The Internet Is Not the Answer (20 page)

The real cost, both in terms of jobs and economic growth, of online piracy is astonishingly high. According to a 2011 report by the London-based International Federation of the Phonographic Industry (IFPI), an estimated 1.2 million European jobs would be destroyed by 2015 in the Continent’s recorded music, movie, publishing, and photography industries because of online piracy, adding up to $240 billion in lost revenues between 2008 and 2015.
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Less open to speculation is the number of jobs already lost due to this mass larceny. In its study of the impact of piracy on the European creative economy in 2008, for example, the French research group TERA Consultants found that it destroyed 185,000 jobs and caused a loss in sales revenue of 10 billion euros.
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And that’s just for Europe. Just in 2008. And things haven’t improved since then. Between 2002 and 2012, for example, the US Bureau of Labor Statistics reported a 45% drop in the number of professional working musicians—falling from over 50,000 to around 30,000.
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One of the most misleading myths about online piracy is that it’s a bit of harmless fun—an online rave organized by delusional idealists, like Electronic Frontier Foundation founder John Perry Barlow, who just want information to be free. But nothing could be further from the truth.
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Today, online piracy is the big business of peer-to-peer and BitTorrent portals that profit, mostly in advertising revenue, from the availability of stolen content. A report, for example, by the Digital Citizen Alliance, which closely examined the “business models” of over five hundred illegal sites peddling stolen intellectual goods, found that these websites brought in $227 million in ad revenues in 2013, with the average annual advertising sales of the largest thirty of these sites being $4.4 million.
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The most obvious beneficiaries of this economic rape of the creative community are the criminals themselves—thieves like the New Zealand–based Kim Dotcom, the mastermind behind Megaupload, which, at its height, had 180 million registered users and accounted for 4% of all Internet traffic. Emancipating other people’s information has made Dotcom a rich man. “I’m not a pirate, I’m an innovator,” the six-foot-seven, 280-pound Dotcom claimed in 2014, without ever explaining how his “free” Megaupload platform, which enabled the sharing of stolen property, generated the legal revenue to enable him to buy his £15 million
Downton Abbey
–style mansion in the New Zealand countryside.
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But while uberpirates like Kim Dotcom hold much of the responsibility for the decimation of the recorded music industry, not everything can be blamed on these criminals. The problem is the Internet remains a gift economy in which content remains either free or so cheap that it is destroying the livelihood of more and more of today’s musicians, writers, photographers, and filmmakers. As Robert Levine,
Billboard
’s former executive editor and author of the meticulously researched 2011 book
Free Ride
, argues, “The real conflict online is between the media companies that fund much of the entertainment we read, see and hear and the technology firms that want to distribute their content—legally or otherwise.”
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And it’s this struggle between an entertainment industry that, to survive, needs to be paid for its expensive content and an Internet built around the utopian idea that “information wants to be free,” Levine argues, that is “breaking” the Internet.
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Many of today’s multibillion-dollar Internet companies are complicit in the piracy epidemic. “Free” social networks like Facebook, Twitter, Tumblr, and Instagram, for example, have spurred the growth of the distribution of unlicensed content. What is left of the photography industry is particularly vulnerable to this kind of “sharing” economy. Because much of the content on these social networks isn’t accessible to the general public and instead is shared only between individuals, photographers find it nearly impossible to stop this form of unlicensed content use or even to accurately measure the extent of the illegal activity. As the American Society of Media Photographers notes, this problem has been compounded because networks like Instagram, Tumblr, and Facebook make very little effort to warn their members against the illegal sharing of images.
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Then there’s the Google problem. It’s no coincidence that the beginning of the piracy epidemic coincides with the emergence of Google as the Internet’s dominant search and advertising company. Nor is there any doubt that Google generates untold millions, even billions of dollars annually from piracy—either directly, by Google’s running ads on infringing sites, or indirectly, by its placing pirated content high in its search results. In the United States, for example, a 2013 study sponsored by the Motion Picture Association of America found that Google was responsible for 82% of all search requests for infringing content
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—a number even outweighing the 67.5% of the search market that, in March 2014, Google controlled in the United States.
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And in Britain, where Google is a monopolist with control of an astounding 91% of the search market,
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things got so bad in 2011 that the British culture secretary, Jeremy Hunt, warned Google that unless it worked on demoting illegal sites in its search results, the government itself would introduce new laws forcing it to do so.
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But even Google’s 2013 reform of its search algorithm, explicitly designed to downgrade or remove pirate sites, hasn’t made much difference—with both the Recording Industry Association of America and
Billboard
reporting that these changes have, if anything, made the problem even worse.
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For all its self-proclaimed promises of doing no evil, the transformation of Google from a 1998 startup to the world’s most powerful company in 2014 has been a catastrophe for most professional creative artists. As the owner of YouTube, Google has been sued by Viacom for “brazen” copyright infringement. It has been investigated by European Commission officials for illegally “scraping” proprietary content from rival search sites. It has been subject to class-action lawsuits by both authors and photographers claiming willful copyright infringement by Google Books.
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Even German chancellor Angela Merkel publicly condemned Google’s attempt to create a massive digital library, saying that the Internet shouldn’t be exempt from copyright laws.
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Yes, Google has invested in YouTube, the world’s dominant user-generated video platform, which, with Netflix, gobbles up half of US Internet traffic. But YouTube isn’t the answer. Certainly not for the independent musical artists like Adele, Arctic Monkeys, and Jack White, who, in June 2014, were threatened with being thrown off YouTube unless they signed up to the website’s new subscription music service.
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Nor is it the answer for the millions of professional video producers who are “partnering” with the Google-owned company for advertising revenue. The problem is that Google demands 45% of all this “partnership,” making it a struggle for these companies to make any money at all—particularly since YouTube’s advertising rates are going down, dropping, for example, from $9.35 per thousand ad views in 2012 to $7.60 in 2013.
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Meanwhile, YouTube’s privileged partners, the one hundred production companies that, in 2012, were given $1 million apiece to polish up their videos, are rebelling against Google’s greed. One of these partners, the Los Angeles–based media entrepreneur Jason Calacanis, even wrote a blog post titled “I Ain’t Gonna Work on YouTube’s Farm No More,” explaining why what he calls “the absurd 45% YouTube tax” a kind of digital tithe that grants YouTube 45% of all advertising revenue from independently produced content, inevitably leads to the “demise” of independent producers.
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The “free” Google search engine might be getting rich on the massive taxes it extracts from the Internet, but the online “free” economy simply isn’t working as a viable economic model for independent content companies. “The outbreak of free is being felt all over the economy,” warns the
New York Times
’ David Carr.
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Jeff Zucker’s trade of print dollars for Web pennies remains the online rule, with even the most popular websites being caught in what the media and advertising pundit Michael Wolff calls “the CPM vice”—the ever-downward spiral of the cost-per-thousand page views afflicting even the most popular sites like
Business Insider
,
Buzzfeed
, and
Gawker
. Wolff notes that more traffic isn’t resulting in equivalent rises in advertising revenue and believes that the “digital conundrum” for prominent online content brands is that “it costs more to get traffic than what you can sell it for.”
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It’s a fatally flawed model, Wolff concludes, and can only be circumvented by websites like the
Huffington Post
or
Forbes
that use free user-generated content or by Internet businesses able to subsidize unprofitable online content with offline conferences and subscriptions.

