I was reading an interview with Tien Tzuo, CEO of Zuora, on the Forbes blog when it struck me why the content industry is having such a problem with piracy.
On product companies vs. subscription companies Tzuo wrote, “Rather than putting the focus of the business on the ‘product’ or the ‘transaction,’ subscription economy companies live and die by their ability to focus on the customer.”
You might think that’s not such a big deal given all of the successful companies selling services on the Web. But for a company that grew up selling its products through an elaborate network of retailers, news dealers, movie houses and DVD rental outlets, it can be difficult to see the customer. Moreover, changing the basic model to let the primary producer get closer to the customer might not be tolerated in the channel.
But in industry after industry, the Internet has caused this kind of disintermediation, and vendors have gotten closer to customers. There’s also a fair amount of pain to be shared when channel partners discover they don’t have very good reasons to be on the channel.
In protecting its channels, the content industry has squeezed itself. On one side, Web retailers like the Apple Store have taken the initiative in setting prices for the copyright holders. On the other, if you are in, say, the newspaper business, traditional infrastructure like trucks and printing presses cost more each year while your revenue trends downward or at best remains flat. Then there’s the technology angle. Multiple technologies invented in the last few decades make illegal copying easy, and the results are high-quality.
These three forces impinging on the content industry offer plenty of reasons the business model needs to change, and the new one needs to cozy up to the customer.
It’s too easy for the content owners to foist the problem onto someone else -- the Internet companies in this case, but better enforcement and hypervigilance won’t change much. Each instance of piracy should not be seen as a theft so much as a situation in which the vendor didn’t meet a legitimate customer need. Either the vendor couldn’t meet a price point or didn’t even try to be in the market and meet the customer halfway.
Skeptics might say this is blaming the victim. In other words, the customer chose to buy a pirated version rather than the original so it must be some fault of the vendor. In many cases the pirates are selling their goods at prices far below those of the legitimate products because that is what the market will bear. Original producers would rather not sell at those levels to protect their channels and price structures.
Unfortunately, current technologies make it hard to hold the line on product prices. That’s why the content business model has to change. The model needs to be streamlined, reducing the number of intermediaries and updating to the latest technologies. That means far more digital delivery with less conventional “product” changing hands at retail.
It also means that content companies need to understand that if a customer is willing to spend only a few dollars for a download, that customer is not likely to cannibalize higher-priced channels.
In earlier times, customers without the means or desire to pay the going rate for content tended to do without. But today, those people are a great reservoir of demand that is being satisfied illegally. This should be seen as the next big opportunity in content sales, not a problem to be remedied with lawsuits or bogus legislation.
I believe Tien Tzuo was right: If the content industry focuses its energy on the customer rather than on its products or transactions, it will find the solution to its piracy problems and it won’t involve forcing Internet companies into performing unnatural acts as the defeated PIPA and SOPA legislation attempted.