music theater" to listen to pre-recorded music.

Making a movie, even a cheap movie, carries a lot more overhead that recording a song, and songs are easier to market. At least one songwriter has recorded a song a week for a year at a stretch, and at least one of them was pretty good. Plenty of small bands self-produce and self-distribute, and a lot of them are pretty good. By comparison very few feature films are made without the involvement of some flavor of existing studio. There's plenty of self-produced stuff on YouTube, but much less of it is pretty good and most of it goes unseen or nearly unseen anyway.

In short, the economics are different and hey, people still make money selling books, to my continual puzzlement. So my guess is that the movie industry is going to be just fine, particularly if it stops trying to boil the ocean and embraces online distribution.

I certainly hope so, anyway. As much as I've questioned the MPAA's rhetoric and logic, I wholeheartedly agree with them on some basics: Movies are cool, and people who make them should be able to get paid for their work.

P.S. While chasing down the link above on YouTube, I ran across two previous posts on paying for movies, which might be relevant.

60 Minutes and the MPAA: Part V - Relevance

OK, so the L.E.K. study says that people who buy pirated DVDs say they would have collectively spent billions of dollars on legitimate fare if the pirated DVDs hadn't been available. Let's assume these people are telling the truth and are accurately estimating how much they would have spent. So we're done, right? That's how much money the studios are losing.

Actually there's another level of estimation involved. The $6.1 billion quoted was the amount the studios were said to be losing and itself is a portion of the larger total that the motion picture industry as a whole was said to be losing. But let's take that, too, at face value. Now we're done, right?

Well ... remember when I was discussing BitTorrent in Part I and mentioned the importance of carefully considering what problem you're trying to solve? The principle is just as vital here.

The MPAA, like the music industry before it, and the software industry before it, seems to be trying to solve the problem of keeping people from copying bits. Being no more able to do this than their predecessors, and with Moore's law catching up with them just like it did with everyone else, they -- again like everyone before them -- claim damages by comparing the real world with what they might have had if they could stop people from copying bits.

Fair enough, but they can't. No one can, and a false antecedent implies anything you want it to. Rather than trying to keep people from copying bits, would it not be better to frame the problem as how to make money from making movies?

The traditional way of doing that, selling tickets at theaters, is still bringing in revenue, on what I'd call a slight upward trend and what the site I got the figures from says is "not any substantial increase". That's not great news for an industry constantly trying to grow, particularly once you adjust for inflation, but neither are they falling off a cliff. Evidently "Let me take you to the movies" can sometimes have more appeal than "Let's go back to my grungy apartment and watch a DVD."

Leaving aside the TV networks, cable movie channels and pay-per-view (which is not necessarily a valid approach) the complaint, and certainly the thrust of the L.E.K. study, is that DVD sales are not doing as well as expected. They were supposed keep chugging along like video before them, but they appear to be levelling off or even falling. At the same time people are selling lots of pirated videos, so the difference is attributed to piracy. QED.

But correlation does not imply cause. Certainly one interpretation of those facts is that piracy is hurting DVD sales, but another one, which I personally find more plausible, is that since bits are getting easier to copy and watching digital movies no longer requires a DVD, DVDs just aren't that valuable any more and the original sales projections that they would be were just wrong. Another symptom of the same technological changes is that making shoddy DVDs is easy enough that you can still make money off of them by charging closer to what they're worth, but neither of these symptoms is the cause of the other.

I don't recall when I last bought a DVD and I can assure you it's not because of piracy. Why pay $20 or even $12 for a DVD to take home and unwrap when I can order up a movie on demand for $4 or (if it's not particularly popular) watch it over Netflix as part of my $10/month subscription? How many DVDs do I watch more than three or four times? The commentary tracks seemed cool at first, but I don't really have time for those, either. Manifestly, I'd rather blog about DVDs than buy them.

I would, however, gladly pay more than $10/month for some sort of "premium" Netflix subscription that would open up more selection. I suspect I'm not alone. There's certainly money to be made legitimately by selling high-quality video online that won't get you sued or arrested. It's not a foregone conclusion that there's enough money to be made to keep the movie studios going in the style to which they (and we) have become accustomed, but I'm quite sure that money is not to be found in trying to prevent bit-copying.

