Flat or declining revenues at major media companies like Sony and Viacom is contrary to recent reports that digital piracy is declining.

Guest post by Robert Steele

Recently, there has been a lot of discussion surrounding a few articles suggesting that online piracy is decreasing.  From where I sit that is not the case.  I am the Chief Technology Officer and Chief Operating Officer of a company that helps monetize copyrighted intellectual property (IP) for the artists and holders of copyrights.

A brief overview of the public filings of Viacom and Sony, two major players in the production and distribution of copyrighted intellectual property shows that one has no growth over 3 years and the other has declining revenues. In fact, Moody’s recently expressed concern that Sony will be unable to maintain future profitability and has downgraded the Company’s debt rating to “junk” status. Due to various external circumstances including “rapid changes in technology”, Moody’s announced that it would be difficult for Sony to improve their financial position in the near-term

Much of the claims that piracy is declining are based on a new report published by Sandvine,  To get our levels set correctly here, Sandvine is a Canadian company, which as it ends up, makes software to assist ISPs to “shape” i.e. control, BitTorrent traffic.  BitTorrent is the primary tool for file sharing and pirating content online.  This report declares that “Filesharing now accounts for less than 10% of total daily traffic in North America”  This has been widely touted in various blogs as a decrease in piracy.  Specifically, the report states that during the second half of 2013, filesharing’s share of aggregate peak-period traffic in North America (not worldwide) fell to 8.93% from 10.5%. This data is being shown as proof that the proliferation of legal services that distribute copyrighted content such as Spotify, Netflix, YouTube, are helping to combat the fight against piracy.

If we had written a narrative regarding the same data, we would have stated that BitTorrent piracy grew by data volume during the period.  Since Sandvine’s clients are ISPs, they don’t want to highlight this embarrassing fact about how their clients are harming companies like Sony and Viacom, so they feature the statistics that paint their client’s in the best light. 

In regards to their narrative on their findings we see problems with the report–all of which should cause companies, investors and owners of copyrighted IP to be skeptical of any optimism about the decline of online piracy. Among them:

1) The report estimates that total traffic from the first half of 2013 to the second half of 2013 increased 20-30%.  This means that the total amount of data used for filesharing increased.  The 8.93% of internet traffic in the second half of 2013 is more movies, music and video games consumed illegally than the 10.5% indicated in the first half of 2013 because the overall “pie” grew by 20% to 30%.

2) The report shows BitTorrent’s share of total Internet traffic increased, as did total volume of BitTorrent traffic, everywhere else they measure–Europe, Asia-Pacific, and Latin America (as it has in every report published).

3) The narrative does not take into account the increase use of VPNs (Virtual Private Networks) or proxies increasingly used by BitTorrent users to “mask” where their traffic is coming from. SSL (Secure Sockets Layer) traffic, used by VPN services, more than doubled in the past year (as reported by Sandvine).  They include data on VPN usage but leave that out of their analysis on filesharing.

4) We believe that the report is misleading when it states “Long are the days when filesharing accounted for over 31% total daily traffic, as we had revealed in our 2008 report.”  The total amount of fixed data transferred on the internet grew by more than 310% between 2008 and 2012 from 9,927 Petabytes per month to 31,388 Petabytles per month.  We are still waiting for total 2013 internet traffic totals.  So 8.93% of internet traffic in 2012 used for filesharing is a lot more music and movies files than 31% of internet traffic in 2008.

4) The report hinges its filesharing debate solely on public BitTorrent, ignoring the rise in popularity of “dark nets” including Tor and other encrypted digital lockers used for online piracy.

5) Despite the increase in total traffic, U.S. digital track sales decreased for the first time ever in 2013, dropping from 1.34 billion to 1.26 billion, according to Nielsen SoundScan. CD sales also declined, dropping 14% to 165 million.

The data provided by Sandvine says nothing about the number of files share, or the number of files shared per person. That is the information that matters, and what we attempt to solve everyday at Rightscorp.

Ignoring all the other factors, this is reason alone to question the claim that “piracy is decreasing”.

VPNs and Proxies

US BitTorrent users are becoming more savvy and turning to VPNs to mask their traffic from their ISP. It has been shown that this method is effective in avoiding piracy lawsuits and strikes. TorrentFreak, a popular piracy blog, reports “a majority” of BitTorrent users are turning to VPNs.

The results in the Sandvine report show that SSL (Secure Sockets Layer) traffic, used by VPN services, has increased significantly over the last report, more than doubling from 2.5% to 5.4% of total traffic. Since actual traffic has increased even more, the true usage of VPNs could be significantly more.

As TorrentFreak pointed out

“This increase in VPN use also means that the actual percentage of BitTorrent traffic is even higher, since the Sandvine report puts the traffic generated by these users in the SSL category.”

Other Piracy Channels

The metric Sandvine uses for all “piracy” is BitTorrent. This is flawed, as recently many pirates have been abandoning torrent-based peer-to-peer file sharing, partially because there are many other ways available to share material.

“Dark nets” such as Tor and other encrypted digital lockers have experienced an exponential growth in number of users in recent months. Particularly following the attention drawn to them by the Edward Snowden case. Other popular anonymous networks including I2P, and Freenet have combined to more than double in size in the past year.

The limitations in Sandvine’s tracking data for anonymous networks such as Tor suggest that the report is missing one of the fast growing segments of the piracy market.

What Does This Mean?

Well, to be frank, piracy is not decreasing, and investors should be skeptical about reports stating that it is. On the contrary, there are many reasons to believe that it is in fact on the rise. Artists are still unable to properly monetize their copyrights.

Hopefully, with services, including our own at Rightscorp (RIHT), artists will be able to protect what is theirs. Additionally, Rightscorp has been successful at getting VPN companies to adopt its copyright monetization services to discourage misuse of VPN services.

The cultural acceptance of piracy–particularly with young people–creates a lot of media incentives to mask the consequences of this system. It also leads to optimistic reports like the one above.