The video and music industries must alter their strategies if they are to overcome the rising access of free downloads from so-called pirate websites such as Mega.
Content owners face challenges from so-called pirate websites
The launch last week of New Zealand-based Kim Dotcom's new content storage website, Mega, highlights the dilemma now faced by the video and music industries.
While content owners such as Hollywood studios and the music labels are pushing for stricter international enforcement of copyright laws, consumers across the world are becoming increasingly accustomed to downloading much of their content for free.
Anyone with a fast internet connection in Cairo or Calcutta can easily go on to a pirate website and download or stream the latest Hollywood blockbuster for free well before it is publicly available as a DVD or, the case of some movies, even in the cinema.
Despite the best combined efforts of Hollywood, the major US music labels and the US Federal Bureau of Investigation (FBI), so-called pirate websites such as Mega and Sweden's Pirate Bay are flourishing as a mushrooming number of consumers around the world gain access to high-speed broadband.
The FBI-orchestrated arrest of Mr Dotcom on charges of racketeering, money laundering and copyright theft relating to his former file-sharing website Megaupload also failed. The dramatic US "gangbusters"-style arrest was deemed to be illegal in New Zealand and this has resulted in a publicity nightmare for the content owners.
According to Anthony Mullen, a senior analyst at the international research company Forrester: "Privacy regulations differ from country to country. For instance, even the 27 EU members cannot agree. Therefore, a top-down approach does not appear to be working."
Mr Dotcom's latest venture, born from the ashes of his previous peer-to-peer file sharing website, Megaupload, has one main new feature - software encryption. It enables file sharers uploading content to secure their content with a digital key that they can choose to share with other users wishing to download the content.
This not only allows Mr Dotcom what he hopes will be plausible denial of any copyright infringements occurring on his new website, but also protects users from being investigated by internet service companies and government agencies such as the FBI.
However, holes are already beginning to appear in Mr Dotcom's strategy.
"I have heard that the encryption used by the new website has already been cracked," says Mr Mullen.
But although Mr Dotcom may not be as protected from copyright law enforcement as he might have planned, the half a million users the site has so far attracted may not necessarily be deterred.
"It doesn't really matter if the encryption is totally secure if there is a consumer perception that it is secure," says the Forrester researcher James McDavid.
However, there is now a growing view in the IT industry that content producers and owners need to shift their focus from prosecuting allegedly pirate websites such as Mega and their users and instead work on new ways of delivering and enhancing their products.
"The content providers need to work out how they can create an experience that is superior to a free download by incorporating multimedia features like 3D," says Mr Mullen.
Enhanced video services consume more bandwidth and require different viewing technologies from traditional personal computer downloads.
"The hardware used to access content such as video and 3D is also a factor," says Mr Mullen.
The latest generation of TV sets, for example, incorporate technologies that can be used to monitor the downloading or streaming of copyrighted content.
"The makers of smart TVs such as Samsung can monitor usage and block certain services should they choose. Some smart TVs launched this year have face-recognition technology that can recognise which viewer is watching," says Mr Mullen.
Similarly, the music industry will have to develop new ways of recording and packaging its content. Access to live concerts and performance, for example, can be charged at a premium over the internet.
However, even if the content owners do manage to impose their copyright on some new devices, many people will also continue to access standard-quality video and music through websites such as Mega and Pirate Bay.
Where the US entertainment industry may have made a fatal error is in branding anyone using a file- sharing site to access copyrighted content free of charge a thief and a criminal.
Not only are the music and film industries alienating their consumer base but they are also in danger of turning their backs on a huge commercial opportunity to sell the users of free download additional content. A survey conducted by Columbia University reported that consumers who use peer-to-peer file sharing software also buy 30 per cent more legitimate content than those who do not.
Unless they alter their strategies, content owners such as the big Hollywood studios and music labels may start to lose more market share.
Forrester compares the content owners' stance to that of an ancient British monarch who attempted to stop the tide coming in with a royal command and got his feet wet.
"The music and film industries are acting like King Canute trying to hold back the waves when they should be making surfboards," says Mr Mullen.