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Tuesday, January 17, 2012

The Truth About the Impact of Piracy

Posted by on Tue, Jan 17, 2012 at 9:25 PM

In news story after news story about the horrible SOPA/PIPA bills, you see things like this:

But with piracy costing up to $775 billion a year, virtually everyone agrees the bills in some form will survive.
Marketplace Tech

The pro-legislation Copyright Alliance cites a report from the International Chamber of Commerce saying that piracy and counterfeiting cost businesses $775 billion annually and puts 2.5 million jobs at risk worldwide.

Yes, that says $775 BILLION. Which is, you know, completely absurd on its face. But do these "reporters" stop to think if this is in any way credible? Guess.

If they took a second to look into it, they might find something like this, from Julian Sanchez at the Cato Institute. Julian describes in some detail where these outrageous numbers come from (the distant past), and how wrong they are (completely). The economic impact of digital piracy is nowhere near this big—citing a study commissioned by the MPAA, Sanchez shows that a better guess for the cost of movie piracy in the U.S. would be something like $446 million.

He notes that's roughly the amount grossed by Alvin and the Chipmunks: The Squeakquel.

Besides being decades-old, the numbers the content industry and their media and congressional stenographers throw around are based on one fallacy after another. For example, if that $446 million is a loss to anyone (probably not), it's a loss to the movie industry, not to the economy as a whole. Illegal downloaders aren't hoarding the money they save by not going to the movies, they're spending it on other shit, like broadband and computers and wheatgrass smoothies.

Anyway, read the whole thing to see just how ridiculous all of this is, as if it wasn't obvious.

That these laws could do great harm and impact all of our privacy and freedom is clear, if not guaranteed. What is guaranteed is that they will do nothing to fix the non-existent problem they're pretending to solve.


Comments (42) RSS

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Teslick 1
In many cases—I’ve seen research suggesting it’s about 80 percent for music—a U.S. consumer would not have otherwise purchased an illicitly downloaded song or movie if piracy were not an option.
I would think that 80% "wouldn't buy it anyway" figure would hold true for most digital content.

Congress throwing around wrong facts and figures is par for the course, unfortunately.
Posted by Teslick on January 17, 2012 at 9:44 PM · Report this
A friend of mine described the draconian measures to shut down internet providers as "cracking down on mail fraud by arresting postal carriers."
Posted by TechBear on January 17, 2012 at 9:50 PM · Report this
Intellectual property theft is a "non-existent problem?"

I understand the industry is over-inflating the scope of the problem, but IP theft is still a big problem that screws artists and authors out of their livelihood.
Posted by Get Real on January 17, 2012 at 10:02 PM · Report this
The number isn't really that absurd at all. People really do lose jobs because of piracy. Ask yourself why there aren't many record stores left in the world (or those that are left are tapping the vinyl fad so heavily).

People just don't like to feel guilty about stealing music.

Posted by RDM on January 17, 2012 at 10:19 PM · Report this
Xenos 5
@1 Also: Younger persons, the ones who are most likely to 'pirate' media, are also-surprise!- the biggest market for legitimate consumption.

One of the frightening things that people neglect about SOPA is that it will further curtail the already murky area of Fair Use. Satire is one of the greatest indicators of the health of a democracy, and this could end it.
Posted by Xenos on January 17, 2012 at 10:25 PM · Report this
Anthony Hecht 6
@3 - Yes, it's a problem in many ways, but the point of this post is that your assumption that it "screws artists and authors out of their livelihood" is just accepted as true without much evidence, often by citing outright lies about the economic impact of piracy. If you have evidence of this, I'd love to hear it.

There are certainly plenty of stories of artists and companies who have embraced the digital world, priced their works to meet that market, innovated in their art, and done very well. Again, I'd be very interested to hear some specific stories of artists and authors who have lost their livelihood due to digital piracy.
Posted by Anthony Hecht on January 17, 2012 at 10:28 PM · Report this
Xenos 7
@4 Why are there less media stores in general, including books? Don't tell me the book pirating underground is to blame.
Posted by Xenos on January 17, 2012 at 10:28 PM · Report this
Doctor Memory 8
@4 there are no record stores any more because regardless of whether I pay for my music or steal it, buying it in the form of a 12" vinyl disc or a 5" aluminum and plastic disk when I have the option of downloading it over the air to my phone in under ten seconds (and automatically syncing it or streaming it to every other music-playing device I own, on demand) is fucking idiotic. Napster or no napster, the physical music industry was a dead man walking the moment the mp3 format was specified.

