With Sky-High Stakes, What Can Studios Do to Fight Piracy?

Sam Blake

Sam primarily covers entertainment and media for dot.LA. Previously he was Marjorie Deane Fellow at The Economist, where he wrote for the business and finance sections of the print edition. He has also worked at the XPRIZE Foundation, U.S. Government Accountability Office, KCRW, and MLB Advanced Media (now Disney Streaming Services). He holds an MBA from UCLA Anderson, an MPP from UCLA Luskin and a BA in History from University of Michigan. Email him at samblake@dot.LA and find him on Twitter @hisamblake

With Sky-High Stakes, What Can Studios Do to Fight Piracy?

The entertainment industry is navigating choppy waters in a sea of uncertainty that is evidently filled with pirates.

Content pipelines have been crimped due to shooting moratoria and the suspension of live events. Advertising revenues are plummeting. Although streaming consumption is up, many viewers will soon face tough choices about how to spend their money amid an economic downturn. Competition continues to grow. And ongoing health concerns stemming from the coronavirus may put an irreversible dent in businesses that require congregating in close quarters, like movie theaters and theme parks. Speculation of consolidation and bankruptcy is bubbling.


Given such headwinds, anti-piracy has arguably never been more important. Protecting revenues has taken on more urgency in these turbulent times.

Yet new analyses suggest that anti-piracy measures are failing. Muso, a British anti-piracy firm, recently found that film piracy in the U.S. was up an "unprecedented" 41% in the final week of March compared to the final week of February.

Reports have suggested that all the unreleased episodes of The Last Dance, a Netflix-ESPN collaboration about the Michael Jordan-era Chicago Bulls that has been a lifeline to starved sports fans, are available for unsanctioned viewing.

Unreleased episodes of "The Last Dance," a Netflix-ESPN collaboration about the Michael Jordan-era Chicago Bulls, are available for unsanctioned viewing.ESPN

And an analysis exclusively shared this week with dot.LA found that four major studios lost $100 million in 23 days due to pirating across six major releases made available on streaming platforms from March 20 - April 11. The finding comes from Videocites, a video analytics firm founded in 2014 with offices in Israel and Beverly Hills. Videocites did not wish to disclose specific titles or studios.

In 2019, the U.S. Chamber of Commerce found that TV and film piracy costs the industry up to $71 billion annually. When sports are included, that number climbs to nearly $230 billion.

While determining an exact dollar figure is ripe for miscalculation because of the uncertainty over whether pirate consumers would have otherwise bought the title legally, three things about piracy are clear, said Mike Smith, professor of marketing at Carnegie Mellon and co-author of a report on digital piracy recently presented to the U.S. Patent & Trade Office.

One is that piracy hurts sales. For some time the question was unclear, since theoretically piracy can provide promotional benefits. But after 29 out of 33 peer-reviewed articles reached the same conclusion, "it's not an interesting debate anymore," Smith told dot.LA.

Also true, though not quite as well documented in the literature, is that digital piracy reduces investment in creative content -- and therefore the volume of creative output.

"If I were a studio executive," Smith said, "I'd be worried that people are getting comfortable with piracy right now."

Whack-a-mole?

It is often said that fighting piracy is like a game of whack-a-mole, explained James Maysonet, head of business development at Videocites and author of their new paper. In other words, there will always be new ways for pirates to circumvent content protections.

A globalized marketplace doesn't make deterrence any easier, noted Smith, since not all countries protect copyright equally.

Further complicating matters is the sheer variety of reasons why pirates post illegal content, Muso Chief Executive Andy Chatterley told dot.LA. "The whack-a-mole analogy doesn't give justice to the actual reality," he said. "It's more complex." A pirate's motives may be financial, malicious, fame-seeking or otherwise.

Smith also disagrees with the analogy: "The argument makes perfect sense, except it's wrong. Because it doesn't take into account the fact that people are lazy."

What to do?

The final thing the academic literature makes clear, Smith says, is that pirate consumers are just like regular consumers in one essential way: they respond to incentives.

"Making it harder to consume pirated content reduces illegal consumption, and increases legal consumption," Smith said. He emphasized that it isn't necessary to remove every single nefarious on-ramp to illicit content. For example, when the British government blocked access to The Pirate Bay, a popular piracy site, there was little change in pirated consumption. "But when they blocked the next 18 and then the next 53 most popular sites, that's when you saw increases in legal streaming consumption. You don't have to make it impossible."

