LOS GATOS, CA – Netflix (NASDAQ:NFLX) admitted earlier this week that the company uses sites such as Pirate Bay to measure what content is popular. According to the reports media company have tried, unsuccessfully, to stop the distribution of pirated content online; however, this week’s report was the first time that a media company admitted to tracking pirate sites as part of their market survey.
According to Kelly Merryman, Vice President for Content Acquisition, the company routinely uses pirate sites to determine the popularity of shows the company is considering buying. In doing so, the company is able to determine which shows are popular and help assist in making licensing decisions. For example, the decision to acquire the rights to the TV series ‘Prison Break’ was influenced, in part, by the show’s popularity on pirate sites.
Netflix is not the only company using this approach, according to Bloomberg, major studios regularly track illegal downloads as a measure of success. ‘Generally speaking, we view piracy as a proxy of consumer demand,’ said David Kaplan, of Warner Brothers (NYSE:TWX) anti-piracy wing.
While information is useful for content providers such as Netflix, piracy is taken very seriously by the movie studios who see it as a threat to their revenue streams. However, the ease of using Netflix along with the low monthly subscription fee has well positioned the company as an alternative to pirate sites.
At the same time, Netflix is increasingly seeing itself not just as a distributor of content but also as a content creator. On Monday, the company updated the wording in a note meant to advise investors, changing the sentence that simply read, ‘We are movies and TV shows’ to ‘We are a movie and TV series network.’
However, is it unclear how this changing definition will affect Netflix’ ability to license content from the very companies is it competing against. Netflix also expressed desires to create shows on the same level as ‘Mad Men’ and ‘Breaking Bad’ and shows such as ‘House of Cards’ which received 9 Emmy nominations would be a step in that direction.
So far, almost 5 percent of the company’s bandwidth was used for the fourth season of ‘Arrested Development’ when it premiered in May. The company also gained three million subscribers during ‘House of Cards’ first season. However, the company acknowledges that internet video has its limitations as it must compete against a growing number of formats for the attention of viewers. By looking at what is currently popular to either buy licenses or create original content, the company might on its way to winning out against other streaming competitors.
Shares of Netflix were down in early trading on Wednesday.