If you think the numbers are "not absurd" even though their sources are demonstrably bullshit, then it's your responsibility to back them up. Do go ahead, I'll be here all night.

There was music and musicians before the Edison Cylinder. There will be music and musicians after the last iPod is stripped for its rare earths and aluminum. Stop mistaking the carrying case for the thing itself.
Posted by Doctor Memory on January 17, 2012 at 10:28 PM · Report this
Here is one that probably does not fit your numbers.

There are sites like the (now defunct) p2psports, which if say, a Kent sports fan were to watch, he could see blocked out sports games bittorrent streamed in by people in other countries.

On the one hand that would cost the NFL millions in advertising and revenue. On the other hand, the NFL does not seem to have a reasonable streaming option and I do not have cable.
Posted by Supreme Ruler Of The Universe http://_ on January 17, 2012 at 10:29 PM · Report this

I asked a tech at Rhapsody about how artists felt about us subscribers getting their works for on low subscription fee, and he said many did very well..getting many more listeners...and money... then they ever would with direct purchases.
Posted by Supreme Ruler Of The Universe http://_ on January 17, 2012 at 10:33 PM · Report this
Anthony Hecht 11
@4 - There's no evidence that the decline of record stores is the result of piracy. It's the result of a major change in the music business toward digital delivery. Piracy accounts for some of that, and things like Napster definitely accelerated the change, but it was/is inevitable that buying music on physical media is going away. Curtailing piracy won't make a bit of difference. Vinyl survives as a niche because it's physicalness is part of its appeal.
Posted by Anthony Hecht on January 17, 2012 at 10:34 PM · Report this
Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn 12

Unless it's a fake Prada bag. See that, the carrying case, is the thing. Itself. Not the real thing. It's fake. But that's the issue. It doesn't matter what you put in the bag.
Posted by Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn on January 17, 2012 at 10:40 PM · Report this
Anthony Hecht 13
@4 - Also, the number IS absurd, that's a fact. The $775B number being thrown around in Congress and the media is based on a decades-old unsourced sidebar in a magazine story, and was an estimate (again, unsourced) of the size of the market in ALL counterfeit goods, which includes all kinds of physical goods. And again, this was in 1991. It's an absurd number for 2012, let alone for the age of Mosaic.
Posted by Anthony Hecht on January 17, 2012 at 10:44 PM · Report this
The Stranger quotes approvingly from Cato. Will wonders never cease.
Posted by David Wright on January 17, 2012 at 10:47 PM · Report this
Doctor Memory 15
@14: the enemy of my enemy is occasionally useful, even if I'd really rather not see him in charge of anything.
Posted by Doctor Memory on January 17, 2012 at 10:48 PM · Report this
Anthony Hecht 16
@14 - When you're right you're right. Stopped clocks, and all that.
Posted by Anthony Hecht on January 17, 2012 at 10:52 PM · Report this
Doctor Memory 17
To be strictly fair: there are industries where piracy is in fact a much more serious problem. Video games come to mind instantly: it's really really difficult to recoup the investment in a AAA title (which can easily run into the tens of millions of dollars) when nobody actually pays for the product, and game producers don't have the option of going on tour and selling t-shirts in order to recoup the revenue.

But tellingly, the gaming industry managed to figure a way out of that trap without SOPA. The big boys abandoned the piracy-plagued PC market en masse, and publish only on consoles where the entire distribution chain is cryptographically signed. (There's still piracy there, to be sure, but it's not even close to the problem it was on the PC.) The little indie shops either write Flash games and sell ads on the web pages, or sell via Xbox Live Arcade, the Apple App Store or Android Marketplace. The game industry is as cyclical as it ever was, but it certainly still exists, and employs thousands of people.
Posted by Doctor Memory on January 17, 2012 at 10:55 PM · Report this
Anthony Hecht 18
@17 - Good point. The game industry (and software in general via platforms like the App Store and Android Market) are great examples of an industry that adapted, and remains very successful—in many cases far more successful for independent developers. The MPAA and RIAA just want to dig in their heels and make it like it used to be. Good luck.
Posted by Anthony Hecht on January 17, 2012 at 10:58 PM · Report this
Joe Szilagyi 19

Add it to the article!
Posted by Joe Szilagyi on January 17, 2012 at 11:40 PM · Report this
Some Old Nobodaddy Logged In 20
@14 "Anger so clouds the mind, that it cannot perceive the truth."

