by Mielle Sullivan, Janus Networks

Last week the Swedish creators of file sharing community The Pirate Bay were convicted of copyright violation and given a one year jail sentence. The story once inflamed the ongoing debate about copyright and ownership of information. Both the studios and the “pirates” are sticking to the same familiar arguments of lost revenues and freedom versus corporate greed respectively. But after everything that has happened in the music and newspaper industries in the last ten years, it has become clear that how content is consumed online and how money can be made from online distribution is more nuanced than these tired talking points.

What the movie studios must come to accept is that regardless of any single file sharing site, they– like the music and newspaper industries–will be radically altered by online distribution. The internet was designed to distribute information, and it performs this function very well. Digital information is also designed to be distributed, so it will be. Movies are digital information. Legally or illegally, file sharing is here to stay. The bigger realization is that even legal, online film distribution will cause a huge market disruption.

While revenue from theater showings may hold steady, the sales price of media for private consumption will continue to decline–a trend that precedes the internet. Through streaming and downloading, the net has made a much wider variety of films and TV shows immediately available to consumers instantly. Every film, TV show etc. available on the web must compete with every other movie, TV show etc. available on the web–more options means less market share for any one product. It is this sudden market expansion that has been so much trouble for newspapers.

Having said that, the film industry is different from the news industry. One news article may contain the same basic information as the next, but one movie is unique enough that it wont compete head to head against another movie as easily. Neither is the film industry completely analogous to the music industry. We listen to individual songs more often than we watch individual movies, which is why we never rented songs. With complete convenience achieved, access to a large selection is increasingly the determiner in how people watch movies at home.

There are two factors that are keeping online movie selection down. 1.) Licensing. The studios are scared to death of cannibalizing DVD rental and sales revenue, which account for tens of billions dollars and the majority of its revenues. Exactly how much revenue is something of an industry secret, but in 2005 it was 85.5% and growing 2.) Connection speeds. Downloading large files at slow connection speeds isn’t viable. Obviously, both of these situations are changing quickly. Broadband adaptation and speed are rising rapidly, making video streaming and downloading available to more people. Content licensed for online distribution is growing as well. Hulu and Netflix have had several new streaming content deals in the past few months, but the selection is still painfully small.

More and more consumers have the ability and desire to view films online, but find no legal sites with a compelling selection. This does push some people towards piracy. And it’s a bit of a catch-22 for the studios, if they distribute their content online, they lose life-sustaining DVD sales. If they don’t distribute their content online, they encourage piracy.

The industry will loose some revenue, but Netflix and Blockbuster have already proven that the subscription model for film distribution is profitable and popular. Illegal file sharing sites also leave a lot to be desired in selection, so it is possible to compete against them. I do believe people will pay for a dependable video on demand site with a very good selection. Despite their hedging, the sooner such sites exists, the better for the movie industry. Subscribers rather than sales are new revenue source.

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