Piracy and the Video Streaming Market

With the rise of competing video streaming services, Netflix’s dominance in the online video streaming industry has begun to wane. Market saturation has increased in recent years and will continue to do so as new competing platforms emerge in 2019. This increase in the number of online streaming companies, each at different price points, has served to increase use of another “competitor”: piracy. This issue stems from what Techdirt refers to as “exclusivity silos,” a streaming service that carries popular content that cannot be found anywhere else, such as HBO with its popular show Game of Thrones. Right now, the video gaming industry is full of these exclusivity silos, with particular streaming services hosting particular games exclusively. The current business model, with its emphasis on these silos, will continue to suffer from piracy losses until providers agree to share content across platforms. In this model, the configuration of content will drive differentiation between companies that have different portfolios of games, rather than a monopoly over any given game.


The music streaming industry faced a similar problem with piracy a few years ago. The streaming service Tidal launched in 2015 as a new platform that featured popular content exclusively. As a result, Tidal was an exclusivity silo in the music industry, since the music it offered could only be listened to on its platform. According to The Verge, their model “has largely been ruled ineffective by the music industry,” noting that competitors Apple and Spotify have given up the practice altogether. Tidal then modified its practices, employing what is referred to as a “limited exclusive” policy—offering new content about a day before other providers.


The music industry has only benefitted from this development, with both increased revenue and decreased piracy. For example, in the United Kingdom, BBC news reported 2017 revenues not seen since the “Britpop boom,” a popular genre from the mid-1990s. The United States enjoyed similar growth in 2017, where total revenue in retail grew $1.2 billion, or 16.5 percent. Both increases are purportedly due to the ease of access offered by music streaming industries like Spotify and Apple Music. Streaming revenues overtook physical format revenues for the first time in the UK and the U.S. increased its streaming revenue 43 percent from 2016. Furthermore, this business model also decreased piracy. Tech consulting firm Muso has noted that music-based piracy decreased by 60 percent in 2018. Because people can access so much music at such a low cost, the incentive to resort to piracy is much lower.


Perhaps the challenge to the video streaming industry is not a glut of different services, but rather exclusive content. Exclusivity is the norm rather than the exception, due in part to the outdated business models of cable companies. Cable companies rely on a model that offer specific packages at different price points, with each package containing a different combination of channels. Video streaming services are following a similar model by offering content exclusive to their service (or “channel”). While this model has fueled rapid growth, it remains to be seen how the industry will continue as new services saturate the market, making more and more games exclusive and fragmenting the market.


Increased piracy is an issue stemming from both exclusivity and numbers. If the major services were still Netflix, Hulu, HBO Now and Amazon Video—each with reasonable price points—the problem of exclusivity would not be as acute, because there are only a couple of services for content to be available on.


Now, however, there more streaming services that those four. According to the Washington Post, there are currently eight popular streaming services, with four more expected in 2019. The biggest name is Disney Plus, but Apple, Facebook and D.C. are all launching streaming services as well.


The total price of all the basic streaming services adds up to an amount comparable to cable television. Tallying up all the prices given in the article for basic services, the total cost is about $70, a mid-tier price for several cable services.


In reality, consumers will not trend towards purchasing all of these services. This would likely be too expensive and too cumbersome. Instead, the fragmentation of the industry will see a sharp uptick in video piracy—through Bittorrent traffic or visits to illegal streaming sites. Bittorrent traffic rose in 2018, largely due to the fragmentation of the streaming industry. As there are services yet to be released in 2019, this traffic will likely continue to rise.


The solution is a reconfiguration of the streaming industry. To this end, there are “soft reset” and “hard reset” options. Both involve a major downsizing of exclusive content and a redistribution across streaming platforms. The “soft reset” would still include some exclusive content, while the “hard reset” distributes all content across at least two streaming services. It is perhaps unrealistic to consider the “hardest reset” option, which involves a redistribution of nearly all content across all services. There are many reasons this option is implausible, chief among them is the number of streaming services and the intricacies of licensing contracts. However, increasing overall distribution will cushion against the exclusivity problem and will help mitigate piracy, because consumers will have greater choice in providers of their favorite content.