[A2k] David Puttnam: "piracy as a cost of sale" and market development

[jeff@democraticmedia.org]

from: nma.co.uk, May 25, 06

Lord Puttnam: One of the interesting things that happened - and I'm not
sure it has ever happened before - is that the film industry got a very,
very close-up view of what happened with the music industry and file
sharing. And I think it sort of paralysed it. So instead of advancing,
there was a period of about two years when the film industry just circled
the wagons. It just didn't want to engage with a problem it thought would
be the end of its future.

I think that's changing, though. Some of the experiments that are being
tried at the moment are completely admirable. What they have to accept is
that there are going to be failures and there are going to be successes.
No one can predict which of the monetising systems is going to work, or
what forms of protection can be put in place that are going to be
sustainable.

I've always been a person who believes that if you allow a market to
expand it will find its level, and that you can become over-fixated and
over-neurotic about, say, piracy. Yes, in theory a lot of money gets lost
to piracy, but also a lot of audiences get built as a direct result.

I got into an argument a few years ago with a very eminent person in this
country over the use of TV programming in China. The BBC had one or two
successful programmes that it had done in China and the Chinese were
clearly beginning to pirate the BBC material. There was a great debate at
the British Council about how draconian we should be, how careful we
should be about protecting that material. My position then, and now, is
that there's a certain amount of leakage that will take place, but what
you're doing is building a marketplace. Once the Chinese get to like and
become familiar with English-language programming, and begin to understand
it as part of their cultural diet, there'll be a market.

Look at it at its crudest, and this is where I think capitalism goes
wrong, in a way. There's a billion people in China. Let's say that 700m of
them become compulsive piraters. You could work out a figure and say this
is a loss to the business of x billion pounds. If 300m become committed
consumers, then you've got a hell of a market. So which one do you want to
focus on? Do you want to focus on the third of the market that you didn't
have before, which is growing like topsy and is generating significant
revenues? Or do you want to fixate on the fact that the cost of that is a
massive piracy problem that you actually can't do much about?

I've always been someone who's about building markets, building value,
building revenues. But there are those in the industry - and they've
tended to dominate the argument - who are utterly fixated on what they see
as loss of revenues. I think you can slash that loss by 75% because in
many, many cases these are people who, if they had to pay, wouldn't buy
the product at all. This loss-of-revenues argument assumes that all those
people would have bought the product legally.

I think there's a certain leakage. You can argue whether it's 10% or 20%,
but it's certainly not 100%, and I think the compensating factor is this
growing of an appetite. In my judgement, it more than compensates, and I
think that's where the film industry is beginning to come around.


But isn't piracy a legitimate concern?

The film industry can't, and I wouldn't expect it to, throw up its hands
and say so be it, we live in a world of piracy. It has to go through the
motions, it's got to do the things it's got to do to restrict and control
piracy. But at the same time, were I sitting at the head of a studio now,
I'd be looking much more at the opportunity all this is presenting.

I was in an industry meeting two and a half years ago, and I was in the
same meeting a year and a half ago. Two and a half years ago the meeting
was all about piracy; a year later - and you know, this is the world
collapsing - with almost the same people in the room, it started by saying
that there was no question they had overreacted to that. Piracy wasn't as
nearly bad as their figures had predicted. In 2003, it looked like the end
of the world; by 2005 the end of the world patently was not nigh, and in
fact there was a pretty solid base to start to build from.

I don't condone piracy. I never have and I never will. But what I do know
is that, with a couple of blips, my royalties form 'Chariots of Fire' go
up, not down, year on year. If anyone had told me 25 years ago that I'd be
earning significant money from my movies, I'd have thought they were out
of their tree. So why am I an optimist? Because I'm a living breathing
example of how, despite piracy and all these other threats and terrors,
movies do get made, royalties do get paid, and people like myself make a
very good living.


So now there's an opportunity to reach out to smaller audiences at lower
cost?

Let's stick with China and the billion people, and the fact that they have
the Beijing Olympics. Where should my concerns lie? That 15m Chinese
people (and I'm making the numbers up) might be attracted to buying a
legal copy of 'Chariots of Fire'? Or that 200m of them might rip it off
and not pay for it? I'll take the 15m, thank you very much indeed. I won't
sue the 200m, I'll go through the protection process, obviously. But I'd
rather have the opportunity to sell to 15m people than, because of fear of
piracy, say we won't operate in that country.


You treat piracy as a cost of sale?

Exactly. I'm prepared to treat piracy as a cost of sale and the cost of
developing a market.