When the British government blocked access to popular piracy site The Pirate Bay, there was little change in pirated consumption.upload.wikimedia.org

Indeed, Maysonet claims that 90% of illegal streaming is done in broad daylight, on social media sites like Facebook and YouTube. This, he proposes, suggests that relatively modest increases in piracy protection could make a big difference.

"We're not talking about the sinister dark web that requires a person to download Tor, buy a VPN, and navigate the backwaters of internet hell," Maysonet wrote in his Videocites paper.


Much of the illegal viewing is done on normal social media sitesVideocites


One solution he touts is his own company, which uses video-based artificial intelligence to create a "fingerprint" for visual assets, then scan the internet intermittently to identify and flag illegal copies.

Muso offers a similar service, except according to Chatterley it focuses more on an asset's metadata. Maysonet, speaking generally about anti-piracy methods, claims a metadata approach has lower capability than fingerprinting to find pirated assets, employing as they do disguise tactics like removing or obscuring metadata, flipping the video feed upside-down, chopping it up into tiny segments, or obscuring an asset's watermark. Chatterley says the advantage of a metadata approach is its cost and speed.

As for legal recourse, a content-protection battle is currently underway in the European Union. According to Maysonet, the key issue is whether digital platforms should be held liable for displaying pirated content. In March, the U.S. Senate's Intellectual Property subcommittee held a hearing to examine how other countries handle digital piracy, with particular attention paid to this EU Article 17 debate.

Maysonet said that U.S. companies are closely watching the proceedings. Whatever happens, he believes studios should invest more in IP protection. And he thinks Guilds ought to demand it to protect the financial interests of their members.

From Control to Convenience

But for the major studios, Smith wonders if the writing is already on the wall.

"I think the studios should be much more worried about Netflix's business model than they are," he said, echoing the thesis in a 2019 piece he co-wrote for Harvard Business Review.

Never mind that Netflix, which blew earnings expectations away last week, isn't vulnerable to today's advertising squeeze. Nor that, unlike many of its competitors, it isn't tied to other business units that have been hammered by the coronavirus fallout. What really sets Netflix apart, says Smith, is that its business model is based on convenience rather than control.

"For (the studio) business model to work, you've got to be able to control when people get access to the content," he explained. Piracy undermines that control.

"I think we're seeing a transition from a control-based business model to a convenience-based business model," Smith concluded. "You see that with Disney+, HBO Max, NBC Peacock, and the others."

Maysonet doesn't entirely agree that the theatrical model is done. Nor does he think it makes much difference.

"If we continue with the status quo," he wrote, "the pirates will continue to damage our industry."

---

Sam Blake covers media and entertainment for dot.LA. Find him on Twitter @hisamblake and email him at samblake@dot.LA

https://twitter.com/hisamblake
samblake@dot.la

🏰 Disney's Epic Investment Stands Out Amidst Gaming Industry Layoffs

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

🔦 Spotlight

In the midst of widespread gaming industry layoffs, a glimmer of positive news emerges as Disney announces a significant move: a $1.5 billion investment in Epic Games. 🏰💰🐭

Image Source: Disney

Disney's $1.5 billion investment in Epic Games, disclosed late Wednesday, signals a strategic alignment aimed at expanding the success of "Fortnite." The deal enhances Epic's growth prospects after financial setbacks, including layoffs, and strengthens the partnership between the two companies. With Disney gaining a larger equity stake in Epic, the collaboration will broaden the integration of beloved Disney franchises like Marvel, Star Wars, Pixar, and Avatar into the game, potentially boosting its appeal and longevity. This significant investment underscores Disney's commitment to interactive entertainment and signifies a shift towards games as a primary revenue stream, aligning with the growing trend of digital engagement among younger demographics. Moreover, the potential for crossover sales of physical Disney products within "Fortnite" and the exploration of new content distribution channels are just some of the opportunities arising from this partnership.

For LA tech, the Disney-Epic Games partnership represents a validation of the region's burgeoning tech and gaming ecosystem. The substantial investment in Epic, who maintains a large Los Angeles office with 1,000+ employees (according to LinkedIn), reflects confidence in the LA’s talent pool and innovation potential. Additionally, this partnership between two industry giants fosters an environment for further collaboration, investment, and growth within LA's tech sector. As Disney and Epic Games deepen their ties and explore new avenues for content integration and distribution, it not only elevates the prominence of LA as a tech hub but also stimulates economic growth and job creation in the region. This partnership highlights LA's unique position as a hub where technology and entertainment converge. With its ability to integrate diverse industries, LA is driving innovation and expansion in digital entertainment. 🚀💸🎮

