Game of Groans

The "what shall we do about piracy" debate is heating up in Australia.  In a blog post titled What's the Issue with Piracy in Australia iiNet's chief regulatory officer Steve Dalby takes a few free kicks at a content industry that he predicted would seek regulatory reform after having failed irrevocably in the courts of law.  That piece is worth reading in its entirety, because it makes a few salient points that are going to become important as the industry which has this governments' ear even more than the previous one (no small feat), continues to set the legislative agenda to an attorney general who is notoriously enthusiastic about Hollywood's profits. George Brandis also arguably uses his peripheral position as minister for the arts to couch the matter in the usual terms of protecting a fledgling industry's precarious revenues from a media consuming public that will snatch the pie fresh from the oven if given half a chance.

Those points appear lost on the CEO of Copyright Licensing NZ and chair of New Zealand's copyright council, Paula Browning.

It's fairly astonishing that the CEO of an oceanic copyright council doesn't know what GoT is, George R. R. Martin's Game of Thrones series has been the poster child / whipping boy of big content globally and particularly among the conservative press in Australia.  It's the most pirated television series around and depending how you measure, Australia is one of the most enthusiastic copyright infringing countries on Earth, so Game of Thrones has a lot of potential talking-points for the champions of making consumers walk the plank.  Browning hasn't just missed the mark there though.  She may actually just not be in touch with the media she advocates and that's neither here nor there, but the following is a single point I'd like to tackle in this article and it's a lot less subject to her media consumption habits - it's a key talking point in the copyright lobbying industry and it needs to be put away, here in addition to what Dalby goes over in his post.

This is fundamentally arse-backwards.

A popular talking point amongst the copyright lobbying industry, key supportive government officials and a handful of conservative press commentators that enjoy writing copy about law and order issues (but are concerned about readership fatigue in the face of stories about elderly people's homes being invaded by youth in south western Sydney) is that ISPs should do something about piracy (which is a genuine problem we're assured). These commentators say ISP won't act, because of the impact on their P&L sheet.  What's particularly amusing about this otherwise expected misunderstanding of non-Hollywood businesses models by an industry that is protecting Hollywood's one, is not only is it wrong but it's the exact opposite of right.

Entertainment media revenues are dictated by the number of people who pay margins on consuming entertainment media through a variety of distribution channels.  If you pay $15 for a record, the publisher takes about $13 of it and distributes the rest to various other people involved, including a few coins to the creators.  The more people who undertake to consume media through these channels, the more the business' service is used by its consumers, the more money the publisher makes.  The ideal media consumer according to the industry is one that uses the industry's products and services as much as possible, paying more revenues and adding only a handful of additional distribution costs for much fatter profits.

For a counter example, gyms like Fitness First and the various other lycra temples that dot urban Australia, don't make money this way.  Their business model is based on charging fixed amounts to subscribers and their revenue is a simple product of the amount of subscribers in various membership classes multiplied by the subscription costs in those membership classes.  A thousand subscribers at $50 a month is $50,000 in revenue that period. Maintenance costs for equipment, staffing levels, cost of utilities such as hot water and electricity to run the showers and equipment are the variable and the more that members actually show up to the gym that day and run the treadmill a few more kilometers towards its end of life cycle the less profitable it is.  The ideal gym consumer according to the industry is one that pays a subscription fee so they can go if they feel like it but rarely if ever shows up, using the products and services as little as possible to minimise costs which scale against revenue to the industry.

There's the two ends of the spectrum of commerce.  Revenues that scale as a margin over costs similarly scaling costs, and costs that scale as a margin under revenues.  Which model is an ISP?

ISPs are like gyms, not Hollywood.  And Hollywood can't get its head around it. ISP subscribers almost exclusively pay a fixed monthly cost to access a maximum possible volume of service which the ISP hopes they'll never actually use.  The ideal ISP subscriber buys the Fitness First Platinum package with the personal trainer option, and then sits in KFC eating two Double Downs and drinking a large sized Mountain Dew.  An ideal ISP subscriber buys a three figure, multi-hundred gigabyte monthly subscription which they use to check Facebook here and there, receive email, and pay the odd bill.  This is the ISP subscriber whose usage of the service creates the least upstream cost for the ISP (who has to in turn buy the capacity off other providers), but who pays the most in fixed revenue for the potential usage of the service.  Copyright infringers are actually the worst customers of ISPs, because they show up to the gym and run the rowing machine into the ground, drink all the Gatorade samples and leave with a branded backpack full of hire towels.

Big (and medium) Media sincerely believes that ISPs can and should solve what they assert is a problem in piracy, and have repeated that mantra so often they've somehow convinced themselves that it is true and have moved to a secondary phase of searching for an explanation for it; because entertainment media companies only understand their own business model (if they even do, some don't know what Game of Thrones is), and their only option is to erroneously apply it to other businesses.  Because their business model multiplies widgets sold by the profit margin on them (revenue less costs), that's what they say ISPs do, and it's why they say ISPs won't fix the "problem" of piracy.

It's a long road ahead against a cornered, confused and belligerent industry.  A road chauffeured by sympathetic ears in government. There's a lot of ingrained misconceptions and falsehoods, and it's going to get very bumpy.