My Views on File-Sharing

September 26, 2010 at 5:52 pm 3 comments

One of the biggest issues that merchants will face when selling and marketing digital items is file-sharing. There are a large number of people who think nothing of redistributing other people’s products, creations, and content without permission. It should almost go without saying that sharing files without the original creator’s permission is wrong and I’m not condoning it at all. This blog was created to offer some alternatives and strategies on how to deal with the issue of file-sharing.

One thing that needs to be cleared up is that file-sharing is not the same thing as theft. File-sharing is “illegal distribution” or “copyright infringement” but it’s not “stealing”. For further reading about this idea, go to: TechDirt: Copying Is Not Theft and QuestionCopyright.org: Copying Is Not Theft (Minute Meme #1). Be sure to read all the user-submitted comments below these articles for even more information.

The second issue that needs to be cleared up is the common, faulty, belief that one illegal download equals one lost sale. Companies, merchants, and even the Business Software Alliance (BSA) send out press releases about how they’ve been impacted by file-sharing. They might claim that they saw X number of people downloading their file, which must mean X number of lost sales. These companies then multiply these “lost sales” by the retail price of their product to claim they lost millions (or tens of millions of dollars) from file-sharing. And to further drive home the point, they’ll claim that these millions of dollars directly translate in Y number of jobs being lost.

Unfortunately, these kinds of claims (and these kinds of numbers) are designed to appeal to the emotional side of people, meaning these are scare tactics. After all, if the BSA “lose” that amount of money (and that amount of jobs) because of file-sharing, what will happen to the world’s economy if we allow this to continue? Journalists are quick to publish this “loss” information because it makes a good story, but many times, no questions are asked about how the data was collected.

When the BSA presented its own statistics about how they felt they were impacted by file-sharing, their research was debunked. In 2007, TechDirt wrote an article, saying BSA: Bogus Stats Again. As the article mentions: “In fact, a few years back the numbers were debunked by the very research firm that collected the data for the BSA.”

In 2009, this site analyzed the truthfulness of an article ran by the BBC about file-sharing: Filesharing Costs: Dubious Figures Making the Rounds Again. The author makes two good points when he says “[The data presented are] just the standard (and utterly unreliable) rightsholders-claimed figures (and not even first-hand!). To be fair in footnote 4 the authors [of the study] acknowledge that the phrase “lost revenues” is complex and that not all downloaded content would have been purchased.” The author is correct that almost all stories about file-sharing use data presented by the copyright-holders, who, obviously want to inflate the numbers as much as possible to show how they’re being hurt by file-sharing. The author makes another excellent point by saying:
“For example, if someone makes an unauthorised download rather than buying a CD they spend the money they would have spent on the CD on something else, be that a haircut, a meal, or going to a concert. If we want to count that as a loss to the music industry we need to count the gain it generates elsewhere.”
Yet the music industry never claims that their drop in CD sales is causing a rise in haircut sales.

There’s a saying that goes “correlation is not causation”, which, in this case, is a fancy way of saying, “Just because you see one of your products on a file sharing site, and just because you’re currently seeing a drop in sales, does not mean that these two are directly related.” And even if there is a relation between the two, how can anyone separate this one cause from all the other factors that create a drop in sales?

I’ll be offering plenty of proof in this blog about how this point is bogus, so I’d like to see some proof from people who can definitively claim that file-sharing is hurting their business. If you’re a merchant who’s selling digital products and you’ve discovered the mathematical formula which correlates illegal downloads to lost sales and corrects for variations such as: the quality of the product, the state of the current economy, the effect of any competing products, and the fickleness of customers, then please post it in the comments.

I also realize that arguing this point may be a lost cause since it’s sometimes hard to argue with merchants who just know that the file-sharers are “stealing their income”. There’s no way to ask for proof from people like this, and there’s no way they can provide proof of their claim. They won’t believe that their falling sales are caused by their own lack of quality or a downturn in the economy: the lack of sales must be caused by file-sharers.


Before I get into strategies of dealing with file-sharing, I’d like to look at the types of people who share files. If you’re a merchant who’s selling digital items, you should know which kind of file-sharer you’re dealing with.

1) The “Try Before You Buy” people:
These people are exactly what the names says: they download something to try it out, and then, if they like it, they buy the item. This article in TechDirt (from 2005) says CD Sales Increasing; File Sharing Increasing — Whose Assumptions Are Wrong? and this article (from 2004) talks about how a Study Shows File Sharing Not Harming CD Sales. Although these studies might be out-dated, they point to the same conclusion that some people are still willing to buy, even after they’ve downloaded the item for free. The reason for this is logical: if people are given a good reason to buy, then they will.