Certainly online eyes remain much less valuable than offline ones, with average advertising rates of the printed edition of a major newspaper being around ten times its online cost.
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The same is true of the value of offline versus online readers, with the Newspaper Association of America estimating that the average print reader is worth around $539 versus the $26 value of the online reader.
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And free certainly isn’t working as an economic model for online newspapers. Take, for example, the world’s third most frequently visited news website, the London
Guardian
. In spite of breaking the
News of the World
phone hacking scandal and the Edward Snowden and WikiLeaks stories, the
Guardian
has reported operating losses of more than £100 million since 2010, with a stunning £50 million lost just between 2012 and 2013.
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No wonder the
Guardian
is experimenting with a robot-generated print edition called #Open001, which replaces editors with algorithms to select relevant stories for publication.
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But robots can’t write the kind of high-quality journalism that distinguishes the
Guardian
from most of its rivals. So the newspaper’s response to its mounting losses has been to double down on its advertising strategy. In February 2014, the paper announced it was starting a new “branded content and innovation agency” in partnership with Unilever that would, essentially, sell sponsored content to advertisers. As the blogger Andrew Sullivan warned about this “native advertising” strategy, it’s actually a public relations campaign “disguised as journalism in order to promote Unilever’s image as a green company.”
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So the next time you read something complimentary about Unilever on the
Guardian
website, make sure you check the fine print. The article might have been “supported” by Unilever’s marketing department.

The carnage of job losses has been particularly bloody in the news industry, with full-time professional reporters’ and writers’ jobs at US newspapers falling from 25,593 to 17,422 between 2003 and 2013, a drop of 31% in newsroom staffing to go alongside the 55% fall in advertising sales, 47% drop in weekday print circulation, 35% fall in aggregate revenue, and 37% drop in pretax profits.
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The same period also saw a drop of 27% in newspaper editorial jobs and a hideous 43% fall in positions for photographers and videographers.
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Things haven’t improved in 2013, with Microsoft’s online network MSN laying off all its editors and Bloomberg and the London
Independent
canning their entire staffs of cultural writers. Things are equally bad outside the United States and Britain, with 15% of all Australian journalists losing their jobs in 2013
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and 25% of Spanish journalists being made redundant since the recession
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—making them, according to the
Christian Science Monitor
, one of the “biggest casualties” of the crisis.
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And the future will be no less depressing for journalists everywhere. The perspicacious New York University media scholar Clay Shirky—who describes today’s threatened loss of journalistic talent as “catastrophic”—predicts that in the short future “many newspapers will go bankrupt” in Kodak style: “gradually and then suddenly.” Shirky entitles his obituary
Last Call
: “The End of the Printed Newspaper.”
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