Indie Film Distributor Spends Half Her Profits Sending DMCA Takedowns, But Is It Worth It?

from the a-deleted-link-does-NOT-equal-a-'gained-sale' dept

An interesting bit of information was uncovered and pointed out by Baldaur Regis and an AC in the comments of Mike's post detailing the not-so-crafty work of an industry shill who posted three comments as three different people from the same IP address.

The original Wall Street Journal article quoted Kathy Wolfe, a filmmaker and head of Wolfe Video, who said she spent a surprising amount of money battling piracy.

Last year, Kathy Wolfe, who owns a small independent U.S. film-distribution company, Wolfe Video, found more than 903,000 links to unauthorized versions of her films, which she sells around the world for $3.99 per download. She estimates that she lost over $3 million in revenue in 2012 as a result of stolen content from her top 15 titles. On top of that, she spends over $30,000 a year—about half her profit—just to send out takedown notices for her titles.

$30,000 is a lot to spend fighting anything, much less something as nebulous as piracy. The fact that it was "half" of her profits was even more surprising, leading this AC to point out an easy way she could double her money.

Wait. You mean she could double her profit by just doing *nothing* ? That's actually a riot.

While it isn't quite as simple as that, there is some truth to that assertion. This piqued my curiosity. If someone was spending half their profits having links taken down, they must have seen something that justified this expenditure. A business doesn't just throw half their profits in a hole unless that same hole is throwing money back. I assumed there must be a corresponding sales increase, and a noticeable one at that. So I emailed Kathy Wolfe to get some details on her anti-piracy efforts.

I'm Tim Cushing and I write for techdirt.com. I was wondering if you might be able to answer a couple of questions about your ongoing fight against piracy. What really got my attention was the fact that you're spending nearly $30,000/yr. sending takedown notices. (via WSJ and Digital Music News)

While I understand your interest in preventing your films from being distributed in this fashion, I'm having trouble believing that this expense is generating a worthwhile return on investment. I was wondering if you could shed some light on that area.

Are you seeing a positive return in terms of sales increases?

Is it enough of an increase to offset the $30,000/yr. in expenses?

If it ISN'T generating the additional sales needed to justify the expense, what is the rationale for continuing this effort?

Thanks in advance for any information you can provide. I'm looking to put together an article addressing the expense of your anti-piracy efforts, so if there's anything you'd rather withhold (exact sales figures, etc.), I can understand. What I'd really like to hear before I write this post is your take on this very expensive anti-piracy venture, especially any benefits you've seen, financial or otherwise, since you began this pursuit.

Her first response was blunt and anything but informative.

Hi Timothy,

I would be happy to discuss with you. Basically, without the take down effort I would be out of business. I have over 100 films to protect.

Kathy

On one hand, she said she'd be happy to discuss this. On the other hand, the middle sentence sounded like the conclusions had already been drawn and the door three-quarters shut. I sent an email back pressing for more details.

Thanks for responding.

What I'm actually wondering is whether this effort has any correlating effect on sales. I imagine the discussion shifts into "rhetorical" at this point. You're spending $30,000/yr. on this. If you dialed it back and spent $15,000, do you feel sales would drop to half their previous level?

What had you noticed before you decided to pursue these anti-piracy efforts? As you say, without issuing takedowns you would be out of business, so there was obviously a very noticeable sales drop. Did you start with a smaller effort and see no improvement and then decide to scale up? Or did you put as much as you could (financially) into this effort from the beginning?

Again, I'm very curious as to whether there's a noticeable increase in sales. To ditch the takedowns altogether would put you out of business according to you, but would scaling it back reduce your sales? Have you ever scaled back efforts temporarily and observed any increases or decreases in sales?

At this point, Kathy became suspicious and asked me to explain who I was and what I was going to do with the information (pretty much exactly in those words). So, I explained myself again, breaking it down further.

What I'm trying to do is get your perspective on this issue. You obviously feel that spending $30,000/yr. on anti-piracy efforts is a worthwhile investment.I'm assuming you have put together some data over the years that shows that this expenditure is paying off.

I'm putting together an article dealing with anti-piracy efforts. I'd like to have your input before I write this post because I'd actually like to hear your view from the inside. All I can do at the moment is speculate. I've rarely seen anyone come out and quote an exact figure on anti-piracy expenditures, so this potentially makes for a very interesting article. We all hear that major studios spend "millions" fighting piracy, but numbers are rarely provided as to what effect those efforts are having on sales. If anything is provided, it's an equally vague aggregate.

I don't have any interest in tearing down your efforts. You're the rights holder and you're doing what seems best for your business. But as a business owner, I have to believe that you've adjusted this plan over the years in order to see the highest return on your investment -- and those are the numbers I'm interested in.

