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The story reflects a pressing time in the movie industry when most producers — of digital movies, music, games and books — are feeling the negative effects of online piracy. Enter South African-based tech startup CustosTech, which has found an innovative way of curbing the illegal distribution of copyrighted content using bitcoin technology.
Housed in the revamped Stellenbosch startup hub, The LaunchLab, the tech startup has developed a patented technology that can watermark bitcoin into a piece of media, track the blockchain to see when it’s infringed, and then recognise who the infringer is.
From lab to launch
The founders of the startup (which was born out of the MIH Medialab at Stellenbosch University) are Herman Engelbrecht, Gert-Jan van Rooyen and Frederick LutzBorn. The trio has always had a passion for the bitcoin technology, but became more interested in its applications beyond fintech.
Engelbrecht explains that the idea to combine the cryptocurrency with digital rights management came from chatting with his brother about the differences between physical and digital goods when it comes to ownership.
“With electronic media, the problem is that you can make an exact copy and still keep the original,” Engelbrecht says. “My brother made the comment that ‘It’s unfortunate that there’s no way to transfer ownership in a piece of electronic media.’ Then I was like ‘But wait a minute, that’s exactly what Bitcoin is.'”
This intriguing concept lead the team to focus on an idea that’s already been out there — the concept that one can use the bitcoin transaction ledger as a way of tracking the ownership of media.
“Suddenly, the idea dawned on us that you can reverse the way we use bitcoin,” says co-founder and CEO Van Rooyen. “Rather than using public keys to advertise where people can pay money to, you can deliberately expose a bitcoin private key as a way of impacting vulnerability of a recipient.”
Think of it as giving someone a book, taping a hundred rand note on the back, and saying you can read this but don’t let it lie around where it’s out of your sight. That R100 is your guarantee that nobody tampered with the book.
“It’s easy to put a watermark into something with the name of the person. That’s been done,” explains fellow founder Lutz, referring to scenarios like the De Degeneres incident. “What we’re doing is behavioural play where we’re getting the benefactors of the upload to blow the whistle on the guy doing the uploads.”
Instead of focusing on ebooks, the bitcoin startup is focusing its efforts on the movie industry. “Like any startup, we can’t do everything at once. Out of all these types of media, we needed to pick a market where we can prove the technology and where there’s a really dire need right now,” says Van Rooyen.
The university has helped CustosTech secure its first two clients — one of the continent’s largest broadcasters and one of South Africa’s largest film producers and distributors. While South African movies aren’t that popular internationally, the industry does have some tight-knit communities, making the environment perfect for the company’s pilot phases.
The toothache of movie piracy
“The movie industry is in a very tight spot right now,” reaffirms van Rooyen. He explains that situation is only getting worse. “Between 2010 and 2013, we’ve witnessed a linear increase in the number of uploads to sites like The Pirate Bay. Suddenly, in 2014, the number of uploads to pirate sites doubled.”
Van Rooyen, who’s also a professor at Stellenbosch University and one of the directors of MIH Media Lab, explains that we’re witnessing inflection point similar to what we saw in the Napster age of music 10 years ago. And as the case with Napster’s demise, once the world’s most popular piracy site, The Pirate Bay, was taken down late last year, scores of alternative platforms followed suit. Given current trends, piracy is only going to get worse.
To give you an idea of how prevalent the piracy industry has become, all Oscar-nominated films from 2013 and 2014 have been leaked in less than 208 days after their release. That’s just the tip of the iceberg.
While it’s tough to put a finger down on a specific figure, Lutz — who’s also done his thesis on the exact topic of the economics behind piracy — estimates that the movie industry suffers a US$7-billion loss a year due to piracy.
University partnerships the way to go?
CustosTech is founded by Van Rooyen, Lutz, Engelbrecht, while the university also acts as a founding partner. Lutz explains that Stellenbosch University has been very much involved in the process of launching the company, which is unlike MIT’s model which takes a very small stake in the company and generally has a hands-off approach.
CustosTech received its first seed round last year through the university which was supported by its dedicated technology and innovation arm, Innovus. Apart from making Stellenbsoch University an an equity partner, it also owns the IP, which it has spent “hundreds of thousands of rands” to get approved around the globe.
Another seed round was recently raised from two local angel investors and one from abroad, though the group is not willing to disclose figures, in both form and finance. Van Rooyen believes that this “hands-on” model from the university is important for South Africa’s startups.
We don’t have enormous deal-flow like you get in MIT or Stanford where you see startups spinning out of universities all the time. In South Africa it makes sense for the universities to act as a concierge for the business and help the build up the right connections and getting off the ground.
“This hasn’t been possible ever before,” says Van Rooyen. “And that we see as the magic of cryptocurrency; doing things that don’t just replicate fintech in a more efficient way but solve problems in completely new ways that weren’t possible before.”