If you’re selling digital items, then this type of file-sharer is your target audience. You should think about ways to get them to try your items without using a file-sharing site. For example, maybe you offer free models on your site to show off your quality, maybe you offer a 30-day trial version of your software, or maybe you offer a “lite” version of your software which can be upgraded when someone purchases a license.

2) The “I can’t afford it” person.
These people can be spotted when they use the following statements: “I’m a poor college student and I can’t afford the item”, or “I get paid next week so I can’t afford it right now”, or “The software company is greedy so I don’t want to pay that price”, or “The company doesn’t offer a trial version, so I’m going to get the full version”.

The simple fact is that all of these are simply excuses to justify the person’s behavior. Yes, the economy is bad and yes, people are out of work, but this isn’t an excuse to illegally download something. Sure, a person who claims he can’t afford a $1,200 software program might have a point, but shouldn’t he wait until he can afford it? Why can’t he get a trial version from the company’s website to see if he likes it? And some software companies offer “poor college students” a heavily-discounted “educational” price for their products.
By comparison, someone who claims they can’t afford a $5 digital car model is usually simply using this as an excuse. If a person can’t afford a $5 product, then he probably has much bigger financial problems to worry about.

If you’re selling digital items, then this type of file-sharer is not your target audience. This type of person will probably never buy, even if you agree to lower the price of your product. And, of course, lowering your price leads to more issues, such as the price versus value of your product.

3) The Collectors and Traders.
These are people who have every file from every file-sharing site on their hard drive… and they probably don’t even know what they have. They usually don’t have the time or interest to use the files they have or to learn the software they’ve downloaded. Most of these people only download and keep the files for bragging rights: they’ll trade files with other collectors, and these files become a form of currency to them.

Some of these people are probably proud of the fact that they have movies like Avatar or The Dark Knight or Lord of the Rings. (On a side note, why would anyone spend the time to download a movie file of the 3 1/2 hour-long Lord of the Rings movies when it’s easier to buy it on DVD?) Even if these people have a high-end home theater system, they won’t be able to see Avatar in 3D or in full surround-sound like in the theaters. So what’s the point in even downloading it? One reason is point #1: some of these people may want to “try” the movie before spending money on a ticket.

If you’re selling digital items, then this type of file-sharer is not your target audience. You’ll never convert these people to customers since they won’t buy anyway. Chances are good, that if you tried to complain that they were sharing your items, they probably wouldn’t even know what you were talking about- they may not even realize that they have a copy of your item in their collection of files.


Once you’ve figured out the types of file-sharers, what can you do about it? Many merchants will want to take the obvious tactic and aggressively fight the file-sharers by sending out take-down notices and filing cease and desist orders.
This strategy usually works up to a point- after a while, the merchant starts to play “whack-a-mole”: he may file a take-down notice with one user, but then a second and third user will upload the same file. The merchant will file yet another take-down notice, but more users will upload the file.
And, let’s face it: music, movies, and software (including Windows, Photoshop, and high-end rendering programs) can easily be found on file-sharing sites, so if the take-down notices aren’t working for Microsoft or Adobe, why should sending out notices work for the average merchant?

So, instead of endlessly chasing uploaders, why not try something different?

1) Create a reason to buy:
Since merchants are effectively “competing” with file-sharing sites, they need to create reasons why people should purchase their products. The biggest question is this: what can you offer a customer that they can’t get on a file-sharing site? For example, do customers get free add-ons by entering their proof of purchase? Do customers get free upgrades or service packs? Do they get better customer service or tech support? Or should a merchant promote the fact that by purchasing, the customer receives the real item, rather than taking the risk of downloading a fake file, possibly with a virus?

Here’s something to think about: if music files can easily be found on file-sharing sites, why do so many people buy from iTunes? Why is iTunes the second-biggest music retailer in the US, just after Wal-Mart?

Granted, you might be asking how you can compete with file-sharing sites since you’re basically competing against your own items, only for free. TechDirt has a lot of interesting articles on the topic of Saying You Can’t Compete With Free Is Saying You Can’t Compete Period.

One Factor is Quality
Instead of fighting the file-sharing sites, merchants should realize that people will pay for something if they know they’re getting a quality item. People know that purchasing from iTunes means they’ll get the real song and not a poorly-sampled version, or the wrong song, or even a virus. In 2008, The Dark Knight was the most pirated movie and the highest earning movie. Wired.com wrote their own article: Piracy-Schmiracy: The Dark Knight Rakes In the Dough. Why is this? From the article at TechDirt:
“The fact that parts of the movie were designed for IMAX theaters drove many people to pay even more (or even see the movie multiple times) in order to experience the IMAX version, which simply can’t be replicated at home.”

