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By Jessica Toonkel
Sept 14 (Reuters) - A small number of U.S.-based startupsare harvesting data about the hundreds of millions people whoillegally stream movies, TV shows and music in a bid to create anew advertising market.
Whether major brands are willing to pay for the opportunityto market to consumers who steal content -- an industry taboo todate -- will determine the fate of this cottage industry.
The new businesses measure and track the digital footprintsof illegal downloaders. While the concept is still in itsinfancy and has been greeted with skepticism among some mediainsiders, a handful of firms are making early inroads.
The biggest of these startups, Tru Optik, signed a dealearlier this year to share its data with New York media agencyMindshare, a division of GroupM, which is owned by WPP,the global advertising and public-relations company.
Three-year-old Tru Optik has assembled a database of the 500million people who illegally view or share shows and movies viaBitTorrent and other file-sharing platforms. That data iscombined with other user data, including the websites theyvisit, zip codes and purchasing history.
Mindshare uses this information to better identify newgenres of movies and shows to help its media clients advertiseto fans of these genres, said Sameer Modha, who overseescustomer data strategy at Mindshare Worldwide.
For example, Mindshare recently noticed from the data thatthere is a fan base for shows and movies from several differentgenres, including Westerns and science fiction, that allfeatured "protagonists who are isolated in some dystopianalternate reality."
Mindshare can use this customer segmentation to help mediaclients market relevant shows and movies. But Modha stressedthat Mindshare does not advertise directly to illegal viewers,and said that understanding their behavior is not the same aspromoting it.
"If I go interview people who steal cars, am I condoning cartheft or am I just understanding the phenomenon?" he asked.
That question gets to the heart of an ethical debate aroundthese startups and piracy.
Some major industry players, including the NationalAssociation of Broadcasters (NAB), told Reuters they find theenterprise distasteful but have yet to take any legal actionagainst this new approach.
"Our members will continue to resist business partnershipswith companies who condone content theft and piracy," saidDennis Wharton, spokesman for the NAB, which represents TV andradio broadcasters.
Tru Optik's CEO, Andre Swanston, says the company does notendorse or condone piracy. Its database allows brand advertisersto reach these downloaders - identified by IP address and otheranonymous data points, but not by name, according to the company- with targeted ads on the websites they frequent. No ads areplaced on sites where pirated content is shared or on piratedcontent itself, according to the company.
"I don't think it's legitimizing these people because theseare already legitimate consumers," he said, noting that theillegal downloaders also are heavy buyers of media. "Byproviding media companies with better audience data and theability to market to these viewers, Tru Optik believes it ishelping clients mitigate piracy and better monetize itscontent," Swanston said.
THE PITCH
The U.S. Copyright Act prohibits unauthorized use ofintellectual property, and anyone who illegally downloads content could face fines or even prison. The law does notaddress the activity that Tru Optik and the others are pursuing,namely providing information about these consumers.
The NAB and other industry groups are not lobbying forregulatory or legislative changes to curtail this fledglingbusiness. The Federal Trade Commission, which overseesadvertising, has not addressed the issue and did not return arequest for comment for this story.
So for now, one of the biggest obstacles for the startupsmay be the comfort level of would-be customers.
Their pitch is based on compelling statistics.
About 70 percent of consumers under 30 in the U.S. andGermany, for example, have copied, shared or downloaded filesillegally, according to a 2013 study by Columbia University andresearch institute American Assembly.
Plus there is evidence these viewers spend more on mediathan their peers. A 2014 survey of 2,500 users of BitTorrent, aprotocol that allows people to share files, are 170 percent morelikely than others to pay for digital music.
Tru Optik has signed up about 20 customers, Swanston said.The Stamford, Connecticut, company has 20 employees and worksout of a former YWCA that has been retrofitted into a loft-styleoffice, complete with games and a ping-pong table. It's backedby two venture firms -- Cambridge, Massachusetts-based ProgressVentures and Connecticut Innovations of Rocky Hill, Connecticut.
Besides its work on peer-to-peer file sharers, Tru Optikprovides clients with analytics on viewership of streamingplatforms, including Roku and Apple TV.
Another Tru Optik client, streaming service YipTV,discovered from the database that 25 percent of illegal viewersof the "El Classico" soccer matches between FC Barcelona andReal Madrid were women who also like novella-type movies, saidYipTV CEO Michael Tribolet.
So the West Palm Beach, Florida, company launched a campaignmarketing its sports offerings to these viewers. It saw a 35percent increase in subscriptions, including a 10 percentincrease in female customers, Tribolet said.
A MUSICAL VARIATION
Santa Monica, California-based Muzit, which has sixemployees, is working with recording artists who want to reachconsumers who have illegally downloaded their songs, said CEOTommy Funderburk, who is also a rock singer. The company wouldnot disclose how many clients it has.
U.S. rock band The Mavericks last year ran banner ads onseveral websites, inviting fans to provide an email address forthe chance of winning a guitar signed by the band.
"Many of these people are fans and potential customers,"Funderburk said.
New York City-based PeerLogix, which has six clients so far,according to the company, is pursuing a similar model. It workswith brands and music, TV and movie producers who want toadvertise their content or products to the people who areillegally viewing the content.
A TOUGH SELL?
Some media and advertising industry executives said theydoubt these businesses will take off. Because entertainmentcompanies have long called for tougher anti-piracy laws, theysaid, lining up with companies seeking to profit from illegaldownloads could undermine their credibility.
Ashwin Navin, CEO of Samba TV, was the co-founder ofBitTorrent, a pioneering platform for illegal viewing andsharing of content. He called the effort to create anadvertising market aimed at pirates "a tough nut to crack."
"Either treat them as nefarious actors or not," he said.
David Morgan, chief executive of Simulmedia, a NewYork-based ad tech firm, notes it is against the ethos of theway media companies think.
"The entertainment industry is fundamentally built on thecreation and monetization of unique intellectual property," saidMorgan.
But to Tru Optik's Swanston, it's only a matter of timeuntil the industry embraces this big market.
"Anyone not tapping into this immense source of audiencedata is at a huge disadvantage to their competitors," he said.
(Editing by Eric Effron and Edward Tobin)
