The future of audio-visual content distribution in the digital age

(1)

1 The future of audio-visual content distribution in the digital age

An investigation on consumer file sharing of digital media content

August 2012

Supervisors:

T.J. Kooijenga and H.A. Ritsema

Faculty of Economics and Business

(2)

2

3 Abstract

In the light of ongoing copyright infringement through online file sharing of digital media files, this study aims to investigate the current situation and developments in the field. Through a survey based approach, the consumer behavior concerning the use of illicit and legal online channels to obtain and consume digital media content is quantified and analyzed. The study finds that especially movies, TV series and music are obtained via illicit channels, mainly due to the aspect that large libraries are available for free. Moreover the results show a shift from illicit to legal channels for music

consumption. Finally the survey provides evidence that a majority of users would be willing to pay for content through an alternative compensation system. While the willingness to pay increase with the frequency of usage of illicit channels, a demand profile is proposed to elaborate a viable legal offer for digital media content distribution.

Keywords: peer to peer file sharing, digital copyright, media content distribution, entertainment

(4)

4

“Intellectual property is the oil of the 21st_century“

(Mark Getty, Chairman of Getty Images )

“A culture without property, or in which creators can't get paid, is anarchy, not freedom.” (Lawrence Lessig, Harvard Law School)

Chapter I: Introduction

The rapid evolution of consumer information technology has provoked a rapid change in how audio-visual media is consumed in the last one and a half decades. We went from our grand-parents listening to only radio stations to carrying large collections of music on ever smaller devices everywhere around with us. We went from having to choose carefully which VHS video cassette to rent for one evening to having thousands of movies just a few mouse clicks away from us.

The first milestone of the new era that would become the digital revolution was set with the release of the audio player Winamp in 1997, which largely contributed to the adoption of the MP3 audio format. MP3 enabled the digital compression of music files to a much smaller size, which resulted in the possibility – quickly embraced by a growing community – to share and distribute music over the Internet. The launch of Napster in 1999 marked the emergence of the first large peer-to-peer file sharing network. The network gathered thousands of users just in its first year of activity and at its peak time it registered 25 million users and 80 million songs.1 The service finally (after only 2 years) shut down in July 2001 after being sued by the Recording Industry Association of America (RIAA) on claims of facilitating massive copyright infringement2.

The development of similar platforms after the closure of Napster such as Kazaa and Emule, was a first indication that demand and supply of music content through illicit channels would be hard to stop through legal actions. Peer-to-peer file sharing had in fact already become an important aspect of media content distribution.

At the beginning of the 21st century music was mostly shared over the internet, but with the

emergence of the DivX codec and more decentralized files sharing application, the amount of music,

1

http://en.wikipedia.org/wiki/Napster

2

A&M Records, Inc. v. Napster, 239 F.3d 1004 (9th Cir. 2001)

2

(5)

5

movies and software shared, rose quickly3.With the development of the Bittorrent protocol and a peak of 9.6 million simultaneous file sharing users in 20054, the evolution of peer-to-peer file sharing has become one of the most controversial phenomena of the digital age, since the majority of shared material is infringing existing copyright legislation. In addition to that, a recent study published in 2011 by Cisco Systems Inc. predicts that the worldwide file sharing traffic will rise by 23% per year5. It is thus evident that the so called power of sharing (for instance 9.6 million people being able to share a huge amount of data in a very short time) has and is further going to influence the way of how media content will be consumed in the future.

Since file sharing through peer-to-peer networks has been embraced by the masses and IT professionals, but highly criticized by the media industry because of the possible illegal use, Ebadi and Johansson (2009) have appropriately labeled file sharing as “a genius technology and a copyright infringement”.

It is obvious that file sharing has brought significant benefits, as on the one hand it is an easy and convenient way to access media for consumers and on the other hand a cheap and efficient distribution channel for media content creators.

Nevertheless, the fact that media can be obtained for free through file sharing, is a threat to the fundaments of copyright which is “to function as an incentive to encourage creativity” (Ebadi and Johansson, 2009), and may thus result in a decrease of artistic creation. While copyright is mainly purposed to guard the work of content creators, Ebadi and Johansson (2009) correctly emphasize the need to consider the consumer’s point of view and thus “balance the interests of all parties involved”.

1.1 Problem Statement

The media industry, mostly represented by organisations such as the Motion Picture Association of America (MPAA) and the International Federation of the Phonographic Industry (IFPI) has showed a very aggressive stance towards file sharing and peer-to-peer networks, which is illustrated by the numerous legal cases involving both individuals6 as well as file sharing platforms7. With file sharing still being on the rise, it has become clear that the media industry’s hostile strategy is inefficient and might be the wrong approach to solving the issue. The unwillingness of the media industry to

3

The Gnutella and eDonkey2000 networks were both created in the year 2000 and would become two of the biggest file sharing networks of the decade.

4

Slyck.com, 2005

5

http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-481360_ns827_Networking_Solutions_White_Paper.html

6_{Sony BMG Music Entertainment et al. vs. Tenenbaum} 7

(6)

6

embrace this new technology and phenomenon is sometimes viewed as a fear to lose valuable income through the margins in the traditional distribution channels. In the same line of thought it can be assumed that file sharing is the result of the industry's failure (Eijk, 2010: 36))

A good example of the controversy in the field of file sharing is illustrated through the recent developments in the Netherlands.

While 30 % of the Dutch population is said to be downloading movies and music, the Netherlands is one of the few European countries where downloading is legal for personal use. In accordance with Dutch case law, downloading copyrighted media content from illicit sources for private use falls under the scope of Article 16c of the Dutch Copyright Act (the so-called home or private copy exception) and is therefore not a copyright infringing act8. It needs to be noted that the act of uploading/sharing copyrighted content is not covered under the private copy exemption.

More over the Dutch government decided to maintain this tolerant policy after a recent political debate in 20119. Instead of tougher legislation against file-sharing, the government suggested that the entertainment industry should focus on legal alternatives to offer audio-visual content to consumers.

The maintaining of the policy was also justified by a government commissioned report of 2009. In their study Huygen et al. (2009) find that the access to cultural products through file sharing has a positive effect on welfare. This positive effect is assumed to be more relevant than the resulting losses suffered by the entertainment industry.