60 Minutes and the MPAA: Part IV - Error bars

In the 60 Minutes piece I've been referencing, A-list director Steven Soderbergh drops the oft-quoted figure of $6.1 billion per year in industry losses. This figure comes from a 2006 study by consulting firm L.E.K. It's easy to find a summary of this report. Just google "video piracy costs" and up it comes. Depending on your browser settings, you may not even see the rest of the hits, but most of the top ones are repeats or otherwise derived from the L.E.K study. And you didn't need to see anything else anyway, did you?

So ... $6.1 billion. Let's assume for the moment that the figure is relevant -- more on that in the next post. How accurate is it?

One of the handful of concepts I retained from high school physics, beyond Newton's laws, was that of significant digits, or "sig digs" as the teacher liked to call them. By convention, if I say "6.1 billion", I mean that I'm confident that it's more than 6.05 billion and less than 6.15 billion. If I'm not sure, I could say 6 billion (meaning more than 5.5 billion and less than 6.5 billion).

Significant digits are just a rough-and-ready convention. If you're serious about measurement you state the uncertainty explicitly, as "6.1 billion, +/- 300 million". My personal opinion is that even if you're not being that rigorous, it's a bad habit to claim more digits than you really know, and a good habit to question anything presented like it's known to an unlikely number of digits.

The point of all this is that precise results are rare in the real world. Much more often, the result is a range of values that we're more or less sure the real value lies in. For extra bonus points, you can say how sure, as "6.1 billion, plus or minus 300 million, with 95% confidence".

From what I can make out, L.E.K. is a reputable outfit and made a legitimate effort to produce meaningful results and explain them. In particular, they didn't just try to count up the number of illegal DVDs sold. If I buy an illegal DVD but go and see the movie anyway, or I never would have seen the movie at all if not for the DVD, it's hard to claim much harm. So L.E.K. tried to establish "how many of their pirated movies [viewers] would have purchased in stores or seen in theaters if they didn't have an unauthorized copy". They did this by surveying 17,000 consumers in 22 countries, doing focus groups and applying a regression model to estimate figures for countries they didn't survey. (This is from a Wall Street Journal article on L.E.K. web site and from the "methodology" section of the summary mentioned above).

On average, they surveyed about 800 people per country, presumably more in larger countries and fewer in smaller. That's enough to do decent polling, but even an ideal poll typically has a statistical error of a few percent. This theoretical limit is closely approached in political polls in countries with frequent elections, because it's done over and over and the pollsters have detailed knowledge of the demographics and how that might effect results. They apply this knowledge to weight the raw results of their polling in order to compensate for their sample not being completely representative (for example it's weighted towards people who will answer the phone when they call and are willing to answer intrusive questions).

For international market research in a little-covered subject, none of this is available. So even if you have a reasonably large sample, you still have to estimate how well that sample represents the public at large. There are known techniques for this sort of thing, so it's not a total shot in the dark, but I don't see anyway you can assume anything near the familiar "+/- 3%" margin. At a wild guess, maybe more like 10-20%, by which I mean you're measuring how the population at large would answer the question, and not what they would actually do, with an error of -- who knows but let's say -- 10-20%. More than the error you'd assume by just running the sample size and the population size through the textbook formula, anyway.

All of this is assuming that people won't lie to surveyors about illicit activity, and that they are able to accurately report what they might have done in some hypothetical situation. Add to that uncertainties in the model for estimating countries not surveyed and the nice, authoritative statement that "Piracy costs the studios $6.1 billion a year" comes out as "Based on surveys and other estimates done in 2006, we think that people who bought illegal DVDs might have spent -- I'm totally making this up here -- somewhere between $4 billion and $8 billion on legitimate fare that year instead, but who really knows?"

Now $4 billion, or whatever it might really be, is still serious cash. The L.E.K. study at the least makes a good case that people are spending significant amounts on pirated goods they might otherwise have bought from studios. I'm not disputing that at the moment. Rather, I'm objecting to a spurious air of precision and authority where very little such exists. More than that, I'm objecting to an investigative news program taking any such key figure at face value without examining the assumptions behind it or noting, for that matter, that it was commissioned by the same association claiming harm.

And again, this is still leaving aside the crucial question of relevance.

60 Minutes and the MPAA: Part I - BitTorrent

Before I start: I'm in favor of copyrights, I believe movie makers, even big mainstream Hollywood studios, have a right to make a buck and I think that sneaking out a lo-fi recording of a movie and the guy in the next row snoring, besides being illegal, is just pretty lame. That said ...

