Interesting article: “The Pirates Can’t Be Stopped”

The folks at Portfolio.com have an interesting article on the ongoing war between media companies and the legions of file sharers. It focuses on how Media Defenders, a company that promises Hollywood that they’ll disrupt file sharing on P2P networks, was hacked by a long high school kid who exposed the company’s inner workings for all to see:

A teenager hacked into the outfit charged with protecting companies like Sony, Universal, and Activision from online piracy—the most daring exploit yet in the escalating war between fans and corporate giants. Guess which side is winning.

The first time Ethan broke into MediaDefender, he had no idea what he had found. It was his Christmas break, and the high schooler was hunkered down in the basement office of his family’s suburban home. The place was, as usual, a mess. Papers and electrical cords covered the floor and crowded the desk near his father’s Macs and his own five-year-old Hewlett-Packard desktop. While his family slept, Ethan would take over the office, and soon enough he’d start taking over the computer networks of companies around the world. Exploiting a weakness in MediaDefender’s firewall, he started poking around on the company’s servers. He found folder after folder labeled with the names of some of the largest media companies on the planet: News Corp., Time Warner, Universal.

[…] Ethan and I had first started talking over an untraceable prepaid phone that he carried with him. He eventually agrees to speak in person, as long as I protect his identity. (Ethan is a pseudonym.) We meet after school, in a bookstore that he says is near his house. He hands me a flash drive containing documents that I was later able to independently verify as internal, unpublished information belonging to MediaDefender. He also pulls out a well-creased sheet of paper bearing my name, the first five digits of my Social Security number, a few pictures of me, and addresses going back 10 years. “I had to check,” he says. Then he asks me about another Roth he has been researching; it turns out to be my brother. “I was just starting to dig in to him,” he says. “There’s a lot there.” Ethan is a handsome kid, with broad shoulders and a preppy style, and is unfailingly polite, cleaning up the table after I buy him a coffee and patiently walking me through the intricate details of Microsoft security procedures.

[…] In the spring, however, he decided to explore the company again. Over the next few months, Ethan says, he figured out how to read MediaDefender’s email, listen to its phone calls, and access just about any of the company’s computers he wanted to browse. He uncovered the salaries of the top engineers as well as names and contact information kept by C.E.O. and co-founder Randy Saaf (with notations of who in the videogame industry is an “asshole” and which venture capitalists didn’t come through with financing). Ethan also figured out how the firm’s pirate-fighting software works. He passed on his expertise to a fellow hacker, who broke into one of MediaDefender’s servers and commandeered it so that it could be used for denial-of-service attacks.

The kid has a future in IT Security if he doesn’t end up getting busted for some of the hacking he’s done in the past. This was all done by a single high school kid in his spare time over the course of months and he’s only one of hundreds, if not thousands, of pirates who are fighting an arms race against the companies who would be Hollywood’s gate keepers. Reading the full seven page article it quickly becomes clear that the pirates are winning and the best hope that the entertainment industry has is to change its business models to accommodate what people really want, but that’s not likely to happen anytime soon. The most telling example of this conflict comes from an account in the article about a small indie film that benefited greatly from being pirated:

A new independent movie called Jerome Bixby’s The Man From Earth showed up on one of the file-sharing sites in November. The film’s producers had no idea it had even been pirated; all they knew was that suddenly its popularity was skyrocketing. Their websites received 23,000 hits in less than two weeks, and the film’s ranking among the most-searched-for movies on the internet movie-tracking site IMDB went from 11,235 to 15. Eric Wilkinson, the film’s co-producer, wrote a fan letter to the site responsible for driving traffic to the pirated film: “Our independent movie had next to no advertising budget and very little going for it until somebody ripped one of the DVD screeners and put the movie online for all to download…. People like our movie and are talking about it, all thanks to piracy on the Net!” He requested that fans buy the DVD as well and added, “In the future, I will not complain about file sharing. you have helped put this little movie on the map!!!! When I make my next picture, I just may upload the movie on the Net myself!”