In contrast to the above, the anti-piracy and lobbying organisation “Stichting BREIN” has attracted a lot of attention in the field by its determination to stop illicit file sharing. Landmarks of their efforts are for instance the lawsuit against the Dutch BitTorrent file sharing website “Mininova” in 200910 and the blocking of the access for internet users to similar file sharing website “The Pirate Bay”in 201211.

This latest ruling against “The Pirate Bay” has raised some concerns, since the EU Court of Justice ruled that filters on Internet Service Providers (ISP) are forbidden under EU law12.

(7)

7

the application of the European Copyright Directive (Directive 2001/29/EC). Ginsburg (2001) characterizes the result of the directive as win for the entertainment industry over the interest of content users

Since file sharing could not be stopped until now and has always circumvented the technical and legal obstructions that were brought forward by the entertainment business, the tension between the consumers and the industry remains.

This situation calls for further investigation to find a balanced situation that will benefit and take into consideration the interests of all stakeholders such as consumers, content creators, right holders and governments. In order for the industry and policy makers to be able to take a pro-active

approach in the form of new business models and alternative copyright structures, the demand side of consumer file sharing has to be analyzed. Thus the following research question is proposed:

In the light of the current illicit distribution of audio-visual content, what are the reasons that motivate people to use file sharing and are there viable alternatives that can compete with file-sharing networks?

Sub-questions

Why do consumers turn towards file sharing networks?

What content is mostly consumed through file sharing networks? Are there legal alternatives available?

Are people who use illicit channels willing to pay for content?

1.2 Importance of Study

The developments of the last 15 years until today have shown that further research is needed in order to create viable business models for audio-visual content distribution.

The evolution and development of file-sharing network shows that the entertainment industry has failed to adapt their distribution models to the digital age.

(8)

8

The year 2001 saw the birth of the Bittorrent technology, which has become the most popular file sharing networks to this day.

In the light of complicated and dubious lawsuits that have emerged alongside the availability of illicit content, the situation still point to a lack of alternatives in respect of new business models. An example for an abusive lawsuit is the one of Capitol v. Thomas (2007) where one individual was fined 222.000 US$ for sharing 24 songs on file sharing network Kazaa ( the fine was later reduced to 54.000 US$ and the legal case is still ongoing as of today). Another example are the proceedings of the former UK based law firm ACS:Law who conducted a “pay up or else scheme”. The concept consisted in sending out mass mailings to alleged copyright infringers and asking them to pay a certain fine to avoid prosecution. Due to these unlawful actions the firm was shut down by the Solicitors Regulation Authority (SRA)13.

Furthermore the fact that repressive legislation is inefficient has been backed by studies such as the study by Bhattacharjee et al. (2006) that showed that even if legal threats would lower file sharing activity over a certain period, the availability of files would stay high. Since only one file sharing network was monitored in this study it can be expected that the decrease of users on the given network can be explained through a shift towards other file sharing networks.

The inefficiency of repressive policy is confirmed by recent developments in the Netherlands. After the access to the largest Bittorrent site has been blocked for all Dutch users, the ISP XS4All has indicated that Bittorrent traffic has actually increased since the implementation of the blockade. There after the spokesman of the ISP XS4All suggested a to build a legal platform comparable to the notorious file sharing website where users would be able to find and download content, since there are almost no legal alternatives that meet the consumers’ expectations14.

1.3 Purpose and Scope of Study

The purpose of this study is to analyze and evaluate illicit file sharing habits of media content of internet users, the alternative use and availability of legal channels, as well as the willingness of the users to pay levies on internet subscription that would make the media content consumption legal and would reward content creators and rights holders, ultimately harmonizing supply and demand.

13_{http://www.bbc.co.uk/news/technology-16616803} 14

(9)

9

Similarly to the scope of the study made by Goel et al. (2010), this study will use the term “media content” in a broader sense that comprises music, motion picture and television content. This study will focus on these three types of content since they are the most illegally consumed audio-visual media content on the internet (see Graphic 1). Another reason for narrowing down the focus on these types of audiovisual content is that they can be obtained or consumed in two similar ways, which is to say:

- Downloading copies of files directly to digital storage space

- Streaming content directly to PC’s of media players without keeping copies

The last years have shown a slight improvement concerning the availability of legal alternatives to obtain and consume music in a digital form15_{. In matters of video content, some progress has been} made in the USA, but legal alternative distribution concepts for movies and TV series have remained largely unexploited in Europe. The scope of this study will be to quantify the use of illicit and legal distribution channels as well as the shift form the former to the latter.

Even though some figures show that pornographic content is the most consumed content over file sharing networks, this type of content will be left out of this study for moral and ethical reasons as well as due to the specificity of the business models. This research will also not include computer code (Software & Video Games) and text or print based content (Books, etc.) because there are different and possibly more complex copyright and distribution issues involved than with media content. For instance distribution and licensing methods of software are different form the ones used with media content and the format shifting on the book market is not yet as significant as on the media content market.

Graphic 1

15_{Music Industry Lures ‘Casual’ Pirates to Legal Sites}

(10)

10

Purpose justification

In order to further justify the purpose of this research, three key questions will be applied to the approach of this thesis. Whetten (1989) proposes key questions that intent to summarize the factors which are used to judge conceptual papers.

What’s new?

The value added contribution of this thesis can be seen in the fact that its focus is put on a consumer view point. In this key question Whetten (1989) highlights the importance of considering the scope and degree of propositions. In the case of the field of file sharing studies the scope is indeed extended as the approach includes different types of media content.

Why now?

The ongoing consumer file sharing points to the fact that business models and copyright legislation is still not adapted to the technology that is available in the digital age. Furthermore the entertainment industry still used a repressive strategy in the form of lawsuits and is lobbying for tighter laws that favor them, in order to maintain their monopolistic position in the media entertainment market. This state of affairs has created and is aggregating a situation of tension where one party wants to control the internet and the other wants to keep it free and open. Since this tension has been ongoing for over a decade, research and innovation is needed to find a state of balance that respect the interests of all stakeholders.

Who cares?

This type of research can be considered interesting to a broad audience of academics as it has a multidisciplinary dimension that includes the fields of management, economics, law and technology.

Moreover the subject is of interest to managers and policy makers due to its large economic volume. For example, the digital music trade revenues have risen at an average rate of 7.6% since 2009 to a volume of 5.2 billion US Dollars in 201116.

