Lets Talk about P2P Damages, Coffee and Bulldust

by Tom Koltai at 02:16PM (EST) on April 21, 2009

Last Friday in a Swedish Court, the four pirates were awarded four years of jail time and financial damages against them (for running a Google search engine) of over three million dollars.

In February three Thai CD Pirates were handed out jail sentences under a year each and fined $14,200 each for pressing 306 CD-Roms per minute of pirated content for the last three years and selling them into the black-markets as originals . (See references below)

In other words for distributing over thirty million pirated CD’s these Thailand based pirates got a sentence that looks like a joke when compared to the Pirate Bay lads - who essentially, let me repeat myself - ran a SEARCH engine.

Of course this inequality in sentencing is essentially the PR machine at work to justify the passing of legislation designed to curtail human basic rights. (ACTA)

IPFI, MIPI, AFACTS, RIAA, MPAA all take delight in reporting the damages awards handed by the courts in various file sharing cases.
The majority of these claims are based on the premise that the downloader/uploader made “n” pieces of content available on the internet for free that would have sold for “o” dollars retail or “p” dollars wholesale and therefore depriving the content creators of {N x O} or {N x P}, “whatever your Honour thinks is fair.”.

Unfortunately, that is not quite how this works. In real life, it works something like this…..

A movie on the big cinema screen is a different experience to watching the same on a laptop or mobile phone screen.
The special Dolby surround sound effects can not be “felt” when you are peering intently at a 7” or 2” screen listening hard to the 8 ohm quasi stereo “speakers”.
There are no fresh popcorn smells – nor are there any Jaffas to roll down the stalls – and of course there is no way two people could watch such a small screen together so the “arm-over” maneuver doesn’t work outside the cinema.

All of these elements combine together to create a unique "experience value" that economists like to call the Hedonic value.

The basics of Hedonic value are in the measurement of consumer self justification value for the  payment of an item of perceived need. (Usually driven by advertising, marketing and lately more by social networks and peer to peer interaction.)

The hedonic value of watching a presentation on a big screen at the movie theatre is vastly superior to reviewing the same movie on a micro computing device. Especially if there is a couple involved. It’s a bit like the difference between a Starbucks Coffee or, a home made powdered, instant coffee.

I’m a coffee addict. I drink between thirty and forty cups of coffee per day.

At select establishments around the world, an Americano (long black) coffee costs $3.75 for the small cup.
If I were to use the content industries argument, my addiction is equal to a $150.00 per day habit.

I do quite often go out and have a long black coffee when chatting with friends or holding a business meeting, however that would not be more than three or four times a week and my total tab for that would not exceed $20-$30 all up.
The rest of the time, I drink instant coffee. The Germans have a good word for instant coffee, “ersatz kafe”, which means “pretend coffee” or fake coffee.

I use Nescafe Expresso coffee which sells retail for a 350 gm jar for $9.00 (sometimes $7.00 on sale). I buy a 2 kg bag of sugar for $1.65. The coffee and the sugar last me for approximately ten days,
I drink 245 cups of pretend coffee a week interspersed with about five – seven real coffees. My total coffee budget is therefore approximately $31.00 per week; not the $1050.00 that the content industry think I should pay them.

What is different, is the price I am prepared to pay for each alternative product. The instant cup of coffee 2 minutes after I wake up in the morning is worth far more than the Starbucks Americana that I have to cross the road for in a driving hail storm to get – but its hedonic value is enhanced by the fact that I can have that ersatz coffee without shaving, dressing or going out into the weather.

That first cup of coffee doesn’t in any way replace the desire or need to have the real thing later in the day, surrounded by my peers or colleagues in nice surroundings.

The two are separate, disparate and totally unrelated experiences and worth two totally different values.
It can be argued by coffee aficionados that ersatz coffee is a temporary fix only – a prelude to the real thing, a stop-gap, an emergency standby, the free taste. It can equally be argued that the world would not function as well without the ersatz coffees, which in reality actually make the real coffee taste so much better by comparison.

The same can be argued successfully for movies shared on the Internet. The “free taste” actually enhances the hedonic value of the movie experience and leads to more movie admissions at higher prices.

Cinema attendance figures for the last two years indicate that more people are going to the cinema than at any time in the last sixty years.  Yep –  records are being broken, daily.

According to a recent report by Price Waterhouse, the Ancillary markets and new technologies have revolutionized profit potential. Over the last decade, ancillary markets have grown by over 30%. The home video market alone has grown over 200%. The combined worldwide filmed entertainment market will achieve sales of $118.9 billion in 2009, a 7.1% compound annual growth rate (CAGR). Source: Price Waterhouse Cooper.

There are very few industries that can claim a 7.1% compound annual growth. (Then again, there are very few industries that have millions of PR people working for them for free, downloading files like mad for the ersatz taste.)

The hedonic value for consumers of attending a cinema screening is being proven daily at the Box office in leading file sharing countries like :

Headline: Slovakia, Bulgaria, Turkey, and Russia were the top performing European countries for cinema attendance growth in 2008.

Russia saw the largest amount of increased ticket sales, 124 million, up 16% from 107 million in 2008. Turkey, however posted a jump of almost 27%, with 38.5 million admissions.
Across Central Europe, Slovakia stood out with an 18.2% gain, to 3.3 million admissions, but still down compared to a strong 2006, with 3.4 million admissions.
Bulgarians were back up to 2.8 million admissions, a 12.1% increase, but below a five year high of 3.1 million admissions in 2004.
Poland's 3.4% rise brought a five-year high of  almost 34 million admissions

...and:

Headline: Box office goes boom
According to Box Office Mojo, an online site that crunches movie revenue data, February admissions were up more than 10 per cent over last year, and that came on the heels of the first-ever billion-dollar January. Compared to previous annual revenues, 2009 is tracking as Hollywood's most lucrative year ever, with the current year-to-date box-office standing at about $1.8 billion US -- as much as a 20-per-cent increase over same-period totals from the past three years.

In summary, the Content Industries claims that file sharing carried out on P2P technologies and networks is damaging their bottom line is sheer and utter  (warning – expletive forthcoming) bullshit.

It is akin to claiming that file sharing is stopping young couples from going to the cinema and the lack of “over the shoulder arm maneuvers” is leading to negative population growth.

In closing – if the industry’s claims that file sharing is hurting their bottom line is based on fact, rather than self creative litigation justification, then why during a depression are more people going to the movies than file sharing for free ?

My answer is that consumers are a lot more discerning than Hollywood and can actually taste the difference between instant coffee and real coffee.

The attention that Governments and the Courts should give the content industry about these claims is the same attention that Starbucks gives to Coles when the price of Nescafe in Coles drops down to $7.00 during sales. Nothing.

References
Three CD pirates jailed in Thailand
http://www.ifpi.com/content/section_news/20090225.html

Passion Helps Record Year At Global Box-office
http://www.zeeks.com/wirestory/?story=0fc3m7kv

Box office, admissions rise in 2006
http://www.variety.com/article/VR1117960597.html?categoryid=13&cs=1

Box office goes boom
http://www.vancouversun.com/Cars/office+goes+boom/1364236/story.html

European cinema bounces back in 2006
http://www.obs.coe.int/about/oea/pr/mif2007.html

Weekend box office figures
http://www.ukfilmcouncil.org.uk/weekendboxoffice


Keywords:  damages, bull, box office, PR, Hedonic Value, Dolby, coffee