The Motion Picture Association (MPAA) claims that the movie did so well because they were “on top of” the file-sharing and they were able to stop people from sharing the movie… but if this is the case, were they not “on top of” file-sharing for movies that bombed? Does the MPAA blame file-sharers for the poor performance of movies like The Last Airbender or Cats and Dogs: The Revenge of Kitty Galore? Are they really saying that the quality of the movie has no effect on its income?

If you’re a merchant who’s selling digital products, maybe you need to take a look at your own product catalog. Are you offering quality products? Are you offering customers a good value for their money? Or are you selling the same thing, over and over again, with little variation, without adding anything new, or without trying to innovate what you do?

This article on TechDirt talks about finding the “scarcities” (or reasons) why people should buy your product. Although the article title is Ten Good Reasons to Buy, there’s a lot more than a list of ten items.

2) How will your reaction (or over-reaction) to file-sharers affect your reputation?
There have been many cases of the Recording Industry (the RIAA) suing people because they shared music files. This article on TechDirt, from 2006, talks about how the RIAA Suggests MIT Student Drop Out Of School To Pay Fine. Although it may sound humorous at first, a story about how the MPAA accuses laser printer of illegal file sharing actually shows the dangers of accusing people without any actual proof beyond a computer’s network address.
Though, to be honest, I don’t think the RIAA really cares how these activities affect its reputation. However, this will eventually get back to the musicians who don’t think that customers should be treated like criminals. Some musicians are deciding that it’s better to promote their music on their own rather than stay with the RIAA and anger their fans.

I’ve seen similar behavior at sites selling digital goods. Some merchants have been known to lash out and accuse artists who make artwork with their products, even though the merchant has no proof beyond the fact that the artist’s name isn’t on a sales report. The artist may have purchased under another name or at another site, which makes the merchant look like an accusing jerk. Will artists stop using this merchant’s products in case they also get accused of stealing? Or will other people start sharing this merchant’s products as a way to “get even”?
Plus, this merchant didn’t even consider the potential promotional value of having his product used in an image. If this artist’s image led to just a few sales, wouldn’t this outweigh the possible illegal downloading of the product by one person?

Should you really be treating your customers like criminals?
If you assume everyone is a “criminal” and they’re all out to illegally share your files, how does that affect how you view the average customer? Do you require him or her to provide a proof-of-purchase before you even talk to them?
Adding things like Digital Resource Management (DRM) or requiring registration keys only creates nuisances for legally-paying customers. These are almost as pointless as the anti-piracy warning at the beginning of DVD’s. People who illegally share the movie simply ignore the warning, so why should I, as someone who bought the DVD, have to wait 30 seconds to sit through it?

A quick search of almost any file-sharing site will show multiple copies of Windows, Photoshop, etc. So, if hackers can break the complex DRM and registration process for Adobe and Microsoft’s products, it’ll be a simple process for them to hack a smaller merchant’s registration keys. The hacked version will then be shared on the file-sharing sites, which allows the illegal downloaders to use the product without registering. Yet the paid customer has to remember to hold onto his registration number in case he needs to re-install the product.

One of the worst ideas was when I read a newsletter from a merchant who talked about putting a virus in his product file, with the intent to upload it to the file-sharing sites to infect anyone who downloaded this. There are two main problems with this idea. First, as the maker of the virus, you could be charged with the crime of damaging someone’s computer. How’s that for justice- you’re trying to keep people from illegally sharing your files, yet you wind up arrested for a crime!
Second, and this is the bigger risk, you might infect or offend a potential customer, whether it’s a “try before you buy” file-sharer or someone who’s downloading the file for legal reasons. (There could be many legal reasons for doing this, including: they need to re-download the file and the original store won’t let them, they’re curious if there’s a difference between the copy on the file-sharing site and their purchased copy, or whatever the reason.)
If your customers (or potential customers) realize they’re getting a virus from your products, this could cause them to panic, or it may cause the marketplaces sites to take down your products while they look for viruses. Ether way, this could severely damage your sales and income.

3) Using file-sharing sites as a promotional tool:
Obviously, digital products will be shared and it seems like every time you shut one person down, someone else will share it. I’m not saying that anyone should encourage or support file-sharing, nor am I saying that anyone should actively share their own product, but instead of actively fighting, but what if we played a “what if”?

Here’s an example: suppose someone downloads an illegal version of my helicopter model. Then suppose he really likes it and goes looking for more helicopters. Maybe he doesn’t find any more of my items on the file-sharing sites, so he looks for contact information in the products “read me” file. He then finds the site where he can legally purchase my products, and he buys a few more products.
And instead of yelling and screaming at this guy for downloading my product illegally and accusing him of “stealing sales”, what if I welcomed him as a new customer, answered his questions, and gave him good customer support? This kind of support adds “quality” to the product, which convinces the person to purchase.

