Piracy and market failure

Trying to understand, predict and influence consumer decision making is multi-billion dollar industry and an imperative for businesses and governments alike.

A failure to predict not only what goods and service consumers choose to buy, but how they choose to buy them, can have some pretty drastic consequences.

Consumers have shown that they are willing to simply ignore the bellows and howls of big business and government when their expectations are not being met- even if this means breaking the law.

In 1920 the United States introduced a constitutional ban on sale, manufacture, and transportation of alcohol. The experiment was a spectacular failure as normally law-abiding consumers began flouting the ban with indifference. Corruption and organised crime followed, and prohibition was repealed in 1933.

Failure to meet consumer expectations has gotten the better of commercial enterprise as well. In 2009 the American government had to bailout the American auto industry after years of the companies selling consumers large fuel-inefficient cars that they did not want.

The failure of both business and government to measure and meet consumers’ expectations is evident today in the widespread proliferation of online piracy. As Justice Michael Kirby wrote in 2011, “worthy individuals and citizens…are knowingly, ignorantly or indifferently finding themselves in breach of international and national copyright law”.

These consumers are not all thieves. They understand the importance of copyright, and they understand the copyright infringement is ultimately bad for consumers. However illegal downloading has become such a social-accepted norm because media companies have failed to keep up with changing consumer expectations.

Consumers are willing to pay content in order to get it in the time that they want it and in the way that they want it. The problem is that companies just don’t want to sell it to them. They prefer instead to cling to out-dated business models which try to control when and how consumers can have access to specific content.

This is simply unrealistic in a dot com world.

The ABC acknowledged this truth when it fast-tracked Dr Who episodes online so that fans were not faced with the decision of either waiting until the episodes aired in Australia, or downloading them illegally. Other commercial networks are following suit, especially FOXTEL.

However copyright holders continue to fight this new paradigm. Instead of meeting these changing consumer expectations (and the commercial possibilities they bring), they have sought to prop up the old way of doing things by appealing to government to ‘crack down’ on illegal downloading.

Of course copyright infringement is a crime, and should not be encouraged. But media companies need to accept their responsibility in this market failure, and acknowledge how their actions contribute to the decisions that consumers make.

Punitive measures such as three strike law which can strip consumers of important essential services are the wrong path. However if copyright holders meet this challenge head on they will not only encourage consumers to make the right decisions, but they may just be able to open up new commercial opportunities as well.