Saturday, June 03, 2006

Part 2: Moving Pictures - disruptive innovation from the Cinema to PirateBay | by Adrian Cockcroft | June 3rd, 2006

Lets look at the history of movies. The initial technology to capture and replay moving pictures was developed around 100 years ago, and the initial competition between inventors went through its first transition when movie theaters became established and began to settle on a standard form of projector. The inventors who had alternative camera/recording/projector technology died out. Consumers wanted to go see movies and the movie industry formed to provide content for that market.

The next innovation was to be able to watch movies at home on film, then there were movies on TV. The movie theaters had far bigger screens, better sound and color but the technology at home gradually caught up in features and reduced in cost, and a market transition to home viewing occurred. The total market size for equipment bought to watch movies at home is huge. Its important to note that the primary vendors in each phase of the market are different. The movie theater business is very different to the home video equipment supplier business. The early battles in the home were over the standard formats, famously Betamax failed to win over VHS for video tape, and there are continuing battles over DVD formats, but Sony is a dominant brand name in a crowded market for home video equipment.

The next innovation was video rental, and Blockbuster ended up as a major player in this market, with presence on every high street. However, that presence became unnecessary as Netflix shipped DVD's directly to consumers and took over a large share of the market.

Finally, video is available directly over the internet , its being viewed on PC's rather than TV sets, anyone can create and upload it, and YouTube is this year's hot market leading name in this space for all kinds of short videos. Its also trivially easy to take a full length movie or TV program and share it using one of the many BitTorrent services, and a growing proportion of movies are being watched for free, to the consternation of the movie industry.

The PirateBay site in Sweden was recently shut down and charged with copyright violation, but it appears that a significant proportion of the population of Sweden were users and they got upset as they had got used to exchanging content for free. After three days the site came back up, hosted in Holland, and with even more users due to the publicity.

Unlike YouTube, BitTorrent sites such as PirateBay don't host the actual content, they just connect individual users who exchange content, they don't need to provide storage or bandwidth, just a searchable database of small index files that configure the BitTorrent transfer between a large number of seeders that have some or all of the file already, and leechers who want to get the file, and who can in turn become seeders.

The publicity gained as a side effect of trying to shut down the PirateBay site may even have the opposite effect of cementing the PirateBay brand as a market leader and accelerating growth in this space.

Every step in this history involves a disruptive innovation. There is a fundamental reduction in cost, offset by a large increase in unit volume, which has often increased the overall revenue using a new way to monetize the market for moving pictures. Each time the previous market leader is left behind (often kicking and screaming) as the new larger market emerges. Each time a new brand captures the attention span and trust of the consumer, and dominates the market.

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