16

(11)

11 Chapter II: Literature Review

This part of the thesis will give an insight into the most popular studies and findings.

2.1 File sharing and sales of recorded music

Due to the rising popularity of file sharing in the last decade, associated with the industry’s claim that it reduces creativity and hence productivity of media content, numerous studies have been

conducted in the field.

Since the first type of copyrighted content that was massively shared over the internet was music, a majority of academic studies that were published, mostly focus on the effect and impact that illegal downloads of copyrighted music files have on the actual sales of recorded music.

An extensive literature review by Peter Tschmuk (2010) covers 22 different studies that are divided in 3 sub-categories:

Formal and theroretical approaches

A notable publication of this approach, is the study of Liebowitz (2006) which argues that if the copy is close to equal to the original, the substitution of purchased music through downloaded copies will evidently have a negative effect on recorder music sales.

The game theoretical approach of Curien and Moreau (2005) models that the decrease of income from recorded music sales can be compensated by an internationalisation of live performances. What is important to mention is that in their conclusion the authors suggest that the music industry should accommodate piracy by taking advantage of its key features which is: large scale diffusion at a

low cost.

Nevertheless Tschmuk (2010) concludes in his literature survey that even though these theoretical approaches can be considered as interesting, they produce no practical information and empirically unviable discernments. This mean that no concrete assumption can be made to which extent music file sharing harms the entertainment industry.

Survey based approaches

(12)

12

out by Huygens et. Al (2009) that uses a representative sample of the Dutch population to investigate file sharing behaviour. The findings that are presented assume that 4.7 million people (out of 13.5 million people) that are aged over 15 have engaged in downloading media content without paying in the last 12 month prior to being questions. While a loss of revenue from the music record sales industry is acknowledged, the welfare effect of music file sharing is assumed to counterbalance or even exceed the created loss.

In conclusion to the section of survey approaches, one the one hand Tschmuk recaps the shortcoming of this approach due to non-representative samples and response bias. On the other hand he mentions that, in spite of these deficiencies, “survey approaches based on primary datasets can contribute important insights into the consumers’ music consumption behaviour if they are representative for a specific population and if they use appropriate questionnaires and interview techniques” (Tschmuck, 2010: 24).

Econometric and empirical approaches

In this section of the literature survey the author notes the studies of Blackburn (2004) and Oberholzer-Gee & Strumpf (2007) can be considered as particularly reliable.

In the approach of Blackburn (2004) a dataset is created from weekly album sales and file sharing activity from the five biggest file sharing platforms in the United States. The data is collected over 60 weeks. The analysis of his results show that file sharing is decreasing the sales of popular artists and that some of these lost sales are being redistributed as a benefit to smaller, less well known artists. Meanwhile the author also assumes that the aggregate effect of file sharing is strongly negative on sales and that if file sharing would be decreased by 30% sales would rise by 10%.

The research from Oberholzer-Gee & Strumpf (2007) uses a similar constructed dataset from a sample of music downloads through file sharing platforms and a representative sample of album sales. Their study find that there is no statistically significant influence of file sharing on sales and that the consequent loss for the industry is no more than 0.7% of sales. Nevertheless the validity of these results is limited, since they only apply to the U.S. and also the validity only counts for the period of when the study was conducted.

(13)

13

- 14 studies recognise a negative or even highly negative impact of file sharing on recorded music sales.

- 5 studies find a positive effect of file sharing on music record sales, which can for instance be explained by the fact that the positive sampling effect of file sharing dominates the negative substitution effect (Gopal et al.,2006 ;Chi, 2008). In contradiction to this Liebowitz (2006) is the only author argues that sampling has a negative effect.

- 3 studies find no significant impact of file sharing on recorded music sales/purchases.

According to the author, the divergence of these studies is mainly due to difference in theoretical assumptions, research methods and bases of measurement (datasets). Also the conclusion suggests that future research should move away from calculating regression and that a mix of qualitative and quantitative methods is needed in order to analysis in the development of the music business in the digital age.

2.2 File sharing and motion pictures

The amount of studies that focuses on motion pictures as media content has been scarce and controversial in the landscape of file sharing research. Henning-Thurau et al. (2007) investigate the effect of motion picture file sharing on commercial forms of movie consumption using a panel study of German consumers. Their research concludes that file sharing of motion pictures has a substantial negative impact on revenue generated from commercial exploitation such as cinema visits as well as DVD sales and rentals.

These findings stand in direct contradiction with a non-published study that has been commissioned by the Gfk Group (a German consumer research organisation17). The study is assumed to find

evidence that users who obtain and consume movies through illicit platforms actually spend more than average consumers on theatre visits and DVD18. Several press coverings of the issue indicate that the study has not been published by the Gfk Group, because the organization is known to be performing lobbying efforts for large media conglomerates19.

2.3 Alternative compensation systems

(14)

14

such approaches is grounded in the popular adoption of file sharing networks. The concept has remained relatively unexplored in academics and politics.

Gervais (2004) claims that an ACS would be the only viable response to the assess the situation of copyright infringement through peer to peer file sharing.

Goel et al. (2010) analyze the effect of legislation changes and lawsuit filings on stock prices of media firms. Their research finds that stock prices rise with the announcement of tougher legislation and copyright enforcement actions.

While considering the need to change business strategies and models, they propose a scenario where file- sharing is permitted and copyright holders are compensated by a tax on ISP subscriptions. It is assumed that this scenario would provide a method that would cause minimal disruption to the entertainment industry.

Netanel (2003) analyses a possible system of levies to compensate for industry losses that are generated by unauthorized file sharing. The concluding assumption is that a levy of 4% on goods and service that are related to file sharing activity would offer a sufficient compensation.

Chapter III: Methodology

3.1 Approach

The research approach for this thesis will be characterized as investigative and exploratory case study with an open research question. As described by Thomas (2004), the case study strategy aims to observe a specific instance of a broader class occurrence in order to gain a rich and multifaceted understanding from it. Thus, in this study the specific instance is file sharing and the broader occurrence is digital distribution of media content. In order to observe the instance the main research approach will be to use qualitative measurement of primary data that will be collected through an online survey.

The main purpose of this approach is to gain a snapshot of the current situation of file sharing habits and media content consumption of internet users as well as to investigate their willingness to pay for media content.

