In its earnings call this week, Netflix acknowledged what has seemed obvious for a few weeks now— people are ditching its service because the company hiked its prices. Netflix used to charge $10 a month for its cheapest streaming and DVD plan. On July 12, it announced it was raising the price of that combo plan to $16, while the price of its $8 streaming-only plan stayed the same. Netflix says the resulting outcry pushed the company's quarterly revenues slightly below what analysts had been expecting. Over the next few months, it expects to add new subscribers at a slower pace than it did last year.
Investors are bummed by the news—Netflix shares are trading substantially below their level before the price hike. But I think Netflix backers should be more positive, because the company has helped bring about a fundamental, long-term change in the movie business, one that will certainly help its bottom line in the future: Piracy is on the downswing. Now that we all know what a great legal online video service looks like, people are going to move away from getting stuff the illegal way.
I say this as a reformed pirate. A couple years ago, I confessed that I was an unrepentant BitTorrenter—I downloaded movies and TV shows using peer-to-peer file-sharing, and I had the time of my life doing so. "I sometimes feel bad about my plundering ways," I wrote—but not enough to make me stop.
At the time, pilfering movies was a whole lot easier than watching them legally. Netflix's streaming catalog had a tiny number of titles, most of them not to my liking. Apple's iTunes rental plan had more titles, but too many restrictions (paying $4 for just 24 hours of access to a movie was a bad deal). I outlined what I called the perfect online streaming service—I wanted a plan that had a library as extensive as Netflix's DVD plan, but which allowed for unlimited viewing—and I promised to pay as much as $40 a month for it. Netflix's instant watching service isn't anything close to that, of course. But in the last year it has improved its selection and accessibility (you can now get it on pretty much any device you own) just enough to hit a tipping point. I'm happy to pay $8 a month for not-terrible selection and amazing convenience. And nowadays, I almost never turn to BitTorrent.
I'm not the only one changing my ways. In May, the network management company Sandvine reported that Netflix had overtaken BitTorrent to become the main component of North American Internet traffic. Indeed, BitTorrent's share of traffic declined slightly from last year. This doesn't mean that fewer people are engaging in piracy (the number of file-traders could have increased even as the share of traffic used by file traders declined), and BitTorrent still accounts for the bulk of Internet traffic worldwide. But even if Netflix were to gain very few customers over the next few months, piracy looks like it's on the decline.
You could argue that Hollywood can still screw this up. A few weeks ago in Slate, Bill Wyman pointed to how complicated it's become, these days, to find something you like on one of the many legal streaming services that are now available. Wyman ran into repeated hurdles while searching for episodes of The Office, and he notes that this "frustrating and pointless process can be repeated with any TV show you wish, or any group of director's films or any genre. Some parts of it are available here under these circumstances, some are available there under those. Some in this place, some in that, and some not at all. And the availability can change without notice."
The crux of Wyman's argument is that the movie world is going down the illogical path of the music industry—instead of creating a great alternative to the illegal mechanisms by which people consume media, it's trying to scold fans into compliance. As Wyman noted, the big entertainment companies just signed a deal with the nation's major Internet providers to go after major file traders. Under the agreement, ISPs would police their networks and send habitual traders up to six warnings. Repeat offenders may be punished with reduced Internet speeds, redirection from file-trading sites, or a requirement that they review information about the ills of piracy. The ISPs won't be required to disconnect people, though.
Where Wyman sees hints of the RIAA's backwards policies of yore, I see progress. The six-strike rule is a retreat from the entertainment industry's earlier, more aggressive stance. Although some studios are still trying to sue downloaders, the new deal—in which only the worst offenders are targeted, and punishment is relatively gentle—suggests that more pragmatic forces have taken hold. What's more, everyone in the industry is aggressively pursuing digital deals—the first four seasons of Mad Men, for example, will be available for streaming on Netflix starting this Wednesday—which is pretty strong evidence that they don't expect to return to the pre-digital era (which is what the music industry did expect in about 2001). The only fights now are over money, and as firms like Netflix get more subscribers and studios get more desperate as traditional revenue channels dry up, we'll see more deals to get better titles online. Things aren't perfect now, but they're getting better, not worse.
I also disagree with Wyman about the relative convenience of legal streaming versus illegal downloading. Sure, if you're looking for a specific movie or TV show, it can be tough to find it legally online. But if you're just looking to watch something, streaming services are much more convenient than file-sharing networks. I'm an expert torrenter, but I still find the process tedious. You have to search for a copy of whatever show you want to watch, wait for it to download, transfer it or convert it to a format that will play on your television, and then, as you watch, brace for the possibility that it will look or sound awful. I admit that sometimes I brave these waters; the other day I downloaded a recent episode of True Blood. But while it was downloading, my wife and I found My Cousin Vinny on Netflix and had a great time rewatching that. I still haven't touched the pilfered HBO show.
It could be that I'm just not that picky. For me, Netflix's streaming service demonstrates that instant access to something less-than-ideal trumps less-than-instant access to something ideal. Wyman seems like he's the opposite type of viewer, and I'm sure there are others out there like him. But I suspect more people are like me. When you sit down to watch TV, you don't want to do a lot of work. Piracy requires work. Netflix doesn't.
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