🤝 Venture Deals

LA Companies

  • ProducePay, a financing and marketplace platform for the fresh produce market, raised a $38M Series D led by Syngenta Group Ventures joined by Commonfund, Highgate Private Equity, G2 Venture Partners, Anterra Capital, Astanor Ventures, Endeavor8, Avenue Venture Opportunities, Avenue Sustainable Solutions, and Red Bear Angels. - learn more
  • Blush, an invite-only dating app that drives users to local businesses on dates, raised a $7M Seed Round from individuals like Naval Ravikant. - learn more
  • Mogul, a startup founded last year that provides an overview of an artist's royalty earnings and identifies areas where money is owed but has not yet been collected, raised a $1.9 million seed round from Wonder Ventures, United Talent Agency, AmplifyLA, and Creator Partners. - learn more
  • Avnos, a hybrid direct air capture startup, raised a $36M Series A led by NextEra Energy and joined by Safran Corporate Ventures, Shell Ventures, Envisioning Partners, and Rusheen Capital Management. - learn more
  • AI.fashion, startup whose mission is to help retailers enhance the online shopping experience by providing consumers with virtual try-ons and personalized fashion recommendations, raised a $3.6M Seed Round led by Neo. - learn more
  • Suma Wealth, startup that aims to demystify financial topics and provide culturally relevant content, virtual experiences, and resources to help Latino users navigate financial challenges and opportunities, raised a $2.2M Seed Round . Radicle Impact led, and was joined by Vamos Ventures, OVO fund and the American Heart Association Impact Fund. - learn more
  • 222, a startup that helps users discover their city and meet new people through unique social experiences, raised a $2.5M Seed Round. Investors included 1517 Fund, General Catalyst, Best Nights VC, Scrum Ventures, and Upfront Ventures. - learn more
  • LimaCharlie, a security operations cloud platform, raised a $10.2M Series A led by Sands Capital. - learn more
  • Polycam, an app that uses a smartphone’s sensors to capture 3D scans of objects, raised an $18M Series A co-led by Left Lane Capital and Adjacent, and joined by Adobe Ventures and individuals like Chad Hurley and Shaun Maguire. -learn more.

LA Venture Funds

Actively Raising

  • ReelCall, Inc., an entertainment technology company focused on powerful apps and platforms that help build and maintain the professional network of connections vital to career growth, is raising a $850K Pre-Seed Round. - learn more
  • CZero, a startup building software to decarbonize logistics for logistics businesses and goods business through a vetted marketplace and optimization software. - learn more
  • Couri, a technology startup addressing last-mile delivery issues, is raising a $450K Pre-Seed Round at a $2.2M post money valuation. - learn more
  • Sweetie, a marketplace to help people plan date nights, is raising a $1.5M Pre Seed Round. - learn more
  • StartupStarter, an investment platform that provides real-time data and analytics on startups, is raising an $850K Angel Round. - learn more

If you’re a founder raising money in Los Angeles, give us a shout, and we’d love to include you in the newsletter!

Venture Waves, Climate Tech Wins, and Silicon Beach's Ongoing Evolution

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Anduril Seeks $1.5B in VC Funds

Defense company Anduril Industries Inc., based in Costa Mesa and founded by Palmer Luckey, is seeking to raise $1.5 billion in fresh funds to boost its valuation to $12.5 billion or more, according to sources quoted by The Information. This fundraising effort, if successful, would mark one of the largest venture capital rounds of the year.

Image Source: Anduril

Anduril recently secured a contract to develop and test small unmanned fighter jet prototypes under the Air Force’s Collaborative Combat Aircraft (CCA) program, beating out major defense companies like Boeing, Lockheed Martin, and Northrop Grumman. Alongside General Atomics, Anduril will design, manufacture, and test these aircraft, with a final multibillion-dollar production decision expected in fiscal year 2026. This program aims to deliver at least 1,000 combat aircraft to fly in concert with manned platforms and is part of the Air Force’s Next Generation Air Dominance initiative. Central to Anduril’s success in this contract is the Fury autonomous air vehicle, acquired through the purchase of Blue Force Technologies. This victory underscores Anduril's rapid advancement in the defense sector, aligning with Luckey's vision of building faster and more cost-effective defense assets. - learn more

Los Angeles Ranks Number 1 in Emerging Climate Tech Hub

The 2024 Emerging Climate Tech Hubs Report by Revolution highlights Los Angeles as a burgeoning center for climate tech innovation. LA's growth in this sector is driven by its diverse talent pool, strong research institutions, and a culture of environmental consciousness. The city's unique mix of legacy industries, such as entertainment and aerospace, alongside emerging tech companies, positions it as a pivotal player in the climate tech landscape. This shift reflects a broader trend of decentralized climate tech funding across the U.S., reducing the historical dominance of California's traditional hubs. - learn more

Silicon Beach: Looking Back, Moving Forward

Assessing the overall health of the startup market is challenging, especially as venture capital funding has decreased by an average of 61% from 2021 to 2023 across the top VC markets in the US. Markets with robust ecosystems in AI, SaaS, Biotech, Healthtech, and Fintech appear to be weathering the downturn better than those focused on Consumer and Gaming industries, areas where Los Angeles traditionally excels.