In order to get a sound picture of the situation that surrounds file-sharing and digital media distribution, the data collected from the survey will give insights on the following aspects:

(15)

15

- Which type of content is most obtained and consumed from illicit channels - How often media content is obtained and consumed from illegal channels - How often media content is obtained and consumed from legal channels - Which factors mainly motivate the usage of illicit channels

- How satisfied consumers are with the legal online distribution channels for media content that are available to them

3.2 Data Gathering Method

In order to gather insights into file sharing habits of internet users, this thesis will use a survey based approach to gather primary data. The survey was conducted by using the Qualtrics online survey software that is provided by the university. The web-based survey was an obvious choice due to various benefits such as no direct cost, automatic sequencing (redirecting participants to specific parts of the questionnaire based on their responses), easy distribution and of course the ability to maximize the quantity of responses which is considered a key objective of survey design (Thomas, 2004)

Since this thesis can be considered as a pilot study and also due to time constraints the

non-probability method of availability and convenience sampling was selected to gather respondents for the survey.

As described by Thomas (2004) non-random samples are often the only practical possibility for management studies. Even though their appropriateness for generalization is questionable, their significance for research purposes should not be disregarded.

Since this method aims to construct a sample out of self-selected volunteers, the survey was distributed over several ways.

1. The link to the questionnaire was posted on the social network Facebook which attracted approximately 100 respondents.

2. The survey was distributed though the intranet of the headquarters of Paylogic BV which is based in Groningen, The Netherlands. This distribution gathered approximately 30 respondents.

3. Finally the survey was posted on internet forums that were all related to the topics of information technology, peer-to-peer file-sharing, intellectual property, etc . These types of sources account for approximately 70 respondents.

The online forums are presented in the list below:

(16)

16

- Numerama (French) - Korben.info

- Gulli Board (German) - Zeropaid (International)

 The user forum of the Bittorrent file sharing website “The Pirate Bay” – Forum.Suprbay.org  Forums of Pirate Parties (PP)

- Pirate Party International, Germany, Belgium, United Kingdom, Austria Thus, the questionnaire was posted on 10 different online forums.

The different explanations and descriptions that were sent with the hyperlink of the survey can be found in Appendix 2.

In terms of the amount of respondents a sample size of 50-100 was expected, which is considered to be the smallest subgroup in sampling (Hoinville et al. 1978, p.61)

3.3 Survey Design

Thomas (2004) proposes key points that need to be considered for successful questionnaire layout.

Be visually attractive and easy to complete

In order to increase the response rate and to minimize uncompleted questionnaires, the survey was designed as interactive as possible and manual text entry was mainly avoided. This was achieved by the use of check boxes, radio buttons and slider bars.

Look short

Another measure that was used to maximize the response rate was to keep the questionnaire as short as possible. With a total of 18 questions, the completion time for the survey was advertised as approximately 5 minutes. The statistics after the closure of the survey show that 80% of all

respondents completed the questionnaire in less than 9 minutes.

The questionnaire can be divided in eight parts :

1. Demographic information

Gender: this question was included to for the potential possibility to analyze gender related trends

and variances.

(17)

17

12 – 18|19 – 25 |26 – 35 |36 – 45 | 45 – 60 |60+

Occupation: The socio-professional categories were based on the accredited level one categories that

are defined by the French National Institute of Statistics and Economic Surveys (INSEE)20 Agriculture

Craftsman, merchant or entrepreneur Executive or other intellectual position Intermediate profession in education, health, business or public service Employee in public or business sector Laborer / Workman

Student Retired No occupation

With the purpose of making the list of categories more complete, the category Student was added.

Country of Residence: The survey was mainly aimed at media consumers from European countries,

but the range of countries was extended at a later stage due to the distribution method and also with the aim to maximize the number of respondents.

2. Respondent Categorization Section

In this section the respondent was asked the following question:

Do you consume copyrighted videos or music on the Internet through illicit channels?

This question was specifically put at the beginning in order to categorize the respondents into file-sharer or non-file file-sharer. If a respondent would answer this question with No he/she would be directly redirected to section 6.

3. Types of channels and content

In this section the first question is aimed at identifying the different networks/platforms that the respondent uses to obtain and consume content from the internet.

The second question investigates the type of digital content that the respondent obtains from illicit channels.

4. Frequency of illicit consumption

The two questions of this section intend to gather insight into the frequency of consumption of the two different types of media content which are music and video.

5. Reasons of usage

20

(18)

18

In this section the respondent is presented with a series of qualities that characterize the use of illicit channels. The respondent is asked to rate these qualities, in regards to how important they are to him/her.

6. Legal channels

This part is used to identify if and which types of legal channels he/she uses to obtain media content as well as the frequency of usage of legal channels. Since mainly only several legal music services are available across different countries, the list of choice is mainly composed of music delivery services.

7. Availability and satisfaction of legal channels

In order to identify opinions about the availability of legal channels/platforms, two questions are asked in regards to how satisfied the respondents are with the availability of legal music and video distribution platforms.

8. Global licence

The questionnaire is concluded with a question about the global licence concept, which intended to investigate the respondents’ willingness to pay for content under specific circumstances.

Furthermore the respondent is invited to indicate how much he would be willing to pay for media content on a monthly basis.

3.4 Originality & Limitations

In order to maximize the number of respondents the survey was distributed over online forums that deal with file sharing and copyright issues. This was done because people who visit those kind of online forums were most likely to be willing to take this kind of questionnaire without any form of compensation.

Even though an availability / convenience sampling method was used, the aim of the survey was to catch a more or less representative sample of the internet user population, which would allow the analysis of file-sharing and media content consumption in a broad sense.

The fact that a certain amount of respondents is probably very familiar with the topics and issues that are addressed in the questionnaire could therefor harm the validity of the sample as being representative of the general population of internet users.

It can also be argued, that this effect might be limited due to the diversity of sources where the respondents were gathered from, which includes a social network and a company intranet.

(19)

19

Multi-language issues

With the aim to maximize the amount of respondents and to ensure a certain degree of diversity in the pool of respondents, it was decided to translate the questionnaire from English into French and German. Every respondent that opened the questionnaire was thus able to select from the three different languages.

