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Who Will Win: Internet Pirates or Streaming Stocks?

Written by Samuel Taube
Posted September 8, 2019

Remember that 10-ish-year period when cable was the only way to watch stuff at home? 

Back in the late 2000s and early 2010s, video rental companies like Blockbuster were going extinct, but streaming companies like Netflix weren’t quite household names yet. 

During this gap between the “Blockbuster era” and the “Netflix era,” consumers lacked an affordable way to watch movies and off-air TV shows at home. 

Some dealt with this problem by paying the cable company for expensive on-demand services. Some recorded their favorite shows and movies from cable using a VCR or DVR.

But others — especially young and tech-savvy movie and TV buffs — turned to black-market downloads from internet pirates. 

The Other Golden Age of Piracy

When people refer to a “golden age of piracy,” they’re usually talking about the 17th and 18th centuries — a period of time that saw a substantial increase in the number of ship hijackers who drank a lot of rum and said things like “shiver me timbers!”

But the turn of the 21st century was a golden age for a different type of pirate: the file uploader. 

During this time, internet pirates used file-sharing services like BitTorrent to illegally redistribute their personal collections of movies, TV shows, video games, and music across the internet. 

In the process, they dominated web traffic. BitTorrent alone accounted for more than 52% of North America’s internet activity in 2011, the approximate peak of the golden age of internet piracy.

Governments and media conglomerates tried to crack down on this unauthorized flow of media across the internet, but they couldn’t. Piracy was just too popular; it allowed anyone to access just about any piece of media at any time, for free.     

But by 2015, piracy accounted for less than 30% of American internet traffic. There was a one-word explanation for this drop-off: Netflix.

Swashbuckling Streaming Stocks

At its zenith, Netflix was charging just $8 a month for access to a massive library that included original shows like House of Cards, smash-hit NBC sitcoms like The Office, and thousands of movies. 

In other words, it was offering much more content than cable for much less money. Cable companies couldn’t compete with it. Even pirates struggled to compete with it. 

After all, pirated media doesn’t cost money, but it isn’t risk free. Every year, copyright-holding media companies like Funimation and Century Media like to “make an example” of a few unlucky pirates by serving them massive lawsuits. And pirates who avoid legal trouble still risk catching malware in the often-seedy corners of the internet where media is illegally shared. 

You can’t get sued for watching Netflix, and you can’t catch a computer virus from it. Back when Netflix was effectively a streaming monopoly with a massive library of content from multiple studios, that safety was worth $8 a month. 

By 2015, BitTorrent usage had fallen by about 50% from 2010 levels — and the number of U.S. piracy lawsuits had plunged more than 80%. 

Many people believed the golden age of internet piracy was over.

What they didn’t see coming, however, was the loss of Netflix’s monopoly.

Are Pirates Making a Comeback? 

Needless to say, Netflix is no longer the only game in town. It now competes with Hulu, Amazon Prime, and HBO Now, just to name a few other subscription services — and about half a dozen other streaming platforms are launching in the next year. 

They include Disney+, Apple TV+, and an unnamed streaming service from NBCUniversal.

This fragmentation of the streaming ecosystem might not sound like a big deal. After all, more competition is good for consumers, right? 

Usually, yes. But not if the consumers are looking for centralization. 

You see, the problem with all these new streaming services is that they’re encouraging content producers like Disney and NBC to pull their movies and shows from third-party platforms in favor of exclusively releasing them on their own.

You can already see this happening in the form of a sharp uptick in exclusive content. 

Netflix’s Orange Is The New Black is only available on Netflix. Amazon’s The Marvelous Mrs. Maisel is only available on Amazon Prime. Disney is likely to pull all of its content from both of these platforms when it launches Disney+ in the fall, and NBC has already started to do this — hits like 30 Rock have disappeared from Netflix, and The Office will be clawed back in 2020.  

There’s no “one-stop shop” for legal media consumption anymore. In order to access all the content they want, consumers are realizing they’ll have to pay several monthly bills to several different streaming platforms. Legal streaming is becoming just as costly and annoying as paying for cable.

And wouldn’t you know it — the pirates are capitalizing on these trends. 

Last year, BitTorrent usage increased for the first time after years of steady declines. And streaming piracy — that is, watching illegal bootlegs on YouTube or other online platforms instead of downloading them — is a new form of media theft that is also on the increase. 

This internet pirate comeback could be very bad news for streaming stocks. Disney, with its diversified revenue streams and hegemonic control of our pop culture, should be OK. Netflix might not be.  

But there’s another coming shift in our internet usage that will be even more disruptive than the breakup of the streaming ecosystem or a return to pirating. 

This shift will affect how we connect to the internet, how fast it runs, which devices we use, how much we pay for access, and more. It’s called 5G, and my colleague Jason Stutman has been tracking a set of stocks that are positioned for massive 5G gains. Click here to learn more.

Until next time,

Monica Savaglia

Samuel Taube

Samuel Taube brings years of experience researching ETFs, cryptocurrencies, muni bonds, value stocks, and more to Wealth Daily. He has been writing for investment newsletters since 2013 and has penned articles accurately predicting financial market reactions to Brexit, the election of Donald Trump, and more. Samuel holds a degree in economics from the University of Maryland, and his investment approach focuses on finding undervalued assets at every point in the business cycle and then reaping big returns when they recover. To learn more about Samuel, click here.

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