Promotional Piracy

A look at the economics of piracy [via Slate]: Promotional Piracy (with a nice reference list)

Unauthorized reproduction of goods such as software and music can displace sales. At the same, because word-of-mouth communications alert those yet to experience a product to its existence and characteristics, individuals who copy may serve a marketing function. A simple model takes both business stealing and promotional e ects into account and uncovers the sensitivity of piracy’s overall profit impact to the presence and shape of conceivable relationships between product valuation and personal piracy cost. Piracy may be good or bad for business, with much hinging on the sign and curvature of this relationship. Key predictions help demystify observed differences in anti-piracy measures, such as between the markets for computer games (high protection) and office software (low protection).

A Little Action

Groups seek to shield minors’ Web data (pdf)

A coalition of medical groups and child advocates called Friday for guidelines that would prevent Internet companies from tracking the behavior of minors online, contending that many adolescents are divulging more than they realize and aren’t digesting complex privacy policies.

The American Academy of Pediatrics and the American Psychological Assn. were among those asking the Federal Trade Commission to encourage the Internet industry to stop profiling young Web surfers by monitoring the sites they visit and the interests they list on social networks such as MySpace and Facebook.

Just as the government has restricted the amount and nature of television commercials aimed at children, the FTC should step in when interactive ad systems gather sensitive information from minors, the groups said in a filing Friday.

It came amid a flurry of responses to an agency proposal for voluntary guidelines on a burgeoning form of online advertising known as behavioral targeting, a market expected to be worth billions in a few years.

Other nonprofit groups expressed alarm at the rapid consolidation of the largest online ad companies and about Internet service providers beginning to share their vast amounts of data with marketers.

Waiting on the Supremes

Indecency cases stuck in legal limbo at FCC (pdf)

After Bono, Cher and Nicole Richie used expletives on live award show broadcasts in 2002 and 2003, the FCC adopted a near zero-tolerance policy for the f-word and the s-word. Broadcasters complained that the commission had reversed its own precedent of not issuing fines if the words were unscripted and isolated or, in legal terms, “fleeting.” Congress then upped the ante, responding to the public outcry over Jackson’s Super Bowl incident by increasing the maximum each station could be fined for an incident tenfold, to $325,000.

Facing the prospect of multimillion-dollar fines if an expletive slipped passed their censors, the major TV broadcast networks banded together to challenge the FCC. A panel of judges on the U.S. 2nd Circuit Court of Appeals in New York sided with them last year, throwing out the FCC’s tougher fleeting expletives policy, calling it “arbitrary and capricious.”

Since then, the FCC’s indecency enforcement has nearly ground to a halt. […]

Reshaping the Distribution of Fashion

In a world where copyright holds little sway: Net-a-Porter’s Natalie Massenet, still the rebel of retail (pdf)

Beyond creating just one impressive site, she reinvented the way we shop. [Natalie] Massenet paved the way for luxury online, and now all designers have e-tail sites, including Marni, Yves Saint Laurent and Stella McCartney. Following her lead, department store sites evolved into mini-magazines with trend reports and blog posts. She also proved to shoppers that buying clothing online could be easy.

[…] Now, Massenet is on the cusp of the next retail leap: collapsing the six-month runway-to-rack cycle to just hours.

[…] Net-a-Porter was started with $1 million, and after eight years, business is booming. In 2006, the site had revenues of $73.9 million. Los Angeles is the second biggest market in the U.S. because it’s “paparazzi-free shopping,” Massenet says, and it has some of the largest single orders, including one for $40,000.

Now that the Internet has come of age, runway photos travel around the world at lightning speed, and copies of garments land in stores before the designer originals. So, earlier this year, Massenet shortened the time it takes for a dress to travel from the runway to your closet from six months to 48 hours, when she struck a deal with Halston to sell two looks from the fall collection the day after the show on Net-a-Porter. Although she won’t say how much inventory there was, it sold out in 45 minutes.

[…] “THE fashion cycle is outdated,” Massenet says, dressed in a sparkly, black Burberry Prorsum skirt, and sipping tea near the bank of computers that is sending luxury out to 150 countries.

“In the last five years, the consumer is more educated than ever. She gets to see the runway shows at the same time as the buyers and the editors, yet we are still treating her as if she hasn’t seen them — telling her what’s happened and making her wait six months to buy it in the stores. We’re telling her it’s all about pointy-toed shoes next season, when what’s in the stores now is round-toed shoes.

“You can’t tell the customer that it’s about two different things. She’ll skip the round toe and go straight to the pointy toe, because that’s what’s coming next.”

Working Through The Mechanics

And facing some realities: Competing with the pirates (pdf)

Darren Feher, NBC Universal’s chief technical officer, said his company wouldn’t even have experimented with a method for online distribution “unless it met this definition of perfect.” Like much of Hollywood, NBC Universal was using only Microsoft’s Windows Media software for streams because it included digital rights management technology that set limits on copying and playback. But in the past 18 months or so, the studio shifted its strategy and focused on getting its programming in front of the largest possible audience. That meant switching from Windows Media, which didn’t work on millions of Macs and other non-Windows devices, to the ubiquitous Flash, which works on a variety of operating systems and devices. Other major networks and TV studios have made the same choice.

To some extent, the move was a concession to reality. By the time a television show was offered online — typically the day after it aired — the original broadcast had already been recorded and redistributed widely. The networks needed to combat this bootlegging with a legitimate, free alternative that could recapture and monetize some online viewers. Nevertheless, the networks and studios pressed for more protection even as they made more content available in more places on the Net.

[…] Regardless of the improvements, some studios remain skittish enough about piracy that they won’t make certain types of content available without some additional protection against copying — for example, ad-supported downloads that could be transferred to a portable device, or feature films in high definition. But Feher said those capabilities will come soon enough, once the business-model and bandwidth hurdles are overcome. Besides, the underground market for video online is already brimming with high-definition bootlegs made from over-the-air broadcasts. The networks are already competing with that, ready or not.