By Dom Serafini
Content piracy in Latin America is a multi-faceted issue, and even though it affects all concerned, each sector has its own reasons not to eradicate it.
For example, as was pointed out during IQPC’s “Anti-Piracy & Content Protection Summit,” held in New York City last November, the business model of content owners encourages piracy because it goes against normal consumer behavior.
Nowadays, many consumers don’t want to wait for the industry’s imposed windows (which are necessary to maximize profits in order to sustain high production costs). Therefore, they resort to illegal ways of obtaining content for immediate gratification –– without considering it a crime.
The high costs of DVDs and pay-TV subscriptions are also said to contribute to piracy. The latter issue, however, is being addressed in some countries with low-cost pay-TV subscription services.
These social and economic issues have created an illegal content industry that in Latin America alone generated losses estimated at $1.2 billion in 2012 for local cable and satellite operators, while content owners for cable and satellite channels alone were deprived of $800 million and uncollected government tax revenues for those services were estimated at $500 million. DVD piracy losses are set at $1 billion a year. In Mexico, the DVD business is worth $510 million per year, of which $450 million, or 88 percent, goes to piracy. In terms of units sold, according to MPA, 261 million DVDs are sold in Mexico each year. Of these, about 26 million are legitimate, while 235 million are bootleg. In Brazil, DVD piracy accounts for $370 million a year, or 48 percent of sales.
Furthermore, the TV content acquisition business in LATAM is estimated at $1.7 billion per year. Revenues for pay-TV subscription reached $12.93 billion in 2011 (figures from Statista), of which $1.6 billion went to content providers. Legitimate DVD sales generate $1 billion, 20 percent of which goes to content owners.
Therefore, considering that the imported entertainment sector in LATAM generates $3.5 billion a year for content owners, piracy takes in an equal amount. This is without considering illegal downloads, which the MPAA estimates at 96 million illegal movie downloads and 28 million television program downloads in Mexico alone in 2010.
However, only recently have content owners for pay-TV services decided to deal with this growing problem in LATAM, first by understanding the extent of piracy, second by formulating local solutions, and third by allocating more financial resources to combat it –– though estimated at $5 million a year industry-wide, it is still considered too little. This amount has to cover legal fees, monitoring, auditors, consultants and others.
Content owners taking prominent leadership roles in fighting piracy in LATAM are Discovery, FOX, DirecTV, HBO, Sony, Comcast and NBC Universal, CBS, Disney (including ESPN), Viacom and Warner Bros. FOX for example, has allocated $1 million per year to fight piracy in LATAM. The funds are administered by Miami, Florida-based Latin America Anti-Piracy and Intellectual Property Consulting.
The reason this problem is just now coming to the surface is that until recently, other considerations made piracy in LATAM a secondary issue, after dealing with restrictive local content quotas, spurring ad revenue growth in a two-tier business model (per sub and advertising) and windows’ exploitation priorities.
For example, with advertising growing at a faster rate than subscriptions, the piracy concern was seen as a lesser issue so that advertisers could take advantage of the bonus coverage without paying for it. Similarly, cable operators didn’t disclose their full coverage, because otherwise they would have been admitting to the under-reporting. When countries began restricting advertising to something like 30 percent of total revenues, the growth of sub fees assumed more relevance.
Also, in the past, LATAM’s stagnant economy did not justify fighting piracy just to see little potential improvement. However, when the economic growth of the region began not to be reflected in the number of pay-TV subscribers, content owners started to take action, and with relatively little effort (like better monitoring), they saw increases to the order of 34 percent in a short period of time.
According to a presentation at the IQPC Summit, LATAM’s penetration for the pay-TV business now reaches 35 percent, representing 45 million TVHH. Of those, 21.6 million are in Brazil where piracy is estimated at 10 percent. The other 23.4 million TVHH are in the Spanish-speaking region — an area where piracy is estimated at five million TVHH, or 17.6 percent that are using some form of piracy, of which there are six different types:
Three other studies offer somewhat different pictures. The first was conducted last September by the Paris-based Dataxis in seven countries: Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. It indicates that those countries have 41.78 million legal pay-TV subscribers and 11.44 million that are illegal, bringing the illegal reception to 21.5 percent of the total.
The second study, conducted by the Buenos Aires-based Business Bureau in 21 countries (excluding Brazil), states that by last June pay-TV piracy averaged out at 14 percent.
The third, coming from New York City-based data aggregator Statista, sets 2012 pay-TV subscription numbers in Latin America at 43.5 million, of which 14.4 are analog cable, 9.8 digital cable and 19.3 DTH (but it gives no indication of whether or not it includes illegal ones).
In terms of piracy, Argentina, with its large educated population, favors illegal Internet streaming. One particular website that fell under scrutiny registered some 15 million visitors a month before a group of content owners decided to bring the culprit to court.
FTA decoders are favored by countries such as Paraguay, Chile and Brazil with illegal STBs coming from China and Korea, passing through Miami, Florida. The decoders descramble the encrypted signals that come from satellite. Reportedly, in Chile some 1.4 million TVHH use illegal FTA boxes, while legal subscribers number two million. Recently, however, Uruguay took a stand by banning the sale of FTA boxes, and operators such as DirecTV are regularly changing encryption codes.
Informality concerns illegal cable systems prevalent in countries like Brazil, Ecuador and Honduras, with the latter considered the region’s biggest perpetrator.
Recently, in Peru, 40 systems were legitimized thanks to a new law passed to protect intellectual property. Brazil also helped by creating C-Class packages –– entry-level packages offered by satellite distribution systems such as Embratel targeting the lower middle class. These packages are offered at about U.S.$20 per month (a lower cost than illegal systems) and include no more than 15 international pay-TV networks, plus the local FTA stations.
The act of under-reporting subscribers in order to pay less to content providers is pervasive in Colombia and could reach as many as 30 percent of cable subscribers. In Colombia, cable comunitaria, offering low-cost but limited service to poor families, is also popular. In reality, though, many of these –– all legal –– systems also carry un-reported premium channels.
Retransmission is when an illegal cable operator legally buys multiple subscriptions, which come with decoders. With each decoder the cable operator can retransmit one channel; therefore, in order to offer several channels, it needs many decoders.
In unauthorized systems (or colgados, which means connected), subscribers connect cables to legal STBs to share with other people in the same building.
Problems facing content owners in LATAM are indeed multi-faceted and cover technological, social, educational and legal aspects. Legal is the most challenging because it often involves issues that are not clearly defined. Typical cases are those seen in Argentina and Paraguay. In the former, the Internet portal that acted like a search engine (a “library index cards” service is how it was presented to the court), only directed visitors to illegal streaming and downloads. In the latter, FTA boxes did not contain the software necessary to illegally descramble encrypted signals (users downloaded the proper software in their homes via the Internet).
Additionally, judges have trouble understanding complex technology, in many countries the laws have not been updated in decades and, in the case of those with current laws, they’re not readily enforced.
The social attitude is also an obstacle. A study conducted by FOX revealed that in LATAM, 35 percent of people interviewed did not feel that they were doing something illegal by taking programs without paying for them. Others saw unpaid access to content as a right, not a crime. Only 60 percent of respondents considered content piracy a crime, but “not a serious one” at that.
Finally, there is the “under-reported” fear factor to contend with, when executives from content owners that have uncovered illegal systems and are willing to negotiate settlements are met by perpetrators with guns prominently placed on the negotiation tables. Reportedly, in some cases, law firms in certain countries refuse to take piracy cases to court for fear of violent reprisal.