The key issues that need to be considered in the translation of questionnaires are according to Behling & Law (2000) “semantic equivalence across languages, conceptual equivalence across cultures, and normative equivalence across societies”. In a very generalizing manner I can be said that the poll of respondents can be considered as being of western culture and from the modern society. Thus the achievement of semantic equivalence is the main issue that needs to be addressed in the case the questionnaire for this thesis.

A single issue that could be related to culture (and semantics) is the use of the German translation of the word “illicit” in question 5. The direct translation of “illicit” into German language would be “illegal”. The direct translation was considered to be sounding too harsh and that it could thus scare away potential respondents. The translation was consequently adapted to the equivalent of

“unauthorized”.

Behling & Law (2000) advise the use of multicultural teams to achieve semantic equivalence when creating new surveys. This advice was considered in a condensed but significant form, since the questionnaire was translated by a person that is proficient in German and French language and culture.

Social desirability bias

The social desirability bias characterizes the inclination of respondents to answer questions in a manner that will be regarded favorably by others. This can either be found in the form of over-stating good behavior or under-stating bad behavior.

In the case of file sharing studies this phenomenon has already been observe by Oberholzer-Gee and Strumpf (2009: 17). Survey respondents might thus on the one hand under-play file sharing activity due to its illegality or on the other hand over-play it due to its popularity and anti-establishment nature.

Anchor effect

Anchoring is a term used in psychology to describe the common human tendency to rely too heavily, on one attribute or section of information when making decisions21. Thus, when making decisions, individuals focalize themselves on a specific value and then orient their decision in accordance with this value.

The anchoring effect might play a role in Question Nr. 7 of the survey, where the respondents are asked to indicate which type of media content they download / stream the most over illicit channels.

21

(20)

20

In order to make sure that the question was correctly understood it was decided to give an example of how the answer could look like: “Example: The total of what I download / stream consists of 60% Movies, 30% TV Shows, 10% Music”

Therefore, it needs to be taken into account that this example answer could have played an “anchor” role which could significantly influence the answers of the respondents.

Chapter IV: Presentation of Results

In this chapter the results of the survey will be presented.

The survey was active and being distributed over a period of almost 3 weeks from the 24th of July to the 13th of August 2012. The final amount of respondents that was gathered summed up to 206 respondents which exceeded the expectations of the initial sample frame. The survey completion rate showed a completion mean of 77%. The full survey results and statistics can be found in Appendix 1

4.1 Demographics

Gender

As expected, due the fact that the topic was of a technical/technological nature the majority of respondents was men. Out of the 200 respondents that indicated their gender 68% were men and 32% were woman.

Age

The leading age group in the respondent pool were the 26-35 year old group with 51% followed by the 19-25 year old group with 31%. Graphic 2 shows that the curve of the age distribution resembles a bell and thus the “Gausse curve” or “normal curve”. This shows that the sample of this survey can to a certain extend be considered as representative in terms of age distribution (Souverein & Wray, 2008).

(21)

21

Field of Occupation

4 socio-professional categories resulted in being predominant in the pool of respondents. 31 % of all respondents were from the categories students, followed by executive and intellectual professions (21%), Employee in public or business sector (21%) and intermediate professions (15 %). The predominance of the category “Student” can be attributed to the fact that the survey was conducted for a master thesis. Whether or not the socio-professional categories can be considered as an indicator for specific file sharing and media consumption habits will be analyzed in Chapter 5.

Country of Residence

The use of a web based questionnaire and its distribution over online networks brought the result, that 13 different countries (with at least two participants) were covered by the survey.

Nevertheless, sufficient respondents were only gathered in the Netherlands (26%), Germany (15%) and France (15%). An analysis based on country of residence will thus only be made with these three countries.

4.2 File sharing and media consumption habits over illicit channels

As presented in Graphic 3 here under, 75.71% of all respondents acknowledged to consume copyrighted media content through illicit channels. 14.69% responded No and 9.6% were not sure.

Graphic 3

(22)

22

Channels and Platforms

Table 1

Answer _%

P2P Networks (Bittorrent, Emule, etc.) 72%

Streaming Websites (Watchseries.eu, Megavideo,

etc.) 48%

Cyberlockers (Rapidshare, Megaupload, etc.) 34%

Usenet 9%

Other (please specify) 6%

I am not sure which channel / program I use 8%

Table 1 above shows which platforms and networks are most used by the respondents to consume copyrighted media content. Whilst no specifically similar data was found to draw a comparison, the trend definitely confirms that peer-to-peer file sharing networks are still the most used channels to acquire and consume copyrighted media content. This is assumed to be mainly due to Bittorrent which has been the most popular protocol for several years22.

The results also show the growing popularity of streaming websites which are generally used to access movies and TV shows.

Types of content

Graphic 4

Graphic 4 shows the types of content that are obtained or consumed over illicit channels. When combining Movies and TV Series, video content accounts for over 60% of all consumed content, followed by music with 32 %.

22_{Ipoque Internet Study 2008/09 -}

(23)

23

These results confirm the data from Statista that was presented in Graphic 1 (see Subchapter 1.3). Frequency of illicit consumption

The results of the questions on the frequency of consumptions generated some interesting insights. Over 50% of all respondents said to obtain music from illicit channels only once a month or less than once a month. For the same question concerning the movies and TV Series over 50% of the

respondents acknowledged to be consuming video content over illicit channels form once a week to daily.

This obvious discrepancy between the consumption frequency of music and video content could indicated that there overall more legal alternatives available for consuming music but not for video content.

Motivators

Graphic 5 shows how the respondents ranked the core factors that make illicit channels attractive.

Since the trend of responses shows that all the factors were mostly ranked with “very important” or “extremely important” the data that is generated from this question is of limited significance. Nevertheless it is very essential to note that the most important factors that motivate users to turn towards illicit channels seem be the “free/no cost” aspect of the content, as well as the large choice of content.

4.3 Media consumption habits over legal channels

Graphic 6 shows the legal channels that are used by the respondents. Due to the fact that Youtube is

(24)

24

Graphic 6

Frequency of legal consumption

The results from the questions concerning the frequency of use of legal channels, show that over 50% of the respondents use legal channels to consume music with a daily to once a week frequency. In the case of movie and TV series consumption the daily to once a week frequency only applies to 31% of the respondents, whilst a majority of 40% acknowledges to never use legal channels for video content consumption.

These results confirm the assumption that legal offers for music content are in much more mature state than legal offers for video content.

