Even if the music industry defeats Napster in court next month, it faces losses of $3.1 billion over the next five years as a result of piracy, according to a report released Tuesday by Internet analysis firm Forrester Research.
The study, “Content Out of Control,” was assembled after Cambridge, Mass.-based Forrester researchers interviewed execs at 50 entertainment companies involved in music, movies, TV, books and vidgames.
“Consumers have spoken — they demand access to content by any means necessary,” said Forrester analyst Eric Scheirer. “Neither digital security nor lawsuits will stop Internet theft of content. Regardless of whether they consider Napster right or wrong, traditional publishers must focus on beating Napster at its own game. They must create compelling services with the content consumers want, in the formats they want, using the business models they want.”
Beyond the record labels, the book publishing industry may also take a financial hit because of piracy, according to the report, which estimates that by 2005 publishers could lose upward of $1.5 billion in potential sales.
The losses will be compounded by musicians and authors who break away from traditional means of distributing their work in favor of the Internet. Several artists have already moved in this direction: Courtney Love, Public Enemy, Smashing Pumpkins and the Offspring have all offered tracks to their fans online.
Meanwhile, author Stephen King sold a novella exclusively online and is selling his latest work, “The Plant,” a chapter at a time, asking Netizens for a voluntary $1 contribution.
But not all the news is grim. According to the report, the film industry, TV and vidgame developers won’t face the same kind of losses because that kind of content isn’t as easy to download and consumer habits when using these media don’t lend themselves to Internet piracy.
It can take less than a minute to capture a song from Napster, but even with broadband speed it takes several hours to download a full-length feature film from any of the myriad services that illegally post films for online distribution.
“The urge to collect and flexibly organize music, make custom playlists and CDs, and play my favorite songs thousands of times is a large part of the appeal of Napster,” Scheirer said. “But this urge doesn’t hold for films. Movie companies will be able to avoid losing control of their content, even without digital rights management, as long as they make video-on-demand services available in the next few years.”
Make peace with filesharing
Forrester found that entertainment industry execs are far too confident in their belief that digital rights management, a way of protecting copyrighted work by encoding it, will prevent Netizens from flocking to file-swapping services online.
After the Forrester researchers spoke with execs with digital rights management companies, the report warns of the limitations of this kind of technology.
“Digital rights management can’t prevent filesharing, nor will business models that depend on the control of content ever reap sustainable revenues,” Scheirer said.
In addition, the study found that the industry’s knee-jerk reaction to sue companies that provide file-sharing services will backfire and send Netizens to other sites that offer similar ways to access free content. In recent months, the RIAA has sued Napster and MP3.com and joined in litigation with the MPAA against Scour.com.
“Consumers don’t want business rules or restrictive technology — and it only takes one person to break down the security barriers and share content on the ‘Net,” Scheirer said. “Lawsuits will only succeed in driving consumers to underground Internet services Gnutella and Freenet.”