Tell Me What You See Here:

This is about 50,000 people downloading episodes 10 and 12 of Lost off a popular bittorrent tracking site. If you're in the entertainment industry, your answer is going to be something along the lines of "$100,000 in lost revenue!" At $2 a download from the itunes store, that is the direct equivalency, so there's a certain kind of logic here.

However, this sort of grade-school economic arithmatic isn't how the world really works. I fileshare a good portion of my media intake, including shows like Lost, but that doesn't mean ABC and Apple are missing out on my $2, because I wouldn't pay $2 an episode to watch the show, especially not at the quality level (well below broadcast) that's provided via iTunes.

As a media consumer, the DVD set, which will include 25 or so episodes for $60 retail, offers a better value. Savvy mathamaticians will point out that this is slightly more than $2 and episode, but there are important differences:

• A DVD set will have HD-quality visual resolution and sound. The iTunes version will have about a quarter the visual resolution.
• With iTunes I need to provide my own valuable hard-drive space (close to 10GB a season) to store my media. The DVD set is its own archive.
• The DVD set can be easily loaned to friends. Apple's DRM prevents me from introducing my friends to one of my favorite media experiences on their own time, unless I want to give them my iPod.

I could go on, but the point is that the $2-a-show download from Apple's iTunes is a poor bargan for media consumers v.s purchasing a DVD set. The only benefit is that you get to watch it today rather than in several months, but this option is open to anyone with a television, a pair of rabbit ears and a clock, let alone one of these newfangled "VCR"s or futuristic "TiVo"s. So there's that.

The other point about Lost's "lost revenue" is that a lot of these people were never going to buy the DVD either. Read this next part slowly if you're an industry person: If the filesharing option didn't exist, a lot of these downloaders simply wouldn't watch the show. I'm in that camp. If I didn't have filesharing, I might be more likely to join NetFlix or some similar group, and I might rent more movies from the video store, but I'm not a high-rolling media consumer. Never have been. The same dynamic holds true of music vis-a-vis Naptser and the subsequent p2p networks.

Will the entertainment industry get smart?

The interesting thing is that I think the industry benefits from this, whether it realizes it or not. It's widely understood that Microsoft has made piracy a part of their strategy in rolling out new software: they would ignore it and let it help spread the word about a new product, even through several versions (1.0, 2.0, 3.0, etc) until finally when they'd gotten enough user feedback and a broad enough userbase -- when people were actually semi-dependent on this piece of code -- they release the next version (4.0), lock out previous versions, generally drop the hammer in a number of ways, and thus maximize their profits.

Making use of illicit filesharing to boost popularity and grow an audience, followed by a strong move to capitalize on that market, should produce good financial results, though methods for this need development. The mid-season release of the first half of Battlestar Galactica Season 2 on DVD is an interesting experiment, one I predicted we'd see about a month ago. This obviously has stronger applications now for youth and techie oriented products, and at almost $5 an episode I think Battlestar is pricing itself out of the market, but give it five years and something like this will be the norm for any hot media product.

The business of entertainment has a populist character. You're trying to make money by pleasing people through your hard creative work. The current model for television is financed by advertising, which sort of turns the nature of entertainment on its head: the consumer of media is the real product, their assumed eyeball-time sold to advertisers to reap profits for the studio and finance further production(s). This revenue model (along with the idea of financing many failed projects with a few hit properties) is falling apart in the information age as eyeball-time fragments, independent production continues to grow, and broadcast advertising looses its punch.

I would like to see an open source entertainment endeavor: one which makes its finances largely public, its products available (at Sub-DVD quality) for free, and which is clear that it's relying on viewers to support it (though DVD purchases, other merchandise, or simply direct donations) to keep up production. It's sort of an OpenPBS model -- "this show is supported by viewers like you" -- but I think it would work if you could get the initial nut together and you had a good idea, good talent, and a sound community-marketing effort on board.