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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Companies: netflix

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

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out_of_the_blue says:

OMG! Mike agrees with me!

As I wrote here, in this (I now see) censored comment:

“Netflix is so much easier than torrenting.” — YEAH, AFTER YOU PAY, MATTERS ARE EASY. — 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. That’s just simply a truism, but of course Mike regards it as divine revelation!

Listen, pirating baboons: ALL the entertainment industry wants (in practical terms) is SOME assurance of getting money for its products. THAT DOES NOT INCLUDE FREE ON PIRATE BAY. Torrent and file hosts MUST be suppressed, kept fearful of jail, in order for Netflix to be able to operate.

Mike supports copyright TOO! So why aren’t you pirates attacking him at every turn? HMM?

S. T. Stone says:

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?

PaulT (profile) says:

Re: OMG! Mike agrees with me!

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

Then why are they so opposed to Netflix offering their content in practical terms? Why do WB withhold large chunks of their content from Netflix completely? Why do the studios as a whole prevent Netflix from offering new releases, or from offering any content at all to large parts of the globe? Why do they not offer the content that people are asking for, but who are left with piracy as the sole option in many cases because the studios refuse to service demand?

If only you’d understand the actual arguments being made, all would be clear and your childish actions made unnecessary. You’d understand that most of your name-calling is a lie and the actual argument that have been made here are exactly what Netflix are doing. Alas, you understand nothing…

CyberKender says:

If this isn't true for most of the media companies, I'd be surprised.

In a discussion I was reading on, IO9, the comment was made that it’s a bad thing that the Federation doesn’t use money anymore. (Bear with me, it is applicable.) Without money, people have real trouble understanding the value of something, and that knowledge is very important to knowing how to respond to demand. Same thing here. Watching what people pirate is an excellent source of demographics about what people actually want to watch. They have to go out and pick what to snag, not just turn on the boob toob and vege out between channel flips.

tanj says:

Re: Re: If this isn't true for most of the media companies, I'd be surprised.

Things still have to be designed. How should the best designers be divided between project A and project B?

If the best designer thinks people really want project A with feature A. How is a demand for feature C which people want more than feature A communicated?

Money has intrinsic value as a means of communication. With money these questions have quantifiable answers. Otherwise there are other means that could be used such as polling, but money is a good indicator for demand.

The obvious upsides probably vastly outweigh the negatives, but there are still some downsides.

Anonymous Coward says:

Re: Re: If this isn't true for most of the media companies, I'd be surprised.

The reality is that even with replicators capable of creating anything out of thin air there would still be money. It’s clear from the show it’s not a post scarcity society. The ability to move mass across vast distances is scarce. Time is scarce. Ect. Money in some form would still be used to distribute those things.

Rikuo (profile) says:

Re: Re: Re: If this isn't true for most of the media companies, I'd be surprised.

I can see your point. In the show, anyone can have a replicator in their home, and (assuming its programmed not and illegal to produce things like fire-arms or other dangerous items) they can make food or whatever whenever they want. However, Quark on Deep Space 9 runs a bar that sells drinks, but I imagine that what is being paid for there is not the drinks themselves, but the service and a seat, which are scarce items…even though this is contradicted by the First Contact movie, where Picard says flat out that there is no money in the 24th century, without giving examples of where it still exists, just flat out says no money.

John Fenderson (profile) says:

Re: If this isn't true for most of the media companies, I'd be surprised.

Without money, people have real trouble understanding the value of something

I disagree. More than that, I think the opposite is true: money actively distorts people’s understanding of the value of something, as they tend to begin to believe the fallacy that the price of something is strongly correlated with its value.

John Fenderson (profile) says:

Re: Re: Re: If this isn't true for most of the media companies, I'd be surprised.

Well, I haven’t seen the example of where the price of something has lent insight into its value, but I’ll grant that for some people in some circumstances, it may well do that.

