Thank you again @johnmellencamp: USC-Annenberg starts corporate responsibility study for brand-supported piracy

MTP readers will recall our many posts about what we call “brand-supported piracy“:  The purchase of advertising inventory on pirate sites by major brands wishing to reach their target audience.  These purchases are often given effect through intermediaries, either big ad agencies with real time barter trading desks (similar to derivatives trading and just as unregulated), ad exchanges (like Google AdEx or Yahoo Right Media or Doubleclick aggregators like AppNexus), ad networks or ad serving companies like Google Adsense.  It is through the sale of advertising inventory that sites like MP3skull, Megavideo and Webzilla make their millions.  The brands include McDonald’s, BMW, Macy’s, Levis, State Farm, Toyota, Google Play, Ford, Cooper Mini, Target, Adobe, Alaska Air, Charter, 1800Flowers, Netflix and many, many more.

It’s easy to follow the money.  We know where it starts (the brand) and we know where it stops (the illegal site).  We know that the same music and movies are offered on illegal sites as are available on legitimate sites like Pandora and Hulu.  The big difference: Artists make nothing on the illegal sites, but the brands get what they want, the ad serving company gets its revenue that they split with the pirates.  And the ad agency commissions the whole thing.

The primary method of finding illegal content online is Google search, which drives traffic to illegal sites that publish advertising often served by Google (although recently Google has gotten more sophisticated at hiding its tracks through intermediaries).  And so the unholy alliance is formed:  Google sends millions of users to illegal sites and sells advertising on those sites through a series of intermediaries or real time barter trading desks, with prices that are propped up by the traffic that Google sends to the site.  Then Google uses its lobbying and litigation enforcer muscle to keep governments off the backs of all in the chain.

For example, here is a shot of the html code from an illegal site showing its Google Adsense publisher account number and slotting codes for Google to serve ads to the pirate’s inventory:

Lyrics007 Google Ads Code 1

The corrupting effect of this unholy alliance is extensive:  Who can say how much of Google’s profits are attributed to income from illegal sites?  What restatement to earnings would be required if Google were to stop profiting from the unholy alliance?

John Mellencamp brought attention to this problem in his seminal Huffington Post editorial and David Lowery has also been a strong opponent on his Trichordist blog.  Artists are starting to call out the real bad guys.

We are told by those participating in this unholy alliance that the problem is “too big to fix” because it involves millions of sites.  What portion of Google’s earnings does this represent?  We know that Google avoided being criminally indicted by a Rhode Island grand jury for selling illegal drug advertising in violation of the controlled substances laws.  That cost Google $500,000,000 and the decision making went as high as Larry Page.  When you have top executives submitting 4 million documents to a grand jury and paying the largest fine in American history to avoid going to jail, that’s pretty clearly part of Google’s business model.

So one category of advertising cost Google $500,000,000–and they got off cheap if you ask me.  (Google is now being sued by its stockholders for falsely overstating its earnings and using company money to pay a private fine properly paid by its executives–but that’s another story.)

Google oxy

As you can see from the screenshot, $500,000,000 and several shareholder lawsuits against Googlers Eric Schmidt and Sheryl Sandberg (or as we call them around MTP, the “Oxycontin Twins”) didn’t make much of a dent in Google’s business practices, demonstrating that arrogance of monopoly that defies governments.  Not to mention demonstrating what seems like a pathological desire to profit from human misery (see Google’s “Utoopi” sex club app debacle “Google Pulls Utoopi Paid Sex App Marketed to Students From Google Play“).

And let’s be clear–when talking about liability in this context, I don’t mean liability for copyright infringement (although I wouldn’t rule it out).  I’m really thinking more of contractual liability.  Because every major brand will tell you that they have contracts with their ad agencies expressly forbidding serving their advertising to sketchy sites.  And the ad agencies have contracts with the ad exchanges or ad networks that do the same and so on and so on.  So somebody is clearly in breach because there are pictures of the ads showing up on illegal sites.  And then there’s the shareholder liability for the ad serving network.  See, nothing up my sleeve.  No copyright infringement, so safe harbors won’t help.

Google Play 007

The corruption, however, is not just at Google–it is also at the brands that are part of this complicit community.  Thankfully, the USC-Annenberg School has initiated a study into naming the brands that support piracy (and by implication their advertising agencies (like say a WPP) ) as well as the ad networks that serve the ads.

Spearheaded by Professor Jonathan Taplin at the University of Southern California Annenberg Innovation Lab, the research will come soon, and according to The Drum will “produce a monthly report in order to shame brands and their advertising networks away from backing piracy entertainment websites.”

The report will begin to roll out from January 2013, entitled ‘The USC Annenberg Advertising Transparency report’ in an attempt to damage the amount of advertising spend that goes to pirate movie and music sites around the world.

“It is an attempt to bring a little transparency to the ad network business, which is the wild west in a weird way. It’s not really very clear how there’s an audit trail for advertisers to know where their ads are going, who’s watching them…hopefully it’ll be a way to bring a little clarity to that situation,” Taplin told The Drum after speaking at the Monaco Media Summit.

The report will be compiled by three companies which will research pirate music and film websites, with the HMTL coded advertising allowing the researchers to scrape the adverts to discover which networks are supplying the adverts, Taplin explained.

“I’d like to see more money flowing into legitimate advertising supported content sites and less flowing into criminal enterprises,” he explained of his core intent.

“Brands don’t want to be associated with supporting piracy, they have no interest in that whatsoever because the ads on those sites are so cheap they slip below the radar. But the total amount of money flowing into it is really rather astonishing. Last year Google had to surrender to the US Government $500m for ads that they had been promoting on illegal Canadian prescription pharmacy sites. If it was $500m for drug ads, think how much there will be surrounding movies, video games – it boggles the mind.

“It’s an international problem. Our initial research has found that these sites are run in places like the Ukraine by people who aren’t in it for the love of art.”

This is great news and we’ll be keeping an eye on how it develops.  When you’ve got them by the bucks, their hearts and minds will follow.