Oh, wait. Wrong Cato.
Posted by Some Old Nobodaddy Logged In on January 18, 2012 at 12:00 AM · Report this
Karlheinz Arschbomber 21
Cato sometimes gets it right. Their ongoing exposé of the criminal fraud of public support of sports arenas....…
Posted by Karlheinz Arschbomber on January 18, 2012 at 1:39 AM · Report this
watchout5 22
Your post is made so much of win. Julian Sanchez puts the rest of CATO to shame.
Posted by watchout5 on January 18, 2012 at 2:01 AM · Report this
Fifty-Two-Eighty 23
You'll never convince me that stealing is right, or that it isn't hurting the industry. That's just nonsensical. But I most certainly will agree that SOPA/PIPA are like using a sledgehammer to swat a mosquito. I would strongly support a rational, reasonable solution to the problem. This isn't it.
Posted by Fifty-Two-Eighty on January 18, 2012 at 4:07 AM · Report this
KittenKoder 24
I hate this whole bill, but I gotta find the irony in this whole blog and comments.

Supporting CATO only when it suites you, and now, only this one time, it's the government's fault. Seriously?

As for the actual topic, here's the thing, pirating content has been around since long before the internet, all the internet did was make it easier to find them. SOPA and PIPA are just censorship bills, nothing more. If you want to stop piracy, make things people want to support. I buy what I support, paid full price for Saun of the Dead and Hot Fuzz, and some other movies. Buy the CDs I love, and most of the musicians I enjoy these days offer freebies online to satiate my cravings until I can afford their albums. The thing is, many businesses that support this know they are dinosaurs, musicians and movie producers no longer need the big controlling labels and distribution companies, they can keep the rights to their works and still get their works out to the public while keeping all the profits themselves. So yeah, that's why there's so many big labels and companies supporting this bill, they don't want to lose their slaves.
Posted by KittenKoder on January 18, 2012 at 6:00 AM · Report this
DavidC 25
I don't understand why we can't return to advertising based media. I'd gladly stream music, talk radio, and some TV shows with local ads placed in by my ISP for a set rate. NFL streaming is a great example. I was paying $120/mo for Cable TV and getting 6 or 7 NFL games that I didn't want each week at the exclusion of the one I wanted - which I was forced to stream online.

Valve (software developer) said it best - piracy is a service issue. I don't pirate games - they have very reasonable prices. I happily stream new music off Youtube - much like I did before - where I can discover new artists faster & without the barrier of radio era payola schemes. I've discovered new comedians thanks to podcasts - even if they don't come to town those download numbers of evidence of their popularity and will result in a $$ boon for them.

SOPA is not about artists - its about corporate control of the internet. Domain name seizures do nothing as the pirate bay has proven - as well as P2PSports - they are still around. The world doesn't need US controlled DNS and if they try and enforce draconian controls the internet will go on without them.
Posted by DavidC on January 18, 2012 at 7:00 AM · Report this
I wonder how protesting Big Brother works out in the end? Maybe if we're polite about it they will put some padding on the face cage.

And what, pray tell, shall we threaten our Democratic senators with? Not voting? Not even feasible, and they know it.

Voting is a great comfort, because "you did your part." Voting for Democrats is great comfort, because "at least they're not Republicans." Voting makes the entire lie possible, the one that supposes the social contract still exists, when it hasn't existed for 30 years or more.

Now take off your shoes before you download that Funny or Die video, motherfucker.

You did your part, taking part in the great blogger strike of '12. Term papers went unfinished, apps went un-downloaded, but cavities were still searched.

Don't forget to register to vote, because bad things will happen if Republicans are in charge.
Posted by frothysnow on January 18, 2012 at 7:54 AM · Report this
As a writer I think SOPA is evil. As a writer I think piracy is evil. Defend free speech. I am with you. Don't defend theft. That takes money out of my pocket and food off my table. You don't get to take the fruits of my labor just because you want to. You have to pay for them, thank you very much.
Posted by Lumiere1964 on January 18, 2012 at 7:59 AM · Report this
Copyright is a societal contract. We give content creators a short-term monopoly to distribute their works *and in exchange*, they relinquish those works to the public domain for all of society to benefit.

Except, they don't want to give their works over to the public domain anymore. That's fine because I can simply not honor their distribution monopoly.

If they want their monopoly back, they need to start contributing to society again.
Posted by lolol on January 18, 2012 at 8:13 AM · Report this
Doctor Memory 29
Supporting CATO only when it suites you, and now, only this one time, it's the government's fault. Seriously?

Yes, seriously. The fact that you find it shocking, shocking that I can find the occasional point of agreement with people whom I generally disagree with suggests that you're either pretending to be stupid for the sake of trolling, or are just actually stupid.