The progression of society is pretty clear evidence that it’s done far more good than harm as well.

I actually don’t think that’s “pretty clear” at all. You’re posing a very complex assertion (what counts as “good” and “harm”, for starters) as if it were a simple and obvious truth. Perhaps it has been a net benefit, but it’s not simple or obvious that it is.

Money, like government, is inevitable. Good or bad, it is our burden to bear, and being versatile (as you correctly point out), it is extremely important that we use the tools conscientiously and to accomplish the greatest good possible.

Anonymous Coward says:

Re: Re: Re: Re:


In the case of Redbox or any other physical rental shceme you can get a lot of movies at once, copy them to watch at your own pace and still be on time returning them, yay!

If you have children is also a good way to not bust the wallet allowing the children access to such services.

You don’t need to keep the files, just keep the ones you are watching at the moment and save over them once its viewed. timeshifting/placeshifting is something that is not going to go away anytime soon.

A cheap 2 TB HDD is enough for 40 blueray discs or 250 DVDs cue.

John Fenderson (profile) says:

Re: Re: Re:2 Re:

I’m a Netflix subscriber for convenience. Copying the movies from Netflix is pointless (I can already watch them whenever I want) and adds a fair bit of hassle to the process. For me, that would make the deal much less convenient.

I (rarely) rent something through Redbox, but again, that’s pretty damn convenient too. Adding a copy cycle to it would decrease the convenience for that as well.

PaulT (profile) says:

Re: Re:

“Netflix doesn’t replace piracy.”

In my experience – only because they’re blocked from offering all the content their customers want. I’ve talked several people I know into using Netflix instead of piracy (although I did have to teach them how to use VPNs to bypass regional controls since no equivalent service exists in my country – thanks, idiots!).

The general feedback I get is this – Netflix is awesome! Except, I want to watch film X that’s not on there, or I want to watch season 6 of a show and only 4 seasons are available.

Generally speaking, Netflix has a fast, reliable service that despite an occasionally clumsy interface is easier and quicker than piracy for content that’s on there. But, people will still pirate whatever’s not, rather than jump through whatever hoops the studios try to force them through.

But it’s certainly telling in my situation that people will still pirate even if they’re paying. I know one guy who’s paying for a VPN service, Netflix, Lovefilm, Hulu Plus and Vudu and he still pirates because some content is not available to him on any of those subscriptions. Call it wrong if you want, but it’s very clear that the “people only want it for free” fiction is a lie.

Brazilian Guy says:

I live in Brazil. While i don’t use Netflix yet due to the not so good speed of my broadband conection – just 2MB, but upgrading to 5MB this month, yay – i’ve enjoyed the Sony Music Unlimited, and iTunes ocasionaly, and i must say – offer to sell me things i like, please, and i’ll buy if your price is good. I’m even using Google films and books. Steam has my heart and my wallet, and lately, i’m even buying deluxe editions of games over the standard edition to enjoy the soundtrack. I would rather part with a little money than spending time with making unnecessary backups and reformating my pc.

This also means, please, no intrusive and crippling DRM.

And another thing: i’m enjoying being able to buy the games, movies and other things that on other time i would have gotten on a torrent service for free. Hell, i’ve bought games i played when i was young recently on GOG, even if i know i’ll have zero interest in replaying it again, just to support those titles, sometimes i do it with games that i enjoyed a Let’s Play. The same with books and music. Call me foolish if you want, i consider myself happy.

Anonymous Coward says:

Jeez! big mistake saying it isn’t afraid of piracy! the entertainment industries will all over Netflix now, increasing charges and anything else they can think to do to make sure it fails in the not too distant future! you would have thought they knew better than to blaspheme like that concerning the worst thing that was ever invented, Piracy!

Rabbit80 (profile) says:

Netflix have a valid point...

I no longer download TV / Movies and use Netflix almost exclusively. Along with another service which unblocks all regions of Netflix I have all the TV / Film I can consume.

