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How to Stop Piracy: Carnegie Mellon Professor Michael Smith at DBW

Making content available digitally and participating in anti-piracy policy is the best way to fight back against illegal downloading which despite rumors, does harm sales. This is according to Michael D. Smith, professor of information technology and marketing at Carnegie Mellon University.

In a presentation at the Digital Book World Conference in New York today, Smith argued against three myths that he said permeate the discussion on illegal downloading. The first is that piracy doesn’t harm sales, which he said is not true. “Piracy harms sales,” he said, claiming that while 3 studies have been published suggesting that piracy doesn’t hurt sales, 25 others have shown that piracy is bad for sales. ”There are options to use legitimate distribution channels to convince people who have stolen your content to buy it,” he added.

Another statement that Smith said he hears a lot is that, “You can’t compete with free.” He claims that this is a myth. “Competing with free is just a special case of price competition,” he said. According to Smith, if someone wants to consume your content digitally they will, regardless of if it is available for sale or not. He doesn’t consider offering a physical version of the product a viable alternative and said that someone who wants to consume something digitally will not buy the print edition if it is the only available version. Instead, he said, this consumer will likely try to obtain a digital version of the content illegally.

Smith also spoke about NBC as an example. In 2007, the TV network removed its content from iTunes after a fight with Apple. After doing do, piracy of NBC shows increased. “When people couldn’t find it in iTunes anymore they went to piracy,” concluded Smith. (During this time DVD sales remained steady.) Piracy increased 11 percent for NBC titles and ABC, CBS and FOX, also saw increases in their content being pirated. “There was also a negative spillover effect for the industry because people learned how to pirate,” explained Smith.

Illegal downloads were more popular for comedies and sci-fi shows than drama. When NBC returned to iTunes in 2009, piracy didn’t go away, because, as Smith explained it, “people went and learned how to pirate.”

But when ABC partnered with Hulu they saw a 37 percent decrease in piracy, and no change in DVD sales, illustrating that making content available can lead to a decrease in piracy.

Smith also gave an example of a publisher who kept its eBooks from Amazon for two months after the print version came out. While the publisher (who he didn’t name) didn’t see an increase in piracy, they did see a decrease in sales. According to Smith,  delaying eBooks only led to 0.4 percent increase in hardcover sales, and a 52 percent decrease in eBook sales. “People don’t consider a hardcover as a good substitution,” he said. “They just didn’t come back.”

The final myth that Smith aimed to bust is that, “Anti-piracy regulation won’t work.” According to Smith, law enforcement around illegal downloading is not a game of whac-a-mole. “You can use laws to make pirated content less attractive,” he said. Citing the global Megaupload shutdown, Smith claimed that the shutdown helped lead to an increase in legal digital content consumption. “The shutdown of Megaupload caused a statistically significant increase in digital sales,” he said, comparing numbers between countries with high Megaupload usage to countries with low Megaupload usage.

According to Smith, every 1 percent reduction in Megaupload usage translated into a 2.6-4.1 percent increase in digital sales. Though, Smith did point out that Megaupload had a higher usage than digital content sales sites. “It does suggest that when you look at competing with free, using anti-piracy measures to make piracy less attractive does work,” he said.

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