4.4 User satisfaction

The data generated from the questions concerning the respondents satisfaction on the availably of legal media distribution channels, confirms once more the discrepancy between the offers of music and video content.

41% of the respondents said to be either satisfied or somewhat satisfied with the available legal music distribution platforms, whereas 55% of the respondents said to be dissatisfied to very dissatisfied with available legal video distribution platforms.

(25)

25 4.5 Alternate compensation models

Graphic 7 shows the answers to the question whether or not people would be willing to pay a fixed

monthly fee on top of their Internet subscription, which would allow them to legally download and stream media content.

Graphic 7

The last question of the survey gathered the amount of money that the respondents would be willing to pay for an alternate compensation system.

Since the answer type allowed the respondents to enter any kind of amount, the gathered data ranged from 1 to 30 €. From the 120 respondents who voiced their opinion on how they would be prepared to pay 80% indicated to be willing to pay a sum ranging from 5-10 €.

Chapter V: Discussion

This section will be used to compare the results to other studies as well as to analyze the

(26)

26

Several studies have acknowledged that users, who obtain music through illicit channels, also purchase and consume a significant amount of music through legal channels.

These assumptions have also been voiced from inside the industry23 and a study that was published by the IFPI itself even assumes that “music pirates” buy more digital music than the average music buyers24.

When comparing the respondents that admit to be using illicit channels with the respondents that indicate a usage of legal channels by using a cross-tabulation method (see Table 2), the result shows that more than half of the respondents that are pirates also use the four main legal music services that are presented in the survey.

This concurs with the supposition that music consumption through illicit channel does not necessarily harm music sales and the sampling effect overplays the substitution effect.

Table 2

Motivators

To date, very scarce research has been conducted on reasons that motivate individuals to use file sharing networks. Chiu & Chiu (2011) conduct a study on user behavior of peer-to-peer file sharing networks by using a method of naturalistic inquiry through qualitative interviews. Their findings conclude that the main reasons for using file sharing networks are the possibility to save money and time and the access to content that is otherwise difficult to obtain. The findings are somewhat confirmed by the qualitative data from this study, since the “free” factor as well as the certain content only being available through illicit channels is rated with high importance by the respondents.

Willingness to pay

In order to be able to assess the willingness of users to pay for content as well as the implementation of an alternate compensation model, the amounts of money that were indicated by the respondents were categorized for further analysis.

The 4 categories were set and coded as follows (value in €) in order to undergo statistical analysis:

23

http://torrentfreak.com/former-google-cio-limewire-pirates-were-itunes-best-customers-110726/

24

(27)

27

Cat 1 0 – 5 Cat 2 6 – 10 Cat 3 11 – 20 Cat 4 Above 20

Table 3 shows a cross tabulation of the payment categories and the socio professional categories. No significant pattern can be identified and thus I can be assumed that socio professional categories cannot be and indicator for willingness to pay for content.

Table 3 Crosstab Count q20RECODE2 1,00 2,00 3,00 4,00 Total Field of Occupation Agriculture 1 0 0 0 1

Craftsman, merchant or entrepreneur 1 2 2 1 6 Executive or other intellectual professions 15 10 4 2 31 Intermediate profession in education, health, business or

public service 10 6 3 0 19

Employee in public or business sector 16 13 4 0 33

Laborer / Workman 1 1 0 0 2

Student 25 8 12 4 49

Retired 0 2 0 0 2

No occupation 3 0 0 0 3

Total 72 42 25 7 146

(28)

28

Table 4 Crosstab Count q20RECODE2 1,00 2,00 3,00 4,00 Total Age 12 - 18 4 0 1 0 5 19 - 25 28 9 11 3 51 26 - 35 34 25 10 3 72 36 - 45 7 6 2 1 16 46 - 60 0 0 1 0 1 60+ 0 2 0 0 2 Total 73 42 25 7 147

When comparing the payment categories against frequencies of usage of illicit channels, the following can be observed:

Respondents that indicate a low or inexistent usage of illicit channels for music are more prone to be found in categories 1 of the payment categories. (See Table 5)

Respondents that indicate frequent usage of illicit channels for video have more chance to be found in higher categories (See Table 6). Thus in can be assumed that willingness to pay increases with the frequency of usage

Table 5

q20RECODE2 1,00 2,00 3,00 4,00 Total How often do you download Music through illicit

channels?

Never 10 6 2 0 18

Less than Once a

(29)

29

Table 6

q20RECODE2 1,00 2,00 3,00 4,00 Total How often do you download or stream Movies / TV Series

through illicit channels?

Never 3 1 0 0 4

Less than Once a

Month 10 3 2 0 15 Once a Month 7 4 2 0 13 2-3 Times a Month 7 9 4 1 21 Once a Week 7 1 4 1 13 2-3 Times a Week 17 7 6 0 30 Daily 5 7 3 4 19 Total 56 32 21 6 115

Chapter VI: Conclusion and

Recommendations

The findings from the results of the survey generally confirm the widely known popularity of file sharing networks and other illicit channels as a source for media content.

Digital files of movies, TV Shows and music remain the most consumed types of content through illicit channels. A slightly increasing trend in the popularity of video files can be noted.

Furthermore the results show that the main motivators for the use file sharing networks and other illicit channels are the “free” nature of the media content, the large choice of content and the fact that specific content is only available through such channels.

(30)

30

The frequency of usage of movies and TV series shows a very high use of illicit channels, which points to very limited availability of legal alternatives. This is backed by the very low degree of satisfaction. The data on the user’s willingness to pay for content through an alternative compensation system give rather promising results, since 72 % of all respondents are in favor of such as systems. This means that a majority of people who obtain content for free would actually be willing to provide financial contribution.

Moreover these findings concur to a certain extend with previous investigations. A survey from France that was conducted on a representative sample of 1613 internet users found that 75% of the respondents were favorable towards an implementation of an ACS25. More equalized results are found in Germany, where a survey of 6.7 million internet users showed that approximately 50 % were favorable to an implementation of an ACS.

Based on the results of this study a demand profile can be established. A Lawrence Lessing correctly stated creator’s need to get paid, not only to avoid anarchy put to provide enough incentive to maintain artistic and creative innovation and thus the supply of media and cultural content. Thus it can be assumed that content should not be available for free, even though this factor was labeled as very important by the respondents of the survey. Nevertheless this factor should be taken into account by creating distribution offers where no direct cost for just one specific product can be identified by the consumer. The focus should thus lie on flat rate offers.