Unfortunately, Netflix have no offline option – so if I am travelling I have to break the rules 🙁

All in all, it costs me less than ?10 / month or half the price of most DVDs or a trip to the cinema!

Phil says:

I have netflix and I download from usenet. A lot of times I would rather download something from usenet even if it’s on netflix, simply because VLC player has more options (for example, I can equalize the audio.) Usenet also often has files available with better video quality… a lot of Netflix stuff looks choppy and fuzzy to me. Also Netflix audio quality is not great… very dull sounding, hard to hear the dialogue without blasting it, which I don’t like to do because it disturbs the rest of my household.

PaulT (profile) says:

Re: Re:

“a lot of Netflix stuff looks choppy and fuzzy to me”

Yeah, I agree with Rabbit80 – check your broadband speed. Netflix will automatically adjust the quality to try and avoid the endless “buffering….” that plagues most streaming on slower connections. It will usually be a little blocky during the first few seconds, but then the quality will improve and stay there unless it gets to a bottleneck at which point it will reduce the quality. Also make sure you have the HD option selected – it can be easy to turn this off in some interfaces and so if you’ve manually selected SD content it will naturally look poor.

I can’t speak to the sound quality as I only have a 2.1 setup, but the video quality is rarely a problem for me.

Roman (user link) says:

Is Netflix really better?

Netflix says it offers a better service? Not for me. For one thing, no native GNU/Linux solution. Another of course is the use of Silverlight (which, like Flash, makes my laptop ten degrees hotter. Plugins also don’t work with my screensaver software, telling it to turn off when there is something playing (especially something fullscreen) while Totem does and does well.

Is Netflix better than “pirated” content? No. Were I to go to one of these websites and save it to my computer it would play without making my laptop hotter and without a screensaver interruption, and yes, without Digital Restrictions Management. Fix all three and I will gladly pay them my money.

PaulT (profile) says:

Re: Is Netflix really better?

Well, there’s always exceptions. Nobody said they were perfect…

Besides, I think they’ve made it clear that they want to move away from Silverlight. They just can’t just ship immediately for licencing and DRM issues.

“without a screensaver interruption”

I never have this problem on my Mac. Perhaps you have a setting that needs to be changed?

“without Digital Restrictions Management”

Talk to the studios. It’s stupid to blame Netflix for this.

anonymouse says:


Sharing content with others is legal, there is no illegality in buying content and giving it to others or even selling it to others once you have finished with it for a small price. So once we all accept that sharing is legal we then move onto the problem.

The courts at the moment believe sharing on the internet is not legal, why becasue it is so easy and fast and there are many more people to share with, that is all….

How to resolve the problem of copyright maffia preventing netflix and there ilk from making or creating an environment where people will pay to watch content instead of sharing it freely at no cost to either side.

The courts must clarify that online sharing for personal use is completely legal under law, they do not need to make a new law they do not need to change any laws they just need to clarify that sharing online even through torrenting is legal.

Once this little law has been clarified the copyright maffia will be forced to work with netflix and other like them to provide a service people are prepared to pay for.
Making less than selling DVD’s but still making more than what they would be making if they had won their case regarding VHS and home movies being illegal.
And actually it has been shown that they would make much more if they did it properly and removed all the restrictions on consumers now and encouraged billions to pay a small monthly fee to consume any content available.

Ninja (profile) says:

File sharing sites offered the convenience the MAFIAA still has to find for a reasonable price. Netflix made it even easier, prettier and more organized of an experience in the movies field. To attract even more customers they would need to switch to some sort of XBMC style and store the movies locally as files while keeping the library organized. There is demand for it. Why not charge, say, $0,50 to make the file available DRM free? I’d gladly pay for a few titles.

There’s a lot of room for official services to completely crush the file sharing offerings (though they will never cease to exist). The main obstacle is the MAFIAA.

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