Lessons from File Sharing

From Eliot Van Buskirk and Wired:

To hear some tell it, file sharing gutted the music industry by encouraging people to gorge themselves on free, illegal content. Indeed, unless Friday’s landmark verdict against The Pirate Bay is overturned, four Swedes will spend a year in jail and owe millions of dollars to entertainment companies for operating a file sharing network.

Nonetheless, sites like The Pirate Bay taught — and continue to teach — valuable lessons to the content industry. Even as music labels and movie studios try to sue peer-to-peer networks out of existence, these same networks have been preparing music labels and movie studios for the emerging social-media world, in which sales form only a small slice of the revenue pie, and what really matters is who likes what, and who pays attention to them.

Facebook, MySpace, imeem, YouTube and other social media sites — which the labels now recognize as a major part of their revenue streams going forward — incorporate several aspects of Napster and other early, rogue file sharing networks: buddy lists, user uploads, filtering content by user, viral marketing, ad-supported content and the potential of mining valuable data. The complete DNA of social media was right there, from the very start of P2P.

And even in the early days, the labels were intrigued by the vast pools of user data available on networks like Napster and Kazaa, although they were reticent to take advantage of it.

“It was more than just stigmatized,” recalled Eric Garland, CEO of BigChampagne, which measures the popularity of media on file sharing networks. “They feared that to even look at or inquire about what was happening in the file sharing universe would somehow compromise their unflinching stance that this was unauthorized.”

But as the initial furor over P2P died down, labels began monitoring file sharing networks through BigChampagne and other services. The data they find there continues to help them in any number of ways, from choosing which leaked song to use as the single, to where a band should tour based on the IP addresses of its fans, to figuring out which artists should perform on the same bill.

The labels beat down Napster, Kazaa, Scour and other P2P networks, and if today’s Pirate Bay verdict stands, they will have beaten four Swedes too. Meanwhile, new ways to share files continue to surface, including private and encrypted networks. And The Pirate Bay developers say mirrors exist in other countries, so no matter what happens in Sweden their site will continue to operate. Besides, The Pirate Bay is only one bit-torrent tracker site.

For some, the offense committed by an enabler like The Pirate Bay — as opposed to the people who actually do upload and share copyright material — may be difficult to grasp. You can also find torrents on several other sites — even on Google’s search engine. And YouTube hosts pirated copyright material, until and unless it is asked to remove it by the owner, because it is unable to programmatically detect which video clips are pirated.

But the difference is that Google, Yahoo and MSN aspire to catalog everything indiscriminately, while services like The Pirate Bay explicitly cater to practitioners of digital piracy — and are proud of it, to boot.

Even as the content industry celebrates another false victory over file sharing, the world is moving on, to cloud-based, on-demand streaming services — some licensed — where you can hear music and watch videos faster and in a more social way than you can with bit torrent. And as content holders look to monetize those networks, P2P networks provide the only useful template, because they share so many characteristics with today’s social-media networks.

Garland, who was there, says tools designed to measure user behavior on file sharing networks led directly to tools that now mine licensed networks like Facebook, imeem, MySpace and YouTube.

When it comes to “where and how people stream, download, watch, listen to, blog about or otherwise make use of or interact with music,” said Garland, “file sharing ended up being the blueprint.”

And it’s a good thing that blueprint was there, from the labels’ and studios’ perspectives, because today’s social-media networks contain even more user data than P2P networks do, and that translates to a bigger opportunity to monetize them through advertising, recommendations and, yes, the occasional sale.

In addition to teaching them how to mine social networks for user data, file sharing taught the content industry that it’s often more efficient to address networks than users. On one hand, this sort of thinking led to The Pirate Bay lawsuit. On the other, we have Choruss, Warner Music Group adviser and digital music guru Jim Griffin’s plan to license universities, then ISPs, to allow subscribers to download and upload as much music as they want for an overall, royalty-like fee.

“Asserting property rights and attempts at control have cost the sound recording industry over a decade of licensing revenue [and trading] control for compensation,” said Griffin during his Digital Music Forum East keynote. “Monetizing friction-free access to music will require swinging to the next vine, and when we make that transition we’ll uncover a bigger music service business that’s been too-long trapped in the too-small body of an old product-based business of control.”

The Choruss plan and the RIAA’s official shift away from suing individuals are acknowledgments on the part of the music industry that file sharing will always be a factor, so it could be simpler — and even beneficial — to lump licensed and unlicensed services together under one monthly fee tacked onto users’ ISP bills. (ESPN and other video networks already do something similar.) Love Choruss or hate it, Griffin would never have come up with this efficient way of addressing social-media consumption if file sharing networks had never existed.

Finally, P2P accelerated the development of products that people want to purchase when free alternatives exist. Whether music sales are competing with The Pirate Bay or imeem, the answer is the same: Sell ads against free content, and try to sell people something they can’t access through the free alternative, be it bonus materials, instant access, concert tickets or whatever. Witness Radiohead’s infamous deluxe box set, the recently launched iTunes pass (essentially an album subscription), Josh Freese’s crazy album extras, or iPhone apps that deliver an artist’s latest creations in near-real time.

File sharing networks forced an industry notoriously set in its ways to acknowledge the enormous power of the internet to distribute music through social channels — if anything, increasing its odds of thriving during the inevitable social-media era.

Lawsuits like this one against The Pirate Bay make sense on the surface. On another level, they’re a funny way of saying, “Thanks.”

From Eliot Van Buskirk and Wired:

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