The immediate reaction by the Hollywood film companies to yesterday’s Federal Court ruling that ISP iiNet is not liable for its customers downloading pirated films appears to indicate that, like the music recording industry, the film industry has not woken up to the fact that their business model is no longer valid.

Instead, threatening revenge against individuals who download pirated copies, and seeking legislative protection, film studios should take a look at themselves and wonder what is it about the way they go about their business that has spawned free or cheaper product.

The music recording industry in fact provides the film studios and their advisers with a neat case study in how not to react to copyright infringements.

At the turn of the century, the music recording industry was dying.  One of the major reasons for this was that it had indulged its recording artists a little too much, the royalties structure was expensive, and the marketing of CDs had driven prices up to about $30.  Along came file sharing and download sites, which enabled consumers to choose songs and works they liked without having to buy a whole CD.  And it was cheap.  You could download say 10 songs by one artist for about half the price of a CD.

The music companies didn’t like this one little bit.  They reacted hamfistedly by, in the case of Sony, for example, charging a whopping $3.50 a song for a “legal download”, and by pursuing penniless university students.  They would have these hapless individuals sued for copyright breaches and urge the courts to impose swinging fines, costs and damages on 21-year-olds who were living in a garage at the back of mum’s and dad’s.

But still CD sales continued to decline.  In the US, new media expert Kirk Biglione has observed that despite the music recording industry pursuing more than 17, 000 cases through the courts, and another 4000 through legal letters, CD sales almost halved from 2000 to 2007.

And as Biglione also says, the one download service that does work is Apple’s iTunes because it listens to the consumer.  And because it took control of the product the music industry was selling.  It made music accessible and affordable to the consumer because it did not have the big overheads of the recording companies.

In the world of CDs the iTunes equivalent is Naxos, the classical music label.  It pays artists a flat fee, refuses to indulge their expensive lifestyles and makes product available at a third of the price of the traditional companies.

The lesson for the film studios then is this. Having lost an expensive case against iiNet, do some soul searching and change the way you deliver product to consumers.  There is a reason pirated copies of films and TV programs exist — there is consumer demand for it, just as there was for music.

Instead of suing the average Joe who electronically transfers 10 pirated copies of Avatar to his friends,  or running to governments seeking industry protection through the mechanism of harsh penalties for those who facilitate pirated film distribution, focus on what you are doing wrong.

Stop paying actors and others in the industry such gargantuan amounts of money.   Reduce input costs such as labour and equipment and reflect the savings in offering cheaper product to consumers that can compete with pirated material.  And instead of raving about the evils of piracy to consumers and behaving like corporate bullies, acknowledge that the consumer is right.