Pirates illegally streaming hit television shows are doing us all a favour

Piracy, a fancier name for theft but still a crime, is becoming an acceptable management tool as both a deterrent and a marketing device as modern merchandising embraces the technological age.

It’s just a matter of retailers across all markets deciding how much piracy can be tolerated before it becomes intolerable.

A new market survey by MIT Sloan Management Review says finding the right balance is the secret to success for all levels of supply. A bit like Goldilocks and the three bears in the fairy tale.

“Our research shows that a moderate level of piracy — not too much, not too little — can actually benefit the manufacturer, the retailer, and consumers, all at the same time, the survey says.

“Shrinkage” another less harsh sounding synonym for theft or shoplifting, has long been a problem in the commercial world generating unending security moves and counter moves to stamp it out.

From supermarket chains using self-service checkout to floor walkers and security cameras in department stores, theft has long had a major impact on balance sheets.

Illegally streaming television shows has now become a major force in the entertainment world. 

The MIT survey uses HBO’s television series Game of Thrones as an example of beneficial piracy.

The incredibly popular series, which ran for eight seasons, is said to have been the most pirated television program in history.

Its attraction was illustrated when he show’s season four finale was illegally downloaded 1.5 million times within 12 hours of its original broadcast in June 2014.

That’s two petabytes transferred in just half a day. 

The show’s seventh season resulted in a billion illegal downloads.

Remarkably, pirated copies of older episodes continues unabated well after they became available from retailers online.

Just as remarkably, HBO seems to have no real plan to counter the millions of viewers now streaming other survey-topping shows that followed Game of Thrones.

Viewers caught illegally streaming are let off with moderate penalties. 

This inaction on HBO’s part may have some economic merit says MIT’s research

The manufacturer does not usually set the retail price in a supply chain; the downstream retailer does. 

In this case, HBO charges cable operators, such as Comcast, a monthly per-subscriber fee, corresponding to the wholesale price, and each cable operator decides on its own margin, which determines the final retail price. 

A wide variety of information goods (music, movies, TV shows, video games, e-books, and software) in formats ranging from shrink-wrapped discs to streaming content is brought to the market through this wholesale model.

In this setup, the supply chain faces a situation known as double marginalisation: Both the manufacturer and the retailer decide on independent margins, each of which gets assigned to the price of the good. 

Double marginalisation manifests itself in a higher retail price and reduced consumption compared with when the manufacturer and retailer are owned by the same company.

So maybe those pirates are doing us all a favour.