Percent Change In VC Funding By Region

CB Insights

LA Times paints a rather bleak outlook on the Los Angeles tech scene noting venture capital funding in Greater Los Angeles plummeted 73% from 2021 to 2022. Silicon Beach, once a vibrant tech corridor, currently faces high vacancy rates and lacks late-stage financiers, especially in the AI sector. However, there are positive signs, including growth in aerospace startups and increased venture capital investment in early 2024, suggesting a potential rebound for LA's tech ecosystem.

While LA may not be exceeding expectations during this period, its tech ecosystem warrants a nuanced evaluation, given the broader market dynamics and its strong performance in specific sectors. Reach out to us with your thoughts.

🚀 SpaceX gears up for another stellar year, active raises, and more

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Happy Friday Los Angeles! You made it through the first week of 2024!

🔦 Spotlight

Elon Musk may be a divisive (albeit entertaining) figure, but the continued success of SpaceX is pivotal for the aerospace industry in Los Angeles and more broadly around the world.

Image Source: SpaceX webcast

What happened with SpaceX in 2023?

  • Elon Musk challenged Facebook founder, Mark Zuckerberg to a cage fight.
  • SpaceX launched 96 successful missions with its Falcon series of rockets, a 57% increase over its previous annual record.
  • SpaceX conducted two test flights of the largest and most powerful rocket ever built, Starship.
  • Roughly two-thirds of SpaceX's launches in 2023 were devoted to building out Starlink, the company's satellite-internet megaconstellation.
  • Isaacson’s Elon Musk biography was published in September including everything from Musk’s tumultuous relationship with his father to his work ethic and “demon mode”.

Moving forward what can we expect from SpaceX and its controversial founder? Continued innovation pushing the aerospace industry to new limits? Yes. More drama? Without a doubt.

Here is some of what is to come in 2024:

🤝 Venture Deals

Just Announced

Check back next week!

LA Exits

  • CG Oncology, an Irvine, CA-based developer of immunotherapies for bladder cancer, filed for a $100M IPO. It plans to list on the Nasdaq (CGON) with Morgan Stanley as left lead underwriter, and has raised around $317m in VC funding. - learn more
  • McNally Capital agreed to sell Advanced Micro Instruments, a Costa Mesa, CA-based maker of gas analyzers and sensing technologies, to Enpro (NYSE: NPO). - learn more

Actively Raising

  • ReelCall, Inc., an entertainment technology company focused on powerful apps and platforms that help build and maintain the professional network of connections vital to career growth, is raising a $850K Pre-Seed Round. - learn more
  • CZero, a hard-tech startup that is developing a technology for decarbonizing natural gas, is raising a $1.5M Seed Round. - learn more
  • Couri, a technology startup addressing last-mile delivery issues, is raising a $450K Pre-Seed Round at a $2.2M post money valuation. - learn more
  • Sweetie, a marketplace to help people plan date nights, is raising a $250K Angel Round. - learn more
  • StartupStarter, an investment platform that provides real-time data and analytics on startups, is raising an $850K Angel Round. - learn more

If you’re a founder raising money in Los Angeles, give us a shout, and we’d love to include you in the newsletter!

📅 LA Tech Calendar

Sunday, January 7th

Wednesday, January 10th

  • Startup Cafe: Networking with a Kick - Entrepreneurs, Startups, and Tech Enthusiasts join together to meet and connect with like-minded people, industry professionals and investors, while enjoying a nice cup of coffee in Venice at The KINN. This week’s interactive discussion about AI’s evolution in entertainment will feature Dr. Sam Khoze and Rachel Joy Victor.
  • Venice Tech Happy Hour- Join Startup Coil and FoundrHaus Wednesday evening and enjoy the sunset from the rooftop, grab a bite overlooking Abbot Kinney, and mingle with other tech enthusiasts and entrepreneurs by the bar on the patio.

Have an awesome event coming up? Reach out to be featured on next week’s Newsletter!

📙 What We’re Reading

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