CBS's long-running news show 60 Minutes just ran a piece on video piracy. I'm calling it a "piece" and not a news story because it's essentially the Motion Picture Association of America's position on the issue re-routed through a major news show. The MPAA certainly has a right to make its case, and the case is not without merits, but passing it off as news -- particularly old-school investigative reporting -- has considerably less merit.

In my first draft of this post I tried to hit all of my objections, but the result was unwieldy and it soon became clear I had some homework of my own to do. So before digging into the real meat of the issue, let's just talk about BitTorrent.

BitTorrent is widely used for exchanging large files. Said large files include new Linux distributions, legitimately produced free video and, of course, pirated videos. In other words, like pretty much any other information technology out there, it can be used for good or ill. 60 Minutes seems mildly shocked that such a thing could be "perfectly legal."

BitTorrent, as you may know, works by avoiding the bottleneck of a central server. Instead of thousands of home computers all bombarding the central site with requests and overloading even its capacity to fulfill them, BitTorrent uses a central computer to coordinate the home computers distributing the data to each other. The 60 Minutes piece gets this wrong by suggesting that the data itself is going both to and from a central server:

Tiny "bits" moving toward a blue column in the middle of Malcolm's screen are pieces of the movie we were getting from people all around the world. The bits moving away from the column are pieces we have and are sharing with someone else.

You can sort of see where the key concepts got lost in translation, but ... huh? Pieces I'm sending out are going away from the column? Am I the column then? Each piece goes both to and from the column? What's the point of that? If you want to see what's really going on, Wikipedia has a much less whizzy but more accurate picture.

I should pause to point out here that BitTorrent's architecture is a classic example of the value of carefully considering the problem you're trying to solve. Instead of solving "How can you transmit a file quickly from one computer to another?" which basically has only one answer (high bandwidth on both ends), BitTorrent solves "How can you distribute copies of a file among a large number of computers?" Once you look at it that way, the answer of letting a given host pay back its download over time and to lots of other hosts seems fairly natural, but looking at it that way in the first place is an engineering masterstroke.

To use BitTorrent, you have to let a central tracker know what file you're retrieving. You're also committing to upload data to other BitTorrent users in return for downloading. This architecture makes BitTorrent different from other well-known ways of moving big files around:

• Unlike the central server model, BitTorrent is distributed. There is no single bottleneck for data. There is a single place for handling metadata, but metadata is much, much smaller.
• BitTorrent is much more traceable than older peer-to-peer file sharing systems (but see below).
• It's also faster, because you're effectively downloading your file from many other places instead of being constrained by one person's upload speed.

In short, you trade off anonymity for speed. This is a perfectly good trade if you're conducting legitimate business, not so good if you're not. Even if you neglect to tell The Man you're setting up a BitTorrent tracker to share files, the pattern of lots of peer-to-peer traffic coupled with frequent low-volume traffic between everybody to a central node is pretty distinctive. Once the central server is located, watching it is much easier than watching everybody. It's also much easier to tell who's involved, since they're all talking to the tracker. All in all, this seems like much less of a headache for parties like the MPAA than, say, Napster and its descendants.

However ...

BitTorrent's speed is a definite headache. A typical cable-based home connection, at least in the States, has a download speed massively higher than its upload speed. Last time I measured mine, the ratio was 40:1. This makes it reasonably easy for me to download big files from a central, easily traceable server with huge bandwidth, but a real pain for me to send a copy of that file to my friend or whoever. That's fine, but it's much less of a pain for ten thousand people to distribute copies of a file amongst each other.

More worrisome to folks like the MPAA, though, is that it is possible to run the same distribution scheme without a central tracker. As I said, metadata is small, so distributing it to everyone takes relatively little time. A particular mechanism, distributed hash tables, has been around for a while now. As with file sharing itself, distributed hash tables aren't inherently evil. In fact, they have some very generally useful properties. But a highly efficient file distribution system without a visible center presents a real problem if you see your job as preventing people from distributing files.

In summary: Copyright violation is illegal, harmful and lame. BitTorrent can be used for copyright violation or for legitimate purposes, and it's a very neat hack* in any case. Preventing illegal file sharing by purely technical means looks like a tall order. Bashing BitTorrent or any other particular product is unlikely to help.

* I suppose in this context it's particularly important to point out I mean "hack" in the sense of "cool and unexpected thing done with technology," not in the more widespread sense of "act of computer vandalism".