An offer that would meet the demand profile should thus take into account the following elements: - Provide a large and complete library of media content

- Include no hidden or additional cost than the flat rate - And cost between 5 - 10 € per month

Based on the above 2 opposing scenarios can be proposed that would allow the implementation of an offer to meet such a demand profile.

25

(31)

31

The first scenario takes a government and legislate driven approach that would result in an alternative compensation system. Since such a system would have to be implemented by governments and probably be harmonized on an international basis, a long time frame is to be expected. A positive aspect of this approach would be that the access to the content would be open, which would result in a bigger diversity of the content. This would of course favor independent artist and creators. Negative aspects include privacy issues and the possibility of fraud. In order to fairly redistribute the collected founds to the authors and rights holders, a vast monitoring system would be necessary which could result in privacy concerns. Moreover such a monitoring system could be subject to fraud, meaning that it could be manipulated to favor certain content that is actually not consumed very often. In short: The system could be flawed and the money could go to the wrong people. Another benefit of the open approach is that the distribution of the funds would be transparent. This aspect could attract support from the greater public since transparency seems to be a growing concern to consumers26

The second scenario would involve an industry driven approach that would take form in a business model that could compete with file sharing networks. Such models could be financed through advertising and subscriptions such as already existing music platforms like Deezer and Spotify. This scenario can be characterized as a closed approach since the content library will be controlled by the industry, which would permit the maintaining of the monopolistic position of the media industry. The privacy issues can be considered as significant but more limited than in the open approach. Finally in this approach, the remuneration would take place in a controlled environment.

As concluding remarks it can be argued that the second scenario is more likely to become a reality. As previously mentioned, the slow nature of legislative reform would make it hard to implement an open system. Furthermore lobbying efforts by the entertainment industry seem to stay efficient in keeping control over the market. This can for example be seen in the application of the European Copyright Directive. The only realistic way for an ACS ever to ever see daylight would be to the concept testing in small countries like for instance the Netherlands. The Swiss government has composed a team with all stakeholders to evaluate a feasible implementation of an ACS until the end of 2013.

Further research should thus look into the possible practical issues that an application of ACS concepts would involve. The industry on its own side should try to limit geographic copyright of media content and seek an overall harmonization of content delivery on an international scale.

Limitation

The intricacy of this field has made it very difficult to place a well-structured research frame and focus. Moreover the significance of the statistical assumption are very limited, due to the restricted quantity and diversity of the respondents.

The occurrence of file sharing in online digital content distribution, involves various different aspect to consider, including economic, cultural, legal, moral and technological implication. This research is

26

(32)

32

very limited as it focused mostly on the demand part of the economic side. Nevertheless this thesis has showed that only a small portion of the phenomenon needs a lot of attention to be analyzed. The challenge in this field has (and will be in the future) its rapid evolvement. It will thus remain very difficult in the future to focus on the right aspect of this field at the right time.

Definition of Terms

Peer-to-peer file-sharing

Peer-to-peer file sharing is a process where users use computer software to distribute digital files between each other.

Streaming

Streaming is the process of delivering media content from a server to a client instantly. The user can listen or watch the content instantly and usually no final digital copy is kept by the user.

The term “steaming” has become popular in the file sharing culture, with the emergence of movie and TV series streaming websites. The websites index hyperlinks that point to copyrighted video content that is hosted on 3rd party hosting websites.

Cyberlockers

Cyberlockers, also known as one click file hosting sites, provide users with the service to store any kind of digital file on the internet. Such websites are often using to store copyrighted material. The hyperlinks that point to such material are usually indexed on specialized forums (The concept is similar to streaming websites)

Acknowlegments

(33)

33 References

Behling O, Law KS. Translating Questionnaires and Other Research Instruments: Problems and

Solutions. Thousand Oaks, CA: Sage Publications Inc. 2000: pp63.

Bhattacharjee, S., Gopal Ram D., Lertwachara K. and Marsden J.R. 2006 Impact of Legal Threats on

Online Music Sharing Activity: An Analysis of Music Industry Legal Actions. The Journal of Law and

Economics, Vol. 49, No. 1, April 2006, pp. 91-114.

Blackburn D. 2004 On-line piracy and recorded music sales. WorkingPaper: Harvard University Curien, N. and Moreau F., 2005, The Music Industry in the Digital Era: Towards New Business

Frontiers? Working paper, Laboratoire d’Econométrie, Conservatoire National des Arts et Métiers

Paris. February 9, 2005.

Chin, W. 2008, Does File Sharing Crowd Out Copyrighted Goods? Evidence from the Music Recording

Industry, Department of Economics, Johns Hopkins University, Baltimore MD 21218

Chiu SP., Chou HW. 2011 Investigating the User Behavior of Peer-to-Peer File Sharing Software

International Journal of Busine ss and Management, Vol. 6, No. 9; September 2011

Ebadi S, Johansson M. 2009 Music File Sharing : Genius Technology or Copyright Infringement?

Jönköping University, Jönköping International Business School, JIBS, Commercial Law

N. van Eijk, Poort J. & Rutten P. Communications & Strategies, 77, 1st Q. 2010

Gervais, D. The Price of Social Norms: Towards a Liability Regime for File Sharing, 12 Journal of

Intellectual Property Law 39, 2004.

Ginsburg, Jane C.,Can Copyright Become User-Friendly? Essay Review of Jessica Litman, Digital

Copyright Prometheus Books 2001 October 6, 2001). Columbia-VLA Journal of Law & Arts, Vol. 25,

No. 1, 2001

Goel S., Miesing P., Chandra U. 2010 The Impact of Illegal Peer-to-Peer File Sharing on the Media

Industry California Management Review Vol. 52, No. 3 Spring 2010 cmr.berkeley.edu

Gopal, R. D., Bhattacharjee S. and Lawrence Sanders G., 2006, Do Artists Benefit from Online Music

Sharing? Journal of Business, vol. 79, no. 3: pp. 1503-1533.

