The True Cost of Piracy

Posted: January 23, 2012 in Current Events, Entertainment, Media Gleanings, politics, Statistics and Lies
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I’m fully aware that this entry might be interpreted as a rationalization of piracy.  The facts, however, shed some interesting light on the claims that the media industries and the lawmakers want us to believe.  Whatever the ultimate judgement on the issue of piracy, it is clear that there is a lot of information in those claims that is inaccurate and downright lies. This is very important when you look at the measures that are being proposed by the government to deal with the issue using draconian control of the Internet.

The statistics that I’m going to present here are mostly based on an excellent article by Julian Sanchez, called “How Copyright Issues Con Congress”.  It is primarily based on American statistics, but that’s OK because that is a good reflection of Canadian stats (proportionally) and that’s where a lot of the media companies are based anyway.  You can go to the original article, but I’ll try to summarize the most important points here.  I am indebted to his research.

The figures stating revenue and job losses due to piracy have changed a lot over the years.  The original numbers from the late 90’s put it at $200 – 250 billion dollars annually and 750 000 jobs.  The origin of each of these figures has been shown to be inaccurate and misrepresentative.  The job figure doesn’t even have any reliable source that can be identified.  More recent figures, used when media industries lobby the government, puts the figure at a more reasonable $58 billion annually and 19 million jobs in the U.S.  Even those numbers, however, are very suspicious.  In addition to the fact that the estimate was put forward by a research firm paid for by the media industries, which is not likely to be very impartial, there are other far more obvious problems with even that lower claim.

First of all, let’s remember that the quoted numbers reflect revenues, not profits.  That knocks more than 50% off the figure right away.

Secondly, the figure represents worldwide piracy, while legislation like SOPA will only address U.S. (and perhaps  Canadian) consumption.  In the statistics presented b Snachez, he gives the example

Of the total $6.1 billion in annual losses LEK estimated to MPAA studios, the amount attributable to online piracy by users in the United States was $446 million—which, by coincidence, is roughly the amount grossed globally by Alvin and the Chipmunks: The Squeakquel.

The most interesting statistical research, in my opinion, is related to the often forgotten fact that not all illegally downloaded material displaces sales.  In other words, when people download music, for example, they are often downloading stuff that they would never otherwise actually purchase.  In fact the research shows that roughly 80% of downloaded music, movies and other media would never be actually purchased by a person if they were unable to download it.  That reduces the actual impact to about 20% or the total, but even if you dispute that fact I’m sure that 50% is a pretty indisputable figure here.  The 20% of material that downloaders may actually have purchased often are actually purchased, especially with movies where there is a significant downgrade in quality in the free version.  I know that this is also true with most downloaded music; the CD version or legally downloaded version is often significantly superior to the 120 mps version that comes off a pirate site.

One final factor can be added to this statistical analysis.  Let’s say that, when all of these factors are balled together, that the actual cost to the media industry is somewhere in the vicinity of $2 billion.  The fact is that, while that money is lost to the particular media industries, it remains disposable income that can still be spent by consumers.  Again research shows that more than 50% of funds saved by illegal downloading are still spent by consumers on other goods, some of them being from the media industries.  While it is certainly fair for these industries to cry about their own lost revenues, the actual loss to the overall economy is actually far less.

It seems that there are similar arguments questioning the statistics about job losses, but I won’t go into them here.

In order to try and convince the public and law makers that control of the Internet is necessary, media companies have presented inflated and deceptive statistics.  It is estimated that in the U.S. the  cost of enforcing Internet policing like SOPA would be around $50 million, -which is one of those conservative estimates that always manage to grow.

The benefits of infringing upon individual rights and compromising the technical integrity of the Internet, all of a sudden don’t seem so critical.


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