Game of Thrones: pirates or fans?

Pirated content now makes up around a quarter of all internet traffic. That’s a fivefold increase in the past five years. The Motion Picture Association of America estimates that this is costing the top US studios alone over $20 billion a year in lost revenue.

While pretty much all major global entertainment content is available online within a five minute search (and often even before airing or playing in theatres), the content industry continues to stick to an arcane set of rules of strict distribution, such as geographical restrictions and holdback windows for releasing content. It is a distribution model that has been tried and tested over decades, and a whole industry was built on carefully parsing out rights.

Given the sheer demand and ease of access to pirated content, however, these strict rules are leading to a generation of consumers who are unaware that online piracy is, in fact, illegal. Lines between so-called pirates and passionate fans are blurred, especially in a world where content consumption has no borders, yet legal access to content is most often not even an option. For the industry, it’s a 750 million-person problem, or I dare say, at least for a large subset of it, an opportunity.

What if the content industry were to treat pirates as fans? What if the industry gave fans a choice to watch what they wanted – regardless of the country they were in or device they were using – while charging prices that changed depending on demand? Simply make the content available legally, but charge what the market bears.

Perhaps it’s time to start exploring a new approach. This new approach would target markets that the big American studios haven’t traditionally distributed to, or at least not beyond a limited set of new titles. It would rely on access and the invisible hand of the market. Let’s call this approach dynamic pricing of content.

From pirates to gladly paying fans

Let’s briefly look at the possible implications of working with fans: A NetNames study, funded by NBC Universal, discovered that 432 million people worldwide “explicitly sought” copyright-infringing content online. This was in January 2013, when the internet population was a third smaller than it is today. Adjust for internet adoption and about 10% growth in piracy every year, and we could be looking at 750 million fans a month. This doesn’t include those who searched for illegal content but didn’t download it. 750 million. And growing. That’s more than a third of the global online population. The content owners don’t even have to find them. The fans find them. Untapped and concentrated demand. Beautiful.

Besides the NBCU study, a great deal of data suggests that pirates would consider paying for content if they had a reasonably priced option. So assume you convert 5% of these 750 million pirates into paid users. That’s 37.5 million people. It’s not quite the size of Netflix, but it’s still big. Now imagine if each of them pays on average $5 a month. We could be talking billions in revenue. Even at 1% conversion, it’s huge. Geo-block and leave out the 15% of them that are in the US, and it’s still huge. It’s also additive – studios don’t have to trade volume for margin. That’s the beauty of treating pirates as fans.

Piracy is just a manifestation of demand, yet the typical response from Hollywood has included threats of ten years in jail, hijacking the browsers of paying customers, raids, and on and on. Studios can’t go on fighting their adoring fans, especially with fans who pay on average far more for studio content than any other group.

Dynamic pricing isn’t new or novel, but it just might be the right approach at the right time. It’s not that complex, either. You can just take a leaf out of the e-commerce book and adjust for dozens of variables, such as how recent the content is, the country of viewership, competitor pricing, social chatter, the number of torrents seeded or leached, or the quality of the original video file. You can also track search terms and adjust prices in anticipation, or even involve the search giants – get them to seed it to paid users and give them a cut. Both sides would win.

From Hollywood to Happy Valley

Would fans living in countries where HBO is not available pay $100 for a season of Game of Thrones? Maybe. $50 for a simulcast of a new release if they’re in Asia? Likely. $10 for a six-month-old title still not on Netflix? Yeah, for sure. $2 in India? Yes, if not more. And it’s not just the Hollywood content. This summer, BBC’s Happy Valley was the number one global trending topic on Twitter, but you couldn’t watch it outside of the UK. Six million people watched it in a week. That’s almost 10% of the UK population. Think how well it would have done if it was available through dynamic pricing, even after the UK broadcast ended, at $30 for the series of six episodes.

In order for dynamic pricing to work, the studios need to go all-in, making some of their latest and greatest shows available. They could even make some of their long-tail shows – that they’re not monetising anyway – available for free, so they can upsell fans on their newer shows. Once this model has been fined-tuned, no part of it would eat into their existing revenue base. The model uses technology to reduce theft, reach new fans, and in the process increase the size of the revenue pie for all involved in making this great content.

Global first

New-media players, like Netflix, are starting to set the trend of going global first, finding the fans where they are. After measuring the success of Breaking Bad that cost them $1 million per episode to license for the US, Netflix is taking the sequel of the show (Better Call Saul), to 50 countries online.

It’s no surprise that the more progressive major content creators are also exploring the global-first model, even at varying prices. HBO has also taken its platform global, and has made Game of Thrones available within days of its airing in the US. Although it hasn’t quite opened it up to the vast majority of the countries the show’s fans are in, at least it’s now experimenting with offering shows without a cable subscription, and offering its HBO Go service, at different prices, outside the US. This is just the start, and now we need Hollywood to take a leap of faith.

There are reasons to say no, from the fear of setting a precedent of negotiating with pirates, to “breaking” what’s working, or creating price transparency. Studios may even feel they are being put into zugzwang – a chess term that describes a situation where a player is forced into making a move that would put them at a disadvantage. They might think it makes more sense to pass when it’s their turn. Coming from both the studio and technology sides, let alone as a fan, I worry that the only wrong move here is not moving at all.

Author: Razmig Hovaghimian, Chief Executive Officer and Co-Founder, Viki, and was formerly a Senior Vice President at NBC Universal. He is a contributor to the World Economic Forum’s Norms and Values in Digital Media project, whose new report is now live.

Image: George R.R. Martin, author of the “Song of Ice and Fire” fantasy series that is the basis of the television series “Game of Thrones”, gestures during his masterclass at the Neuchatel International Fantastic Film Festival (NIFFF) in Neuchatel July 10, 2014. REUTERS/Denis Balibouse