Hennig-Thurau T., Henning V., & Sattler H. Consumer File Sharing of Motion Pictures

Journal of Marketing Vol. 71 (October 2007), 1–18

Hoinville, G., Jowell, R. and associates (1978) Survey Research Practice, London:Heinemann. Huygens A., P. Rutten, S. Huveneers, S. Limonard, J. Poort, J. Leenheer, K. Janssen, N. van Eijk, N. Helberger, 2009, Ups and Downs. Economic and Cultural Effects of File Sharing on Music, Film and

Games. TNO repport commissioned by the Ministries of Education, Culture and Science, Economic

(34)

34

Liebowitz S. 2004 Will MP3 downloads annihilate the record industry? The evidence so far. Advances

in the Study of Entrepreneurship, Innovation, and Economic Growth 15:229-260.

Liebowitz, Stan J. 2006b, “File Sharing: Creative Destruction or just Plain Destruction?” The Journal of

Law and Economics, Vol. 49, No. 1, pp. 1-28.

Netanel, Neil W., Impose a Noncommercial Use Levy to Allow Free Peer-to-Peer File Sharing. Harvard

Journal of Law & Technology, Vol. 17, December 2003.

Oberholzer-Gee F. and Strumpf K. 2007. The effect of ﬁle sharing on record sales: An empirical

analysis. Journal of Political Economy 115:1-42.

Oberholzer-Gee, F. and Strumpf, K., 2009, File-Sharing and Copyright. Working paper 09-132,

Harvard Business School.

Peitz M. and Waelbroeck P. 2004 The effect of internet piracy on CD sales: Cross-

section evidence. Review of Economic Research on Copyright Issues 1:71-79.

Rob R. and Waldfogel J. 2006.Piracy on the high C’s: Music downloading, sales displacement, and

social welfare in a sample of college students. Journal of Law and Economics 49:29-62.

Souverein R. and Wray N. The Normal Distribution 7th UMUC – European Division, 2008 Thomas, A.B. (2004) Research Skills for Management Studies, Routledge, London.

Tschmuck P. (2010)

The Economics of Music File Sharing – A Literature Overview Vienna Music

Business Research Days, University of Music and Performing Arts Vienna, June 9-10, 2010

Whetten, D.A. (1989), What constitutes a good theoretical contribution? Academy of Management

Review, Vol.14, No.4, pp.490-495.

Zentner A. 2006 Measuring the effect of ﬁle sharing on music purchases. Journal of Law and

(35)

35 Appendices

Appendix 1 Initial Report

Last Modified: 08/27/2012

1. Please provide some information about yourself:Gender

(36)

(37)

(38)

(39)

(40)

(41)

(42)

42 5. Do you consume copyrighted videos or music on the Internet

through illicit channels?

# Answer Response %

1 Yes 134 76%

2 I'm not sure 17 10%

(43)

43 6. If yes through which channels?

(44)

44

Statistic Value

Min Value 1

Max Value 6

Total Responses 151

7. Please indicate in percentages which type of content you

download / stream the most over illicit channels:(Example:The total

of what I download / stream consists of 60% Movies, 30% TV

Shows, 10% Music)

(45)

45 8. How often do you download Music through illicit channels?

(46)

46 9. How often do you download or stream Movies / TV Series

through illicit channels?

(47)

47 10. Please indicate for which reasons you use file sharing networks

or other illicit channels:

(48)

48

Statistic It's free

No registration / subscription Large choice of content Easy to use Easy to search and discover content Specific content is only available through these channels Min Value 1 1 2 1 1 1 Max Value 6 6 6 6 6 6 Mean 4.66 4.49 5.11 4.61 4.74 4.20 Variance 2.07 1.98 0.92 1.58 1.53 2.89 Standard Deviation 1.44 1.41 0.96 1.26 1.24 1.70 Total Responses 128 126 126 125 125 114

(49)

(50)

50

Other (please specify) : radio paradise last.fm TV replay TheSixtyOne, Shoutcast soundcloud pornhub.com 8tracks.com Last.fm, soundcloud.com, NetFlix iplayer BBC iPlayer, 4OD netflix Netflix vimeo, soundcloud Sky TV, Steam Amazon

alternative plattaforms (music) ARD / ZDF Mediathek

emusic Itelligent

according to Dutch law Usenet is legal, I use that

(51)

51

replay tv

Amazon, Bandcamp,

CD/DVD (which I rip a lot of the time)

Statistic Value

Min Value 1

Max Value 7

Total Responses 172

(52)

52

Statistic Value Min Value 1 Max Value 7 Mean 4.35 Variance 5.27 Standard Deviation 2.30 Total Responses 170

13. How often do you download or stream Movies / TV Series

through legal channels?

(53)

53 14. How satisfied are you with the current legal online

(54)

54

(55)

55

(56)

(57)

57 17. How much (in €) would you be willing to pay on a monthly

basis?

Statistic Value

(58)

58 18. Do you have any remarks or suggestions?

Text Response

Über andere Modelle nachdenken. Flexibeler gestalten. 3€ nur musik, 5€ nur film, 7€ beides.

Ich habe grundsätzlich nichts dagegen, für meinen Konsum zu bezahlen. Mein Hauptanliegen ist, dass ich das was ich anschauen will, dann anschauen kann, wann ich es will und in der Sprache, in der ich es will. Das ist in Deutschland einfach nicht möglich. Deswegen streame ich alles.

i would only pay if I had unlimited access to all the content i can current access illegally.

the website owners can make reward the creators with advertisement profits. they don't need extra income for that.

no no

The idea of a Global Licence might work to some extent, (i.e. some countries tax empty CDs and other media and then distribute that revenue to copyright holders), but it sounds a little bit like treating an open wound with a plaster.

Off course the idea of paying a monthly fee for free access to media and culture makes sense to me, but it has to be clear and transparent that this money goes to the creatives, the artist and does not disappear somewhere in large enterprises...

make peace with your past so it won't destroy your present...

Good survey! Just the occupation choice seemed a bit ambiguous. I guess I'm an employee in the business sector though!

I wouldn't want to pay on a monthly basis because some months I don't use the illicit systems at all. Paying for something I don't use would be very strange.

HD quality and simultaneous release with USA are my top 2 requirements for such a subscription. max 20 euros

License globale mais par type de produit ce qui permettrait de réduire le coût pour les personnes intéressées seulement par un produit donné (logiciel, film, séries, musique...) S'assurer de la

The future of audio-visual content distribution in the digital age

1