Business Matters: How Netflix Reduces Piracy

There has long been three opinions about how to beat piracy; through legislation and enforcement, through better legal services, or both. Although piracy continues to exist as numerous new music services have launched, there’s no doubt consumers have far better options (free-of-charge streaming, DRM-free downloads) than they had just a few years ago.

Netflix’s chief content officer says “BitTorrent traffic drops as the Netflix traffic grows” when the service launches in a territory. “The best way to combat piracy isn’t legislatively or criminally but by giving good options,” Ted Sarandos told Stuff magazine. “One of the side effects of growth of content is an expectation to have access to it. You can’t use the Internet as a marketing vehicle and then not as a delivery vehicle.”
Piracy doesn't drop just through access to legal entertainment options. Netflix has two things going for it: a very wide reach and a best-of-class service. The company had 36.3 million streaming subscribers at the end of March, an increase of nearly 10 million subscribers in 12 months, and operates in 40 countries. And it is arguably the best streaming service and at $8 per month is the best value on the market. Popularity, quality and value go a long way in beating piracy.

The law can make an impact. The late 2010 closing of LimeWire coincided with a jump in U.S. digital track sales and, according to NPD Group, a 12% decrease in U.S. music file sharing. The impacts of anti-piracy legislation in South Korea, New Zealand and Japan are not yet clear, although there is some evidence that France's Hadopi has had a positive impact.
Size of catalog, value and ease of use also have a hand in reducing piracy. A 2011 study in Sweden found that, for a quarter of respondents who download music illegally, filesharing activity dropped 25% in the previous three years and 9% in the prior 12 months. In explaining their shift to legal services, respondents cited the range of music released, the increase in available music, the services' cost and their simple user experiences.
Content, value and ease of use. Netflix has these. Music services need them, too.