When I try reaching Wilkinson, though, I’m told that the producer is not available. Instead, the movie’s director, Richard Schenkman, returns the call. “Eric was clearly being sarcastic,” Schenkman says about the offer to upload the film. “That’s why he put in the exclamation points.” I tell him his partner certainly sounded enthusiastic about file sharing. “Look, I have mixed feelings about this,” Schenkman replies. “As a filmmaker, I love that people love the movie and have seen the movie. But as a person who literally has a hunk of his own life savings in the movie, I don’t want to be ripped off by people illegally downloading the movie. Some of these downloaders want to believe they’re fighting the man. But we’re all just people who work for a living.” He acknowledges, however, that DVD sales of the film increased after the leak, and that people have even been pledging money on a site the filmmaker set up to accept donations in markets where the DVD isn’t for sale. “I’m not saying I have the answers,” Schenkman says.

If anyone had the answers the problem would already be solved. What the industry needs to do is more experimentation to see what works, but they’d rather just sure their customers thinking that it’ll scare everyone else straight. A tactic that clearly doesn’t work as file sharing has grown in leaps and bounds year after year in spite of all the lawsuits.

8 thoughts on “Interesting article: “The Pirates Can’t Be Stopped”

  1. “it quickly becomes clear that the pirates are winning and the best hope that the entertainment industry has is to change its business models to accommodate what people really want”

    It seems like there is a public perception that the folks left in the entertainment industries somehow aren’t aware that the business models need to change.

    Your position that scare tactics won’t and don’t work is well taken.

    The problem is that alternative “business models” generally rely on some form of the honor system, a theory that proves less reliable than even scare tactics.

  2. The problem is that alternative “business models” generally rely on some form of the honor system, a theory that proves less reliable than even scare tactics.

    Not at all! Developing a new business model only requires creative thinking.

    Some ideas for those in the movie business; a pay as you go site that offers DRM free movies would be a great start. Or how about a system where you pay a low price per movie or a monthly service fee, where you can watch movies online instantly. It wouldn’t be hard, just would take a few server clusters around the country, the BitTorrent protocol, and a web app that only allows the movie to be played through the web app, streamed from the server. Or how about an application that downloads to the computer and uses the BitTorrent protocol to grab movies seeded from server clusters. You pay a monthly fee and watch movies through the application (which could even include pre-movie commercials). Cool thing is, with bitTorrent, the more people that use the application, the faster download times become.

    Like I said, all it takes is a little creative thinking. I spent 10 minutes coming up with 3 ideas that I would find acceptable…

  3. Your position that scare tactics won’t and don’t work is well taken.

    The problem is that alternative “business models” generally rely on some form of the honor system, a theory that proves less reliable than even scare tactics.

    I wouldn’t be so sure of that:

      Sins of a Solar Empire: Copy Protection

      AKA: Yes Virgnia, there’s no CD copy protection in Sins of a Solar Empire

      I remember hearing at a conference that when an executive at a big publisher heard that Galactic Civilizations II shipped with no CD copy protection that they quipped “I hope bankruptcy treats them well.”

      Millions of dollars in sales later as one of the top selling PC strategy games at retail (according to NPD) over the past couple of years let’s me say “Ha!” in response. And this is on a game that made most of its money on digital sales.

      I don’t like piracy. I don’t like people using stuff my friends and I worked very hard on for years without compensating us. But I also can make the distinction between piracy and lost sales. That’s a distinction that most DRM and copy protection schemes ignore.

      The bottom line on copy protection is that if you create a greater incentive for someone to buy your game than to steal it, those who might possibly buy your game will make the choice to buy it.

      With Galactic Civilizations II, we put no copy protection on the CD. But to get updates, users had to use their unique serial # in the box. That’s because our system is backed by TotalGaming.net’s unique SSD service (secure software delivery) which forgoes DRM and copy protection as we know it to take a more common sense (I think so anyway as a gamer) approach of just making sure you are delivering your game to the actual customer.

      Any system out there will get cracked and distributed. But if you provide reasonable after-release support in the form of free updates that add new content and features that are painless for customers to get, you create a real incentive to be a customer.

      As I mentioned earlier, Galactic Civilizations II was success in terms of actual sales, critical reception, and most importantly, satisfaction by strategy gamers.

