In-Stat: 15% of video downloads are legal

DIGITAL: Converting illegal viewers to paying customers to yield $2.5 billion

By Jennifer Netherby -- Video Business, 7/7/2009

JULY 7 | DIGITAL: American consumers with broadband Internet service download 14 billion movies and videos a year, but just a fraction of those, 15%, are legally purchased, according to a new report, “Adopting Digital Rights Information Management,” from research firm In-Stat, a sister company to VB.

The majority of those films are likely downloaded and shared through peer-to-peer online sites by a small subset of broadband households. But rather than go after those households with lawsuits, treat them as criminals or lobby legislators for more copyright protection, In-Stat said studios could instead convert them into legal purchasers by making it easier for them and other consumers to watch movies when and where they want.

“The long-term evolution of this space is pretty well agreed upon that people will ultimately get the content they want on the screen of choice where they want and when they want it,” principal analyst Keith Nissen said. “It’s a question of how do you get there.”

Nissen argues that the best way is to use Digital Rights Management technology to enable consumers to watch content in more ways on more devices, rather than using it to prevent consumers from making backups or transferring content to devices.

In-Stat found that 9% of consumers with broadband are downloading most of the content online. These users tend to be the heaviest media users, who watch content on the PC, TV and mobile phones, have Netflix subscriptions and watch a lot of movies. The 90% of other consumers with broadband split evenly into two groups: social users who use the Web for social networking and YouTube, and passive users who use the Internet simply to find information, read news stories or look up product information. This 90% might occasionally watch TV shows on Hulu at work or if they missed a TV show episode, but they’re generally not downloading movies or TV shows, and they’re not interested in doing so at this point, Nissen said.

He predicts that as consumers become more used to watching content when they want it, more people will fall into the group of heavy users that do use P2P networks to watch shows when they can’t find them legally.

“These represent the next generation of consumers,” Nissen said. “Content holders should be watching these people. If you set up strategies for monetizing online video or video in general, and you satisfy this group, then you’re setting yourself up for long-term success.”

By converting illegal viewers into paying customers, Nissen projects that content holders could generate $1.4 billion in subscription revenue and $1.1 billion in advertising revenue.

Nissen said simply making movies available on Netflix’s streaming service would make it appealing enough for most P2P users, many of whom are already Netflix subscribers, to just watch there rather than use illegal file-sharing networks to get downloads.

But beyond that, the way to satisfy P2P downloaders, Nissen said, is to include watermarks on downloads that note who owns the download and what rights they have. Nissen said the technology is already available to use DRM to let users pay different amounts depending on what they want to do—studios, for example, could charge one price for a simple rental as they do now, more for a permanent download, more if a user wants to watch that download on a TV or mobile device and more if they want to use a clip from a TV show to make a mash-up video for YouTube.

Nissen said Internet service providers, cable companies such as Comcast and electronics manufacturers also could use compatible DRM in their devices to ensure the user has paid to watch the film or TV show on the device they are using.

“DRM still needs to be there as a means of slowing things down,” he said. “You can’t do things that purposefully violate what you paid for.”

He said the industry’s latest effort, the Digital Entertainment Content Ecosystem, a consortium of studios, manufacturers and others involved in online video could be used to create such a system.