I'm also curious as to how you arrived at the "$3 million lost" in 2012 via piracy (as quoted in the Digital Music News article about your efforts), but that's of secondary interest.

So, if you think I'm after this information to belittle, demean or otherwise harm you, nothing could be further from the truth. As I said, I'm on the outside and can only speculate on the rationale and sales fluctuations driving this business decision.

Once again, thank you for your time.

That was eleven days ago. I fired off a quick message to bring me back to the top of her inbox, but received no response. That's a shame, because I'd like to believe that, as a business owner, she's weighed the cost of her efforts against the return on that investment. But she seems unwilling to discuss anything other than the amount she pays out ($30,000) and the amount she's "lost" to piracy ($3 million).

First things first, Kathy Wolfe and Wolfe Video has been around for 28 years, long enough to have witnessed large-scale changes in film making and distribution. Staying in this business as an indie filmmaker, who deals almost exclusively with a limited market, is impressive.

Also impressive is the fact that Wolfe Video isn't limiting itself to just a few large outlets. Wolfe is distributing her films through pay-per-view markets such as Comcast, as well as other major internet players such as Netflix, Amazon, Hulu and, just last year, Wolfe Video's own platform, Wolfe On Demand, which allows customers to rent or buy directly from Wolfe. Wolfe on Demand is a worldwide service, allowing these films to reach otherwise underserved audiences around the globe.

Wolfe Video seems to have explored a variety of markets and seems interested in making the most of the web's positive aspects. Now the question turns to the anti-piracy efforts. Does exchanging half your profit for DMCA takedown notices really make sense?

Wolfe feels this is effort is necessary to protect her business, as can be seen in her first reply to my emails. But is this outlay recovered with increased sales? That's a harder question to answer without any data to examine, but there are a few inferences we can draw. Despite her massive anti-piracy expenditures (and wealth of distribution options), her business is suffering.

"It's changed us," Wolfe said, while pointing to drastic company chops and cutbacks. That includes the trimming of 11 employees, a 50 percent reduction in Wolfe's marketing budget, and a major impact on new projects. Wolfe has even stopped paying herself a salary.

There are three possibilities here:

1. $30,000 is what's needed to sustain Wolfe Video at its current pace. Not great, but better than going out of business. This assumes the deterrent efforts generate enough sales to keep Wolfe Video (barely) in the black. If this theory is correct, one would expect $50,000 worth of deterrent to increase income by a comparable amount.

2. $30,000 is not enough, but it's all Wolfe can afford. If so, then Wolfe Video is on the way out. Escalating the amount spent would likely not generate enough revenue to offset the expense, or at best, keep the company barely in the black and decrease profitability.

3. $30,000 isn't showing any noticeable impact, one way or another.

Of the three possibilities, the third seems most likely. This may seem like a broadsided slam against Wolfe's efforts, but she does make a few statements that lead me to believe this effort is mainly "faith-based" and hasn't been measured in terms of correlation to increased sales.

One of the indications is Wolfe's estimate of income lost to piracy. She states Wolfe Video lost nearly $3 million last year because of file sharing. How does she arrive at this number? I can't say for sure, but multiplying 903,000 links by $3.99/movie (Wolfe's quoted price per download) gives us $3,602,970. Perhaps realizing that not every link equates to a lost sale, the number was revised down a bit to the nearest round number. (Only most links equate to lost sales, apparently...)

Another indication is her blunt response to my first inquiry: "Basically, without the take down effort I would be out of business." This sounds like someone who has already decided that piracy can only be fought, and only with a ton of time, effort and money. What this doesn't sound like, however, is someone who's considered taking a more targeted approach, or backing off completely and measuring any corresponding sales fluctuations.

Then there's this quote (from a pro-SOPA editorial Wolfe wrote for the Huffington Post) which describes the futility of her efforts, while simultaneously making the claim that she's "forced" to send out thousands of DMCA notices.

As a distributor, I've been forced to devote resources to searching for and removing pirated copies of our films online (by sending DMCA notices). It is a time-consuming and expensive process. On one recent weekend, we removed over 300 links to a newly released title from a U.S. based cyber locker (each link can represent 1000s of downloads). The next day another 180 new links for the same film appeared on the same cyber locker. We found another 100 links to the film on a gay movie blog (a site which features free download links for more than 2,000 titles). This is just in the U.S., where sites are required under current law to take down links when they receive infringement notices. Multiplying that problem by a factor of 10 would not begin to cover the volume available via offshore sites, which are currently out of the reach of U.S. law.

