Netflix Uses Piracy As Market Research, Isn't Afraid Of It Because It Knows It Can Offer A Better Service

from the but-of-course dept

We've been amazed at how few players in the traditional entertainment business recognize two basic facts: (1) file sharing is a form of free market research to get a very accurate picture of what people are demanding and (2) the best way to beat it is to offer a better overall experience. Of course, it shouldn't be any surprise at all that a company that does get both of those things is Netflix. TorrentFreak has the details of Netflix execs flat out admitting that they monitor file sharing sites to determine what to buy:

This week Netflix rolled out its service in the Netherlands and the company’s Vice President of Content Acquisition, Kelly Merryman, says that their offering is partly based on what shows do well on BitTorrent networks and other pirate sites.

“With the purchase of series, we look at what does well on piracy sites,” Merryman told Tweakers.

One of the shows that Netflix acquired the rights to in the Netherlands is Prison Break, since it is heavily pirated locally. “Prison Break is exceptionally popular on piracy sites,” Merryman says.

And, at the same time, the company isn't worried about the competition, because it knows (as people have been trying to explain to the legacy players for years), the best way to deal with infringement is to compete:
In a separate interview Netflix CEO Reed Hastings adds that his company is aware of the many people who download content without permission via torrent sites. However, this is not exclusively a bad thing, as it also creates demand for the content Netflix is offering.

“Certainly there’s some torrenting that goes on, and that’s true around the world, but some of that just creates the demand,” Hastings says.

Eventually these BitTorrent users may want to switch to Netflix as it’s a much better user experience than torrenting, according to the CEO.

“Netflix is so much easier than torrenting. You don’t have to deal with files, you don’t have to download them and move them around. You just click and watch,” Hastings says.
What's amazing, of course, is that the entertainment industry's strategy works against all of this. They focus on trying to crack down on infringement through legal efforts, driving much of this underground, and making it that much harder to understand what the market wants. At the same time, they try to squeeze more and more money out of the legitimate services by jacking up rates to unprofitable levels, making it more and more difficult to license the works. And when companies like Netflix can't license everything, that's when customers are less willing to pay.

It's a strategy that makes the problem worse, while they keep insisting they need to do it to make the situation better.
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Filed Under: competition, convenience, market research, piracy
Companies: netflix


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  1. identicon
    S. T. Stone, 17 Sep 2013 @ 12:11am

    Re: OMG! Mike agrees with me!

    It's nice to get the content you want when you want it, and it's only possible when you PAY for the large amounts of file hosting required.

    Or when you go to the Pirate Bay or any number of torrent sites and grab a torrent file. Remember that TPB and the overwhelmingly vast majority of torrent sites don’t host the actual content.

    Netflix makes money by offering a more convenient service than piracy, but it still has to compete with piracy’s lack of licensing issues.

    Piracy will always exist, but Netflix has done its best to both mitigate the effect of piracy and use it as market research. (Really, if the MPAA wanted to help, they’d have the studios do zero-day releases of theatrically-run movies on Netflix, DVD/BD, digital platforms such as iTunes. One release, one marketing scheme, and the chance to make sweet bank by capitalizing on both.)

    ALL the entertainment industry wants (in practical terms) is SOME assurance of getting money for its products.

    Then maybe it should offer those products in a far more timely manner (and a far more convenient and affordable manner) than six months after the theatrical release (and with DRM-laden videos or through ridiculous ‘borrowing’ systems such as Ultraviolet).

    Piracy exists because the studios can’t — or won’t — meet the demands of the general public. When the studios can do that, they can get more money. Until they catch up to and embrace what technology can do, however, they’ll get less money from all the home video sales and such.

    Torrent and file hosts MUST be suppressed, kept fearful of jail, in order for Netflix to be able to operate.

    Would sites that only offer legally-free content (e.g. a ‘public domain’ torrent site, a filehost site for free open-source software projects) get a pass on this draconian mindset, or do you want to attack the technology in general?

    Would you really kill off two types of technology (Bittorrent and cloud storage services/cyberlockers) just because people might use them for illicit purposes?

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