You'll probably find it even more shocking that even though I think labor unions and aggressively progressive taxation are a good thing, and think the Iraq war was a bad thing, I do not actually believe that the Revolutionary Communist Party's platform is a solution to all of society's ills. Seriously? Seriously.
Posted by Doctor Memory on January 18, 2012 at 8:47 AM · Report this
Attacking the internet like this certainly isn't going to make me run out and start spending $12+ dollars on movie tickets again. In fact, It'll only make me actively go out of my way to avoid movie theaters from then on out.

Your move, MPAA.
Posted by suddenlyorcas on January 18, 2012 at 8:50 AM · Report this
Matt from Denver 31
My question about the entertainment industry is, Why do they find it impossible to develop the internal security to prevent leaks in the first place? I don't mean piracy of movies and music that's already released, I mean yet-to-be-released films and albums. They ALWAYS leak before the street date. Every single one. Are they all hacked? I find that difficult to believe.
Posted by Matt from Denver on January 18, 2012 at 9:06 AM · Report this
@6. Anthony, what more evidence do you need than all your "Always Be Closing" stories? Haven't you noticed that music stores have largely ceased to exist?
Posted by RDM on January 18, 2012 at 9:32 AM · Report this
Anthony Hecht 33
@23 - I'm certainly not saying that stealing is right. This has nothing to do with encouraging or excusing stealing. It's about having an appropriate response to the problem based on the actual size of the problem. I would, however, put downloading content illegally in a different category than theft of physical goods. The impact is much harder to measure, and there's an unlimited supply, so it's not the same thing. It certainly doesn't deserve the name "piracy", which I think should be reserved for people who widely distribute and sell illegally obtained media.

