The age old saying, “If you can’t beat them, join them,” has never been as true as it is today. Many industries are going through drastic changes due to uncontrollable exogenous factors. The economic underpinnings of global digital commerce are slowly coming loose. Technology over the past decade has changed the way we do business. Business models, profitability, customer acquisition and retention have all been turned upside down with the advent of the Internet, cloud computing and applications built on top of this infrastructure. One need look no further than the music industry to see how drastic the impact has been. Every service provider dealing in a business to consumer context will encounter a technological shift. Today’s giants of industry will have to change and adapt or experience an inglorious death.
Let’s take a look at the pervasive impact file sharing has had and how insurmountable this trend has become for the content industry. BitTorrent, the most well known peer-to-peer file sharing network now accounts for one fifth of all Internet traffic. One fifth! That’s 20% of more than 27,000 petabytes per month in 2011. While BitTorrent does have many practical applications for exchanging files, much of that data is not surprisingly, in the form of books, music, movies, TV shows, etc. The Internet Archive, a California non-profit, itself has a collection of more than 1.5 million accessible torrent files. What does this mean? Well, simply put, traditional content distribution platforms are encountering competition from new, free platforms. If you were the CEO of Warner Bros. Entertainment what would you do?
The so-called free culture movement is cannibalizing traditional revenue streams with a tool that accounts for 20% of all Internet traffic. Your commitment to shareholders would say that you should fight against this by limiting people’s access to the use of BitTorrent for example. So, because your interests are those of your shareholders you file for an injunction with a federal court to stop ISPs from providing service to users of such systems. In the UK, BT, SKY, Virgin and a host of other ISPs were recently forced to censor Newzbin, a Usenet indexing site for copyrighted content amongst other types of data.
This action has two direct consequences. First, it angers customers of the ISP, putting the ISP in an awkward situation vis-à-vis the people paying for its service. Most ISPs, given the option, would probably not want to piss off their customer base. Second, it forces people to think of new ways to access content. If you were a user of BitTorrent, what would be the next logical step for you? You know where the content is, but you can’t access it. It’s like encountering a roadblock. If you can’t go through it, then you look for the fastest way around it. This behavior is engrained in human instinct and the content industry needs to understand this. In the UK, when The Pirate Bay was shut down, the next day hundreds of proxy sites came online. More recently, with the injunction against Newzbin in the UK, a more technical approach was taken. Newzbin decided to provide an encrypted client to circumvent the imposed censorship. What’s more is that the new client can automatically adapt to updates or changes in the censorship mechanisms!
So, if you are the CEO of Warner Bros. what should you do now? You’ve seen that technology will win out in the end. You can fight it or adapt to it. There is only one right answer. Those that accept that will be the businesses that survive to see tomorrow. Those that do not will become but a faint recollection of our past. Historically dominant companies that rely on paid models of digital content distribution to mainstream consumers will inevitably have to change their business models and completely reconstruct their value chain in order to remain competitive. Few companies have the foresight and leadership to do so. And despite legal regulations, injunctions or other judicial action to provoke anything less than a free and open Internet, neither government nor traditional industry will be able to stop the world’s access to information. The best part is that you and me, as consumers, have front row seats to the game that will lay the groundwork for a new economy – one that is being created right now.