Now, granted, this makes a big assumption that this person isn’t a “Collector” and that he actually uses the item that he downloaded. And it makes another assumption that the person is impressed enough that he’ll go looking for my other products. But, there have been numerous studies in the music industry to show how people are more likely to purchase a CD after they’ve illegally downloaded a song from that CD.

4) The time issue:
Yes, dealing with file-sharing sites can be an important issue, but keep in mind how much time it will take for you to go to the file-sharing sites, look for their “report abuse” page, fill our their form (perfectly, otherwise they may reject your claim), and so on. Many sites deliberately hide their contact information because they know they host illegal files, which makes it harder to report.

Some file-sharing sites are hosted on Blogspot, which is owned by Google. Their “report abuse” page seems almost designed to discourage people from reporting copyright infringement: the site actually says that you can be punished for false reporting. But if you really want to file a report, you have to follow ten specific steps and then mail or fax the information (no e-mails allowed)… and then hope the information doesn’t get “lost” and action is taken against the file-sharers.

5) And most importantly: what market are you in? What’s your business model?
If your business or service is to do nothing more than make $5 car models, then yes, file-sharing might put you out of business. However, if you offer your customers something more, such as quality products, customer support, tech support, or other services, then file-sharing will have no effect on you. No matter how many times people share your digital files; they’ll never replace your brand or your reputation.

You could also look at the music industry for ideas. The bands who only concentrate on putting out songs will be hard-hit by file-sharers, yet other bands make their living by performing. For example, The Rolling Stones haven’t had a “Billboard 100” hit in years, yet they still fill stadiums with people. And of course, once people are at the stadium, they buy merchandise and t-shirts and CD’s and DVD’s and so on.

Do you want to spend your days hunting down file-sharers, sending out take-down notices, filling out forms, etc? Or do you want to create new and innovative products which expand your customer base and bring in more money? Do you want to be known as the merchant who’s too busy to make new products or add-ons because you’re spending all your time hunting down file-sharers and harassing any customer whom you believe stole your product?


After looking at all of this information, it’s up to the individual (or company) to decide if he wants to fight the file-sharing. Again, yes, unauthorized file-sharing is illegal, and yes, the people who do this should be brought to justice, but you have to decide for yourself how you want to best spend your time. Do you let the file-sharers “get to you” or do you do everything possible to convince your customers that it’s a much better value to buy your products?

Additional reading:
TorrentFreak: The Pirate’s Dilemma
TechDirt: Is Piracy The Leading Indicator Of Innovation?
TechDirt: Software Developer Realizes That Pirates Are Giving Him Market Feedback and TorrentFreak: Game Developer Confronts iPhone Software Cracker
TechDirt: The Future of Music Business Models
P2P, Online File-Sharing, and the Music Industry An excellent resource to get you started in the research and studies used to determine whether file-sharing has an impact on the music industry.
Dutch Study on Filesharing finds “File sharing has net positive economic impact… The net economic effects of file sharing on the Dutch welfare in the short and long term are positive.”

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Entry filed under: Digital Goods. Tags: , , , , , , , , , .

Advice for Online Vendors: Sample Customer Questions Advice for Online Vendors II: Some Selling Truths Exposed

3 Comments Add your own

  • 1. John A. Whiting  |  April 14, 2012 at 12:54 am

    I’m just looking for a (legal) copy of the discontinued VP Executive Helicopter, myself. That’s how I stumbled upon this blog, aided and abetted by Google.

    You raise many valid points.

    I fall into the “try before you buy” category, but that was back in the days when I downloaded illegal copies. After the Amiga went bankrupt partly because of stupid company decisions and partly because of piracy, I stopped even doing that.

    I also fall into the collector category. I have more stuff than I know, even with the aid of database software to help keep track. But all of it is from known freebie sites, or purchased. (I did download Aery Soul’s Alice 4 once, but upon verifying that it was an illegal copy and the site was a “warez” site, I erased it. I was eventually able to purchase a legal copy. I also made a point of telling Aery Soul where I got it so they could act against the site if they chose to.)

    So, I’ve done wrong in the past, but I’ve tried to make up for it by not KNOWINGLY doing wrong now, and by discouraging others from illegal copying as well.

    Reply
  • 2. Coldsteel2008  |  August 15, 2012 at 7:23 pm

    Good article I embedded a link into my webpage of this article.

    Reply
  • […] you can read my previous blog on on My Views on File Sharing and why one shared file does not equal one lost […]

    Reply

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