      Sins of a Solar Empire is taking the same route. In fact, we hope to have a free update available the first week of availability with new maps, new options, and new features. We consider ourselves lucky. We get to make a game and play it and then get to update it based on talking to our customers. It’s a great system.

      And I think most gamers will agree that a system that rewards people for buying your product is preferable to one that treats them like potential criminals.

    The other advantage to the above is that folks who aren’t sure if they’d like the game can try it out before having to decide whether to plunk their money down. Want updates and/or online multiplayer? Buy a key and away you go.

  4. I’m all for that kind of thinking guys although, I wouldn’t know a server cluster from a GooGoo Cluster. I’m not a proponent of DRM.

    Let me throw this out there, the movie business tips more than the music business makes. And, I would suspect the same of the game business.

    If we are talking about piracy, the discussion has to involve how it has affected the music industry. Any suggestions for a business model in the beleaguered music biz?

    What I’m seeing down here on street level are a lot of indie acts, that even five years ago, would have had a realistic chance at building a career because some indie label would have had the wherewithal to take a chance and thus, open the door that now fall by the wayside.

  5. Any suggestions for a business model in the beleaguered music biz?

    Sure! Take every idea I had above and replace the word “movie” with “music”. It works the same way. Or better yet, in the case of music, stop signing rip off recording contracts and produce your own stuff the way you want to.

    Don’t think it’s possible, here’s an example, Dispatch the band. Everything they did was word-of-mouth without signing a record contract. They reason they did it this way was simple, “Not a single contract allowed them to do what they wanted.” No one would sign and just promote, every company wanted to do what they wanted with Dispatch… Anyways, eventually the price of technology will drop low enough where every band will record their own stuff and post it to their website for pay-per-click or some similar service. The recording technology will become so cheap it will be more cost effective for bands to do it this way.

    Same idea of critical thinking applies to music industry.

  6. Any suggestions for a business model in the beleaguered music biz?

    I don’t mind paying $.88-.99 for a DRM free song online.  Twenty years ago, 45rpm single would run $.75-1.50.  Fifteen years ago, cassingles ran something like $2.50.  Buying online is comparable even before accounting for inflation. 

    And it’s a lot nicer having a cd with a hundred or so mp3s to listen to in the car than to deal with a case full of albums.

  7. In regards to a music industry business model, try looking at what Trent Reznor has to say about the music industry in general, and what he and Saul Williams are doing with the album they are releasing. People like them and Radiohead are looking at the future, not spending a ton of money sending threatening letters to people like the RIAA is doing. While I agree that the artists, be they musicians, actors, or game/software designers etc. deserve to be compensated for all the hard work and effort they put into their creations, the big corporations are tending to screw themselves by not taking a look at how people are using the internet and adapting their business to suit. I know a lot of people that have no problem paying 5 or 10 dollars to download an album, especially if they know it is going directly to the artist rather than to some big corporation.

  8. I think there are a few things to keep in mind.

    So many of the prices in the past built in the costs associated with printing up physical albums, with mp3s there is no cost in printing and press like that.

    More and more nowdays music the internet and this free distribution system are making people aware of the plethora of musicians and bands out there. Unlike before where you’d need to fill a room full of vinyl or cds for a sizable collection… now people are getting used to keeping libraries of hundreds or even thousands of artists and their works. $.99 per track is an absurd price to charge for someone looking to get as broad a selection of music as possible.

    If artists keep this in mind and charge something reasonable like $3 per album or what have you… I’d imagine they would still reap a pretty good profit off it. You’d start to see more people willing to take a chance on more artists.

    In the past (before albums) it’s also good to note that musicians primary way of turning a profit wasn’t off album sales. The money was played touring around and playing live events! Who is to say that this whole album industry thing wasn’t just a temporary fluke? Albums in mp3 format might just become a good way to share one’s music and gain and interest in attendance of live events.

    All in all, I think the industry needs to realize that their empire of huge album sales and album based market was a bubble in time that’s passing by. They have to change and no matter of lawsuits against any number of scapegoats will pull them out of this conundrum.

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