Online Piracy's Great Comeback

The Rise, Fall, and Return of Online Piracy#

Alright, let’s talk about how things used to be and where they’re heading now in the world of watching movies and listening to tunes online.

Back in the day, specifically the 2010s, it was like the wild west for online piracy. It was really the golden age of it.

Bit Torrent wasn’t just a thing; it actually made up a third of all internet traffic. That’s huge!
LimeWire was so popular it had more monthly users than Facebook. Imagine that!
And The Pirate Bay? Well, hypothetically speaking, it was the place you knew you’d find pretty much anything you were looking for.

See, the world was just figuring out this whole “digital media” thing instead of buying physical copies. Even folks who weren’t exactly computer wizards caught on that digital stuff could be copied forever for practically nothing extra.

At its peak, a massive 95% of all music downloads were pirated. Why? Because it got cheaper, sure, but mostly because it was just easier. You could fill up those big digital music libraries that cheap digital storage now made possible.

The Shift Away from Piracy (and why it didn’t last)#

Then, something weird happened. Around 2012, all that started to slow down. The internet got faster, storage got even cheaper, and people became more comfortable with computers. Logically, this should have made piracy grow even more, right? But it didn’t.

By 2015, peer-to-peer file sharing, that backbone of piracy, had really collapsed in popularity.

You might think the answer is simple: Streaming services like Spotify and Netflix came along and were just a better, easier, and safer way to get content. And hey, you’d think that now, as these services have gotten noticeably worse and pricier at the same time, piracy is just naturally making a comeback. Seems straightforward, right?

Well, here’s the catch. That’s not the whole story.

The companies offering these services actually knew this day (piracy coming back) would likely arrive eventually. It was just super important to them that they could pretend it wouldn’t for as long as possible.

Many people are now looking to cut back on expenses, and canceling some subscriptions is a real consideration. Sometimes you’re paying for services you don’t even use, which feels like wasted money. With so many subscriptions out there, it’s tough to keep track. When it gets to that point, the relationship with the provider feels like it’s against you, not for you. And who wants to pay for that?

As one executive put it (maybe a bit uncomfortably for some shareholders), the goal is for the business to be a “growth business for the company with margins that our shareholders will feel good about.”

So, what really made piracy slow down, and what’s really bringing it back now? It might sound simple, but there’s a bit more going on under the surface.

Why Legal Options Appealed#

Here’s the first big point: Most people, deep down, would actually prefer to get their movies, music, and games legally. As long as it’s easy and not ridiculously expensive.

Most reasonable folks get that making a song, filming a movie, or developing a video game takes time and money. And the people who make these things need to get paid, otherwise, they just won’t make them anymore. Even people who were regulars on the “high seas” (piracy sites) knew this better than anyone.

Get this: A survey from Australia during the peak of online piracy found something interesting. People who pirated content were actually more likely to pay for it if it was available legally. In a finding that really shows its age, these online pirates were way more likely to pay for movies and music through things like iTunes or Quickflix. This was because people who pirated were often just bigger consumers of content overall. They’d only bother going to The Pirate Bay if they genuinely couldn’t find what they wanted through more legitimate means.

The Key Changes After 2013#

So, two main things changed after 2013:

Crackdowns Weren’t Enough: Sure, there were some big news stories about authorities shutting down major piracy sites. But even the people trying to enforce the rules knew it was kind of a never-ending game, like “whack-a-mole.” For instance, one of the most downloaded things on The Pirate Bay was a complete copy of The Pirate Bay itself! This copy included all the necessary addresses, so basically anyone with some basic server gear could set up a mirror site if the original was taken down. The system was designed to be resilient against crackdowns.
Enter Streaming: The real game-changer was the arrival of streaming sites. Thanks to faster internet speeds becoming common, these sites let people watch stuff on demand without giving them direct access to the actual digital files. This was crucial because owning the file is what makes it easy to copy and share illegally.

The biggest draw of streaming back then? It was just so incredibly easy compared to pirating. And it was dirt cheap compared to buying songs or movies one by one. It frankly just didn’t make sense for most people to bother with the hassle of piracy anymore.

Why Streaming is Getting Worse (and bringing piracy back)#

Now, things have clearly shifted again.

Instead of one or two main streaming services, there are now dozens.
Each service seems to be getting more and more expensive every year.
Movies and shows you want to watch are being split up across different providers.
The services themselves are getting worse – they’re adding ads and pushing content that isn’t really what you’re looking for.
On top of everything, it’s just not that easy anymore.

