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Study: Stop trying to lock out pirates

Media companies are using the wrong tactics in fighting copyright piracy with encryption, according to a study. Its advice? Find ways to make money from digital works instead.

Media companies have to pull back from protecting content if they hope to beat back pirates, according to a study released Wednesday.

Instead, they need to find ways to make money from digital music and movies, says the study from consulting firm KPMG. It adds that the responsibility for finding new digital business models lies with boards of directors, and not just with midlevel managers. With an estimated $8 billion to $10 billion in lost revenues annually, the issue should be a corporate governance matter.

"What we don't 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-swapping site that was found to violate U.S. copyright laws. "But why do the Napsters exist? Because the marketplace wants them."

Steel said that if the issue "is not on boardroom table...then that boardroom has problems."

Ever since the 1990s technology boom fueled 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 reselling 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 notably 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 these have failed to meet expectations.

The same scenario is quickly spreading to the movie industry, although the swap-site distribution of digital video content is hampered by slow Web connections for most home computer users.

Still, the KPMG study--which polled some 40 top executives from major players to smaller independent producers and Web companies--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 percent 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, which as far back as 20 years ago was battling video pirates. However, the media companies 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 percent of the companies even make some of their content available in digital form, and fully 57 percent of the executives admitted to failing to have a review process in place to determine which types of digital content should be deemed intellectual property.

Major global media companies include AOL Time Warner, Walt Disney, Viacom, Vivendi Universal, News Corp. and Bertelsmann.

Story Copyright  © 2002 Reuters Limited.  All rights reserved.