@24 - Seriously? Yes. I don't "support" CATO, I just agree with this writer on this point. Your stance is that because I disagree with their core values and their positions on many things, I must disagree with them on everything? Seriously?
Posted by Anthony Hecht on January 18, 2012 at 9:34 AM · Report this
Anthony Hecht 34
@32 - See @8 and @11. The decline of record stores is not evidence of the impact of piracy. It's an inevitable consequence of digital music, widespread broadband, and iTunes.
Posted by Anthony Hecht on January 18, 2012 at 9:42 AM · Report this
Irena 35
Thanks for drawing attention to the Sanchez article, Anthony. But I have to point out that your statement that piracy is a "non-existent problem" is contradicted in the very article you cite:
Does that mean online piracy is harmless? Of course not. [...] we want the market to be accurately signalling demand for the products people value, rather than whatever less-valued use that money gets spent on instead. This is, in fact, very important! It’s a good reason to look for appropriately tailored ways to reduce piracy, so that the market devotes resources to production of new creativity and innovation valued by consumers, rather than to other, less efficient purposes. Indeed, it’s a good reason to look for ways of doing this that, unlike SOPA, might actually work.
Posted by Irena on January 18, 2012 at 10:48 AM · Report this
Irena 36
In response to your comment @6, while I won't get into specifics, I do know someone in the music industry who saw royalties dry up overnight because of piracy, and it's not because people stopped listening to the songs he produced. That money, which he'd come to count on, was suddenly gone. So it's a problem, though not nearly of the scope the SOPA pushers would have us believe.
Posted by Irena on January 18, 2012 at 11:10 AM · Report this
SPG 37
SOPA and PIPA are obviously bad legislation, and the figure being thrown around of $700b may be off, but piracy/copying/theft is a real problem.
The first few years of the DVD era was where the baseline of sales vs piracy was established. The reason is that DVD burners and blank DVDs were expensive and CSS encryption still did a decent job of preventing DVDs from being ripped. Sales were good. Really good.
Once DVD ripping became easy and bandwidth was good enough to file swap GBs of data DVD sales went down. Way down.
For the film business it was easy to compare the numbers. After that, Netflix rose up along with an incredibly stupid format war for HD DVD vs BluRay, and now here we are.
In the little niche film world that I used to work in the results were stark. Half the producers closed up shop. The other half are getting by producing TV content to finance their movies or are just resigned to making a lot less money. All the bullshit about making money by exploiting the new paradigm is just that...bullshit. If one guy is able to do it, that's nice, but it's only that one guy making money while the other 99% have fallen off since their business isn't there anymore.
I don't cry for Hollywood's lost profits, and there will still be plenty of cat videos and Shit ____ say on YouTube, but the real damage of the piracy, file swapping, copying, thefts, freedom of information, etc is that the content independents in the middle used to make. They got fucked. Badly.
Posted by SPG on January 18, 2012 at 11:30 AM · Report this
Anthony Hecht 38
@35,36 - Yeah, the "non-existent problem" line is a bit of hyperbole for sure, and I don't mean to say it's harmless or without its victims. But compared to what the MPAA and RIAA would have us believe, and have Congress already believing, it's effectively nothing. They act like it's a massive drain on the whole economy, and that's not remotely true. I'm sure there are examples of artists who have been hurt by piracy, and that sucks for sure, but it's hardly worth a law like SOPA/PIPA.
Posted by Anthony Hecht on January 18, 2012 at 11:41 AM · Report this
Anthony Hecht 39
@37 - I don't know from personal experience, but my instinct is that the effect you describe is much more the result of the rise of Netflix, On-Demand, etc., than it is the result of piracy. I just don't see it as being nearly widespread enough to cause the kind of impact you're describing. Once it's easy and fairly priced (see iTunes), people are demonstrably happy to shell out money for content. The problem is that the industry wanted to make the same amount of money, or more, using the same outdated technologies. And then they engaged in costly format wars as you point out, while the world moved on. If the content owners or artists don't provide a simple and fair way to access their content using the tools people want to use, they will suffer for sure. But I still dispute that it's primarily because of piracy. It's because they haven't found the right way to do it, haven't found a way to reach their audience effectively. When an industry has a seismic shift, many people will be hurt, and that sucks, but piracy is not the primal cause.
Posted by Anthony Hecht on January 18, 2012 at 11:50 AM · Report this
SPG 40
@39, I left that business just before the rise of netflix. Netflix has definitely made it worse from a total sales perspective and IMO contributed to the devaluing of the DVD as a product.
I still keep in touch with some of the people involved in the industry, and the decline of DVD sales has gotten much worse with netflix. Oddly though BluRay is doing really well compared to the number of people who own BluRay players. Sales are actually really good there (but not enough in total to cover the decline in DVD). Hmmm, could it be that it is hard to rip/copy/pirate BluRay discs?
I'm not going to argue that piracy/copying/downloading is the only cause of the decline of DVD sales, but I don't think that you can seriously argue that it's not a major contributor. Obviously consumer habits change, and buying a DVD isn't as cool as it once was but that's also a part of the copying/pirating behavior devaluing the perceived value of a DVD.
As far as iTunes and the fairly priced content argument, it only goes so far. The real income to the producer after the middlemen (Apple, labels, brokers, etc) get their cut isn't that much. It's nice that there's a legitimate avenue for online sales, but the reality is that it's not as lucrative as the old model. And let's not forget that outside of major studios most people weren't exactly getting rich making content. Cut the income down and there's now fewer producers, less content which means less competition even though that particular niche's audience has grown considerably from the days when you could only buy it on VHS. The audience is bigger, they're watching the content, they're just not moving dollars to the people working to create it.
Posted by SPG on January 18, 2012 at 12:46 PM · Report this
Doctor Memory 41
@40: I think it's also extremely important to understand that in the old model the middlemen were basically the only people making money. A handful of music acts (Madonna, U2, Stones, etc) made actual money. Everyone else, including not a few gold- and platinum-selling artists were actually in debt to their record labels.

So yeah, I'm not losing a lot of sleep over the fact that the new model is "less lucrative" than the old one. It's primarily less lucrative for coke-snorting douchebags with pinkie rings and bad suits. Small artists will continue to make whatever money they can the way they always have: gigging, self-distributed music sales, t-shirts and session work.
Posted by Doctor Memory on January 18, 2012 at 5:29 PM · Report this
SPG 42
@41, I don't have widespread first hand experience with the music business other than hanging out with friends who were momentarily a big act, but my friends did ok with CD sales back in the days before Napster et all blew up. I've heard the tales of artists in debt to their label too, but there were plenty who made money too. They didn't spend truckloads of the label's cash to produce their records, so they wound up making money. But that's beside the point of this discussion. We're talking about whether piracy/copying/downloading actually has an economic impact on artists. It does. Lousy record labels is a debate for another day.
I do have first hand experience as a producer, then later working for a distributor of independently produced movies so I can speak directly to that, and it is what it is...a severely damaged business with no money for anyone anymore. Not the producers, not the distributors, and not even the retailers since their sales have suffered as well. When they were selling on VHS tape and the first few years of DVD the producers did ok, and the distributor got by. Now? Not so much. The distributor is down to 1/10th of the employees and will be closing any day now. The only producers still making movies are also making TV content for cable and working a lot harder for the same or less money. The rest of them just quit completely. Who does that help?
Posted by SPG on January 18, 2012 at 6:15 PM · Report this

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