Download junkies just need a bit: Kohler

I had fascinating conversations yesterday with two people who are building great businesses by selling what you might call voluntary compliance.

Stephen Langsford runs Quickflix, a movie rental service, and Cameron Hepburn is a director of Climate Bridge, a five-year-old Australian start-up that provides carbon credits to those who want to reduce their carbon footprint on a voluntary basis. 

Climate Bridge has quickly become a leader in developing energy efficient projects in China, harvesting the credits they generate and selling them in the west. The amazing thing is that the customers are mostly people who don’t have to buy them – that is, they’re not companies required by law (in Europe) to buy permits.

Hepburn and his partners believed there would be a large voluntary market for carbon credits from people who simply want to eliminate their own carbon footprint voluntarily, and so it is turning out. In fact it’s even larger than they thought – Climate Bridge is now helping to finance 200 projects throughout Asia and has 50 staff.

Langsford’s business is still mostly a DVD rental service, where the items are physically mailed to customers, but it is rapidly moving to video streaming over the internet. And as everyone now understands, paying for movies, and music, over the internet is optional.

The problem with arresting the owner of Megaupload, Kim Dotcom (AKA Kim Schmitz), is that everyone can see how rich and plump he got operating a cyberlocker for uploaded files.

Since he was hauled out of a barricaded panic room in his rented Auckland mansion last week and arrested on charges of operating “a worldwide criminal organisation whose members engaged in criminal copyright infringement and money laundering on a massive scale” (to quote the indictment) a frisson of shock and envy has rippled through the internet world.

The message from that dramatic arrest is that running an upload site can be both dangerous and very lucrative, a bit like drug trafficking perhaps. And, moreover, it’s beginning to look like policing copyright infringement is going to be like the endless and futile war on drugs, between a criminal ‘industry’ and vast police infrastructure constantly trying to catch them, while a steady supply still gets to consumers.

The difference is that digital files can be endlessly copied so supply is infinite, whereas a line of cocaine, once consumed, is gone.

While the cyberlockers such as Megaupload, the one owned by Mr Dotcom, have proliferated and done well, about three times as much file-sharing is thought to take place directly between consumers using the BitTorrent peer-to-peer protocol plus one of the many sites that search and collect the copyrighted material.

The two American laws pushed by the Hollywood film studios and designed to crack down on piracy – SOPA and PIPA – appear to be in retreat after last week’s Wikipedia blackout, mainly because it’s clear they wouldn’t work anyway.

To extend the drugs metaphor, the users and suppliers are the same people – there’s millions of them.

Ever since Bram Cohen invented BitTorrent in 2004 it has been clear that paying for films, music and copyrighted digital files would be optional, and the industries that rely on copyright would be in trouble.

But it’s more complicated than that. Steve Jobs understood that enough people would want to pay, or be unable to navigate a BitTorrent client, to make decent money from selling music and films – as long as it was easy and sufficiently cheap. As a result he built the world’s second largest company partly on the back of iTunes, which is a wonderfully simple system.

Netflix, the US movie streaming subscription service, has 20 million customers at $US7.99 a month. Apparently this service on its own accounts for about 25 per cent of all American internet traffic (although BitTorrent traffic accounts for more).

Netflix does not operate in Australia, but Quickflix is now getting about 10 per cent of its revenue from streaming movies over the internet rather than posting DVDs. It has 120,000 subscribers and is targeting 1 million by 2016 when it expects to be mostly streaming the videos.

All modern TVs now connect to the internet, so you don’t even need a special box. You can also just plug in a memory stick containing a movie downloaded on your computer.

It’s so easy even I could do it. But I don’t want to – I’d rather pay, as long as the price is reasonable.

This article was first published in Business Spectator.