Think about it: Even a single TV show might have different seasons on different streaming services. The first step to watching a movie these days often involves Googling “what streaming service has the 1984 release of Gremlins?” And if you’re unlucky, you might have to figure out not just the service but also what VPN combo will actually let you watch it in your location.

If you’re already going through all that effort just to watch something legitimately, it starts getting really tempting to just use your “port of choice” (meaning, go back to piracy). In many cases, weirdly enough, it’s actually become easier than navigating the maze of streaming options.

So yeah, the simple story is: Streaming was cheap and easy, which killed the need for piracy. But then it slowly became expensive and terrible, which brought it back. Seems pretty straightforward, right?

It’s More Than Just Greedy Companies#

Wrong. It’s easy to just say “oh, it’s just dumb companies being greedy.” And while that’s definitely a part of the problem, there’s actually a lot more going on.

Let’s look at the music streaming world for a moment. Compared to video, it’s doing pretty well. There are multiple services, but almost all of them have almost all the music you could possibly want. Because of this, practically nobody bothers to pirate songs anymore. This is honestly impressive when you remember that just about 15 years ago, 95% of music was being downloaded illegally.

Artists aren’t exactly thrilled because they often make less revenue from streaming compared to selling physical albums. But most still put their music on streaming platforms because getting a small share of something is better than most of their music being accessed for free through piracy.

This brings up a potentially unpopular idea: Maybe it’s not streaming itself that’s broken. Maybe it’s the movie industry that’s broken. The “golden age” of streaming was never really meant to last forever.

So, to really understand why piracy is making a comeback, we need to understand a bit about how money works in these industries.

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Netflix’s Strategy and Why They Don’t Mind Piracy (Publicly)#

Okay, back to the main topic. Netflix is the biggest movie and TV streaming service globally, with over 300 million paying subscribers. Unlike many competitors, it’s actually profitable.

But even from its early days of online streaming, Netflix knew they’d eventually lose some people back to piracy. The surprising part? They didn’t really care.

To see why, we have to look at some financials. Last year, Netflix made 8.7 billion in net income after taxes. That’s super impressive. But it still makes their massive valuation of more than half a trillion dollars a bit hard to wrap your head around. At that rate, shareholders would need 57 years for their investment to pay off. That’s not a realistic bet for a company in an industry that’s only been dominant for about a decade.

Think about it: 57 years ago, watching a movie was totally different (maybe something like this visual shown in the original). It’s highly unlikely that in another 57 years, we’ll still be watching movies primarily through today’s streaming services.

Most Netflix investors aren’t naive. They know Netflix can’t make its valuation back with its current setup. What they are betting on is the company being able to offer a service that seems cheaper (maybe with ads or different tiers) but that they can ultimately charge more for overall to boost their profit margins. (There’s a brief, slightly humorous aside here about “nice and fat” margins).

So, cutting content, raising prices, and adding strange features like mobile games aren’t random new ideas. They are part of a plan Netflix knew it would eventually need to implement since it started streaming. It would just be better for them if they could do it without much competition.

Let’s look at expenses for a moment. There’s some good news here for Netflix. As technology gets better, the cost of sending video over networks gets cheaper for the same quality. Netflix’s cost of revenue (adjusted for inflation) has stayed stable since 2022, even though they added nearly 100 million new users in that time. These costs include servers and network stuff, but also paying to license content and producing their own shows, movies, and games.

Another big reason their costs are improving is they’re simply licensing less content than they used to. Why?

It was a business choice to cut costs, especially for content that wasn’t bringing in new subscribers.
They just can’t get their hands on as many titles anymore. Independent studios and even the big legacy studios have started their own streaming services and want to keep their biggest movies and shows exclusive. This forces users to either switch services or pay for multiple ones.

Netflix is slowly producing its own content, but it hasn’t caught up to the amount they’re losing from licensed libraries.

So, how does all this mean Netflix doesn’t care about piracy? Publicly, they’ll say they do, of course. But realistically, piracy is likely to hurt their competitors a lot more than it hurts Netflix.

If someone can’t find a movie or show on Netflix, gives up, and pirates it, that didn’t really cost Netflix money. Why? Because the vast majority of content out there wasn’t Netflix’s to lose anyway, and they likely didn’t pay to produce or license it in the first place.

