Media companies must put less emphasis on protecting digital content and instead find ways to make money from digital music and movies if they hope to beat back copyright pirates who threaten their businesses, according to a study released today by KPMG.
The tax, assurance and financial consulting firm said the responsibility for finding new digital business models lies with the boards of directors and not just with mid-level managers. With an estimated $8 billion to $10 billion in lost revenues annually, the issue should be a corporate governance matter.
"What we do not see is a real questioning of business models," said Ashley Steel, a partner in KPMG`s Information, Communications and Entertainment practice.
"They complain about the Napsters," she said, referring to the bankrupt music swap site that was found to violate US copyright laws. "But why do the Napsters exist, because the marketplace wants them."
Steel said that if the issue "is not on [the] boardroom table ... then that boardroom has problems".
Ever since the 1990s technology boom fuelled the drive to put music, movies, TV shows and books on the Web, the world`s major record labels, movie and TV studios and publishers have focused on creating software and hardware that prevents people from illegally copying digital content and re-selling it.
The music industry has been the hardest hit with CD sales dropping dramatically over the past few years as so-called peer-to-peer Web sites like Napster were used prominently by people who would trade, for free, digital files of the songs.
The record labels, too, did not collect royalty payments from the swap sites like they would have from radio stations. The labels launched subscription Web sites in answer to the swap sites, but they have failed to meet expectations.
The same scenario is quickly spreading to the movies, although the distribution of digital video content is hampered by slow Web connections for most home computer users.
Still, the KPMG study that polled some 40 top executives from major players to smaller independent producers and Web firms found the media executives focus on encryption software and other technologies to thwart pirates, instead of looking for ways to beat the pirates to the consumer pocketbook.
The study found that some 81% of the executives relied on encryption to prevent piracy, but Steel argued that the pirates will always exist.
"The next stage of encryption just means it will take a hacker a couple of days longer," to crack software codes and make digital copies of material.
She pointed to the home video industry that as far back as 20 years ago was battling video pirates, but the media firms found ways to profit from video in spite of the pirates.
Steel said that in order to build new business models, the companies` digital content must first be valued properly.
The study found that currently only 43% of the companies even make some of their content available in digital form, and fully 57% of the executives admitted to failing to have a review process in place to determine types of digital content should be deemed intellectual property.
Major global media companies include AOL Time Warner, Walt Disney, Viacom, Vivendi Universal and News Corporation and Bertelsmann.
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