The implication seems to be that if she doesn't keep emptying this ocean with her $30,000/year teacup, no one (or hardly anyone) will purchase her company's films and support her business. This can't possibly be true. Piracy is an option for nearly everyone connected to the internet, and yet musicians, filmmakers, video game developers, etc. are all selling their output every day.

Removing links may generate a few sales, but certainly not enough to offset an effort of this magnitude. Some file sharers will never purchase anything, and if they can't pirate a Wolfe film, they'll simply find something else to download. Others will purchase something after an illicit "preview." Taking away the link they might have utilized simply sends them looking for other links... or other movies. Generally speaking, a failed search for a "free" movie rarely results in the sale of the same movie.

Wolfe Video is doing the right thing by diversifying its distribution across multiple services and, even better, by running its own in-house digital rental/download platform. These efforts will do more to increase sales (and profits) than $30,000 worth of takedown notices. It's hard not to view illegal downloads as "lost sales," but entertaining that notion results in deterrence efforts that far outweigh the benefits.

The fact is that removing illegal options won't generate sales. Removing a negative ("lost sale via illegal download") doesn't create a positive ("gained[?] sale"). It simply levels off at $0. Positive efforts will tilt that scale back towards the creators. Negative efforts max out at $0, at best.

As I stated in my email to Kathy Wolfe, I have no desire to paint her as someone who tilts at windmills to the tune of $30,000/year. She strongly feels this effort needs to be made in order to protect a business she's run for over 25 years. I can completely understand that. My concern is that this effort is over-funded and a long, hard look should be taken at any connection between the takedown effort and corresponding sales fluctuations.

Could the same be accomplished at half the price? How about $10,000 per year? Or $0? I think some experimentation is called for. Back all enforcement efforts off for a few months and watch for any signs of a sales decline. If the drop is precipitous, scale the efforts up and see if the numbers respond. But rather than intensify the efforts, slowly escalate until you find a balance between deterrence and sales that works out best financially.

Kathy Wolfe has obviously worked hard to keep Wolfe Films running for more than a quarter-decade quarter-century. She deserves a salary and I hate to see that money flowing into an effort that's not paying off.

Filed Under: cost benefit, dmca, expense, kathy wolfe, takedowns
Companies: wolfe video

Good Question: How The Hell Did The NYT Spend $40 Million On That Paywall?

from the please-help-explain dept

We've already expressed our bewilderment at the NY Times' new paywall and the fact that it cost the company $40 million and took 14 months to build. Some are now reasonably asking what about the paywall could have possibly cost $40 million?

The New York Times already had a credit card processing system for selling home delivery. It already had a database management system for keeping track of Web site registrants. What did they spend the $40-50 million on? A monster database server to keep track of which readers downloaded how many articles? They should already have been tracking some of that for ad targeting. In any case, a rack of database servers shouldn’t cost $40 million.

I'm guessing that some of it involved user testing. The NY Times keeps trying to claim that it was its own users who told them this was the paywall they "wanted." But, still, between a ton of research, a bunch of programmers, some equipment... I'm having trouble figuring out how $40 million could have been wasted on this. Any help?

Filed Under: expense, journalism, paywall
Companies: ny times

Recording Industry Making It Impossible For Any Legit Online Music Service To Survive Without Being Too Expensive

from the good-job dept

You just knew it would happen again. Every time the recording industry finally agrees to license a new music service to try to take the "sting" out of "piracy," it demands licensing terms that are ridiculous. From the execs at the labels' perspective, unless you pay an arm and a leg, you don't get to offer music. So, a few companies agree, and then realize it's impossible to make any money and shut down. In the meantime, the whole point of those legal licensed music services (to compete with "pirate" sites and services) is lost entirely. Wired is chronicling how all of the legal music sites are finding it impossible to survive and offer a free music service -- including MySpace music (which beyond not offering much of value in terms of user experience) "is struggling to keep up with its own payments to music copyright holders."

Of course, it's really no surprise that most of these sites have struggled. Beyond the ridiculously high licensing rates that the labels forced on them (often by negotiating through lawsuits), none of these sites put together a well thought-out business model. Instead, they all seemed to think that they could just slap ads on the site and that would be enough. But, of course, when you're listening to music, you're not looking at that website or paying attention to the ads -- and if the ads got too intrusive, they'd just go elsewhere. A real business model would have been setting up something more comprehensive, that gave listeners a real reason to buy associated with the music. Eventually we'll get there, but in the short-term, the graveyard of failed "licensed" music startups will grow, just as more and more "unauthorized" sites grow in popularity.

Filed Under: expense, licensing, music industry, music services, online, recording industry
Companies: imeem, myspace, spotify