A 2023 paper in the Journal of Economic Behavior and Organization titled “Pirate and Chill” (amazing name for an academic paper, by the way) found something telling: When movies left Netflix and moved to another platform, piracy of that specific content increased by more than 20%. This study really shows why Netflix hasn’t been overly concerned about online piracy.

A famous quote from Netflix’s chief content officer illustrates this thinking: For Netflix to succeed, “we need to become movie studios faster than movie studios can become us.” Piracy that hits the older movie studios and their massive libraries disproportionately is something Netflix wouldn’t encourage, but privately, they probably weren’t too upset about it happening.

Think of it like this: Obviously, Amazon isn’t cheering for shoplifting. But it’s a problem that hurts smaller physical stores a lot more than it hurts a giant like Amazon. Piracy has also been a useful tool for Netflix in the past. Back in 2013, they admitted to using data from piracy sites to figure out what was popular and what content might be worth licensing.

The Hollywood Studios’ Dilemma#

Okay, so Netflix isn’t losing sleep over the rise of piracy. What about the traditional Hollywood studios? They absolutely do care, and they fight against unauthorized copying with intense effort. But they’re in a tough spot.

They could potentially send piracy back to the stone age by putting all their content back onto a single, easy-to-use platform. But right now, that platform would probably be Netflix, which a company like Disney would never agree to after pouring tons of money into its own streaming service. If they keep competing and keeping content separate, they just make the user experience worse for everyone, likely losing more people to piracy.

And this fight is happening at the worst possible time for these companies.

Music vs. Movies: Why the Outcomes Differ#

There’s a reason music studios managed to mostly get along and put their music everywhere, while movie studios are locked in this battle.

Music is simply much cheaper to produce.
There are far more ways for musicians to make money beyond just selling a song or album directly. Artists might make less from streaming than physical sales, but they can make up the difference through tours, merchandise, and other licensing deals.

On the flip side:

Movies have generally gotten more expensive to produce.
Cinema attendance hasn’t fully bounced back since the dip during the pandemic. Ironically, one of the biggest recent cinema successes was actually tied to music: the theater release of Taylor Swift’s Eras Tour.
In the past, if a movie didn’t do great in theaters, studios could make a lot of money back through DVD sales. That’s not really a thing anymore.

Because of this, studios have put even more effort into pushing their own streaming services, hoping to make up the lost revenue there. It’s a bold strategy, with hundreds of billions of dollars on the line (in terms of company value). So, executives really want to believe it will eventually work out.

But if it doesn’t, there are lessons to be learned from the music industry. The music industry didn’t beat piracy; it just made it unnecessary.

Lessons Learned (or Ignored?) from Music#

One key lesson: Movies have become simply too expensive for the current market. Studios have seen that people are only going to the movies for big, special events because going is expensive, the theater experience isn’t always great, and people know they can often just wait a month or two and watch it “for free” on a streaming service they already pay for.

Instead of making things cheaper or spreading their risk across different types of films, they’ve gone all-in on producing mega blockbusters. Look at the numbers: Of the 20 most expensive movies ever made, 19 came out in the last 10 years, after streaming was already mainstream. These figures are just the production budget, not the massive marketing costs. And the box office revenue doesn’t even count the cut taken by movie theaters. Even with very generous estimates of how that money is split, only about half of these super expensive movies likely made their money back. Some, like The Marvels, Snow White, Dial of Destiny (the latest Indiana Jones), and the most recent Mission Impossible movie, are shaping up to be huge losses.

Studios have tried to justify these huge, expensive movies to investors by talking about the value of their IP (Intellectual Property - basically, their popular characters and stories). The idea was this IP would drive people to their streaming platforms. But that doesn’t really seem to be happening much. Customers who sign up just to watch one specific movie usually don’t stay subscribed for long compared to people who enjoy a deeper library of smaller, mid-budget movies or TV shows. (Like the creator mentions, they tend to subscribe to whichever service has The Office that month).

These huge, risky productions also strain the business. The losses from these movies have to be made up somewhere, and that often means increased prices, more ads, and a worse overall service for the streaming customer.

Now, you might not feel too bad for Hollywood executives, but honestly, they are kind of in a tough spot with no easy way out. The more they try to fight against how people want to consume media these days (by splitting content, raising prices, etc.), the more they push people straight towards piracy.

Final Thoughts & Other Content#

So, anyway, just putting this out there – these videos are also available without ads on Spotify. If you’d rather listen or watch there, there’s a link in the description.

And if you thought only streaming services were getting worse, you might want to check out this other video to see why making “junk” products can be so profitable.

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