USC report finds a shift in advertiser-supported piracy

The USC Annenberg Innovation Lab offered the entertainment industry some good news and some bad news this week. In the latest in a series of reports on advertising supported online piracy, the lab says that two major distributors of ads online -- Google and OpenX -- have “significantly reduced the number of infringing sites they are placing ads on.” In response, however, smaller ad networks have rushed in to fill the gap, the report says.

Google and OpenX insist that they’ve been working for some time to keep ad dollars from flowing to piracy sites online. The rise of the smaller networks, though, speaks both to the dynamic, no-barrier-to-entry nature of Internet commerce and to the public’s enormous interest in free content online, legal or otherwise. As long as sites can attract large audiences by providing a platform for unauthorized copying, there will be advertisers eager to pitch their brands there, and ad networks happy to help them do so.

Still, Jonathan Taplin, the USC professor who directs the Innovation Lab, said those sites feel the pinch when they’re cut off by the likes of Google. They often wind up with the “bottom fishers” of online marketing -- e.g., Russian brides, porn and adult friend-finder services. And those advertisers, Taplin said, “are not paying the prices that a Ford or a Nationwide would pay.”

The lab’s research focuses on the 500 sites in Google’s Transparency Report that have drawn the most complaints about infringement. It examines the Web pages offering infringing files to see whose ads appear and which network distributed them.

Its first report, issued last month, looked at a year’s worth of data to compile a list of the 10 networks distributing the most ads to those 500 sites. Pasadena-based OpenX and Google ranked 1st and 2nd, respectively. Google told my colleague Dawn Chmielewski that, contrary to what the report suggested, it wasn’t a major source of funding for piracy hotbeds. And in an interview Friday, OpenX executives said they go to great lengths not to serve ads onto pages offering infringing content.

(The company topped USC’s list in January, these executives said, because questionable sites were using the free, open-source ad-serving software that OpenX distributes. Those sites aren’t part of OpenX’s network. The company explained this distinction to Taplin, and the reports no longer hold OpenX responsible for ads displayed by its free software.)

The lab’s second report, issued Thursday, examined ads on the top 500 sites for just the month of January. While Google and OpenX vanished from the rankings, Yahoo and its Right Media arm moved up from 6th to 3rd. Meanwhile, four new networks rose into the top 10, including one that appears dedicated to serving sites that are awash in infringements.

Although infringing content is widespread online, Taplin said the vast majority of it is concentrated in a relatively small number of sites. In his view, it’s a relatively simple task for a network such as Google’s to put those sites on a blacklist, stopping the flow of ads onto their pages.

Jason Fairchild, chief revenue officer for OpenX, said it’s not that easy. Sites that rely on piracy to generate traffic play a cat-and-mouse game with major ad networks, trying to disguise the nature of their business. It takes “a lot of screening and verification technology,” along with a fair amount of human labor, to make sure ads aren’t placed alongside pirated content, Fairchild said.

Of course, that assumes the ad distributor can look at a site’s pages and identify pirated content. It seems obvious in some cases, such as the page shown above offering free MP3 downloads of songs by the Beatles -- a band that doesn’t give away anything online. But many of the sites hosting unauthorized copies of music and movies argue that they merely provide a platform, and they shouldn’t be penalized if some users upload infringing content.

Counters Fairchild, an ad distributor shouldn’t serve ads to a site if it can’t tell whether the content on the pages is legitimate. “We’re sellers, so we live by those words,” he said.

At any rate, you might think major brands would want to keep their advertisements away from infringement-laden sites so as not to be seen as supporting piracy, even if those sites attract the young people the advertisers are trying to target. But the USC report listed 31 global brands whose ads were found multiple times on infringing sites, including top car manufacturers, mobile phone companies, insurers and even Walt Disney World.

“This is only a sample and is not meant to indicate which brands appear most often on infringing sites,” the report states.

Taplin’s not a neutral observer; a former film producer and chief executive of an ill-fated online video service, he’s a strong supporter of the copyright industries. He concedes that there will always be networks willing to support sites built around piracy. The answer, he says, is for major advertisers to take a stand against those sites. “It’s the brands telling their agencies, ‘Don’t ever put my stuff on these things, and I won’t pay you if you do,’” Taplin said, adding, “Just like they say that about porn.”

The online ad market isn’t that simple, however. Fairchild said the “bad actors” online often use resellers to fill their pages with ads, making it harder for an advertiser to know where its pitches -- and its money -- will end up. To make matters worse, he said, some of these resellers misrepresent the places where they serve ads in order to attract high-quality brands.

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Follow Jon Healey on Twitter @jcahealey