3 Ways Piracy Numbers May Be Inflated

See, yeah, I'm going to have to call bullshit on this one

See, yeah, I’m going to have to call bullshit on this one

We hear quite a bit about copyright infringement on the Internet and how it hurts (or doesn’t) the economy and the entertainment industry. It’s usually expressed in near astronomical numbers, billions of dollars annually because Spiderman was downloaded a few times. But I think the numbers may be inflated.

The Institute for Policy Innovation gave a thoroughly detailed (but REALLY biased) report on the losses to the U.S. economy due to piracy. They give some pretty big numbers, but most importantly they list a few “multipliers” that enhance those numbers, reflecting the economic velocity of a dollar that’s spent on, say, a DVD of, or a ticket to see, a movie. 

Their logic is that if I download Spiderman via BitTorrent, I’m not buying the DVD, which not only hurts Wal*Mart, but also hurts their suppliers, their suppliers’ suppliers, and eventually leading back to the actors, editors, and other staff that actually made the movie.

But how should that be counted? What is the effect of a single non-purchase? Ultimately, it’s $20 I’m not spending on a DVD. Already we’re coming into a flaw in their logic. IPI is claiming that piracy harms the economy, and it just might, but what’s not being factored in is that money not spent on the DVD or ticket isn’t disappearing into thin air. I can count on one hand the number of people who pirated a movie, and then lit on fire the money they didn’t spend. In reality, that money is still spent, it’s just spent elsewhere. That means the vast majority of Wal*Mart’s losses in DVD revenue will largely be reflected in gains in revenue in other categories.

The second assumption that IPI is making is that each pirated download is equal to a certain amount of lost revenue. That assumes that each and every person who pirated a movie would most definitely have purchased a DVD or movie ticket had the option to pirate not be available. There’s no multiplier in their report to factor in that if pirating wasn’t an option, some people would just as soon not see the movie. Or, they’d wait for it to be on Netflix, or shown on television, or borrow the DVD from a friend, or buy it from a secondhand shop, or on eBay. The opportunity cost of pirating a movie is near 100% less than that of buying it on DVD, and the benefit is exactly the same. With the higher opportunity cost of buying the DVD, they may instead wish to spend that money on something more necessary than entertainment, and this would remain true if piracy became impossible tomorrow.

It’s especially true with software piracy; First, for the two most pirated applications (Adobe Photoshop and Microsoft Office), open source replacements exist. Had the option to pirate not have been available, some of those people would have opted to go with the FOSS replacements instead of buying the software.

Also, does the IPI really want me to believe that every 16 year old girl who has pirated Photoshop would have put down $700 for the software had it not been made available to them for free? Do any more than 5% of those girls even have $700? Meanwhile, those impressionable young minds are learning how much they like graphic design. A few will go on to pursue that as a career, and they’ll purchase the software they know well to use at their job, which brings me to my next point…

It will rot your soul, curve your spine, and keep the country from winning the war!

It will rot your soul, curve your spine, and keep us from winning the war!

There are definitely circumstances where a consumer pirates a product, and thereafter purchases a copy legitimately. This is especially true in the video game industry, where customers will pirate a game, and then purchase a legitimate copy if they like it, to reward the developers for good work, and for added features such as online play and free updates. Those who download a movie may choose to buy the Blu-Ray later for higher video quality and interactive content. The reverse of this exists, too; pirating a game or movie you have purchased, but the media for which has been scratched or otherwise damaged.

The IPI is also listing the total loss for each industry, and then explains why it’s all due to piracy. But, there’s other things that can lead to lost or lowered revenues, and they’re all legal!

  • Viewing 100 movies on Netflix costs $8 (If done in the same month), and buying new DVDs for the same 100 movies costs $2,000
  • Buying the movie on iTunes or Google Play would definitely make Wal*Mart miss out on the revenue
  • Streaming services like Spotify and Google Play’s All Access mean decreased a la carte track and album sales
  • Going to the movies has become rather expensive, especially for a large family, who may instead wait for the DVD (or Netflix, or iTunes, or On Demand), which costs the same no matter how many people watch it, or how many times.
  • A perceived drop in the quality of recent releases may cause some to rethink entertainment purchases
  • A downturn in the economy gives people less disposable income to spend on entertainment
  • A DVD purchased from eBay or a thrift store costs much less and the entertainment industry sees zero of the profits from resale

I’m not here to advocate for piracy, and I’m not trying to sell it to you as a good and positive thing. Recently, however, we’ve seen piracy being used as an excuse to strip away essential liberties in order to stave off a big-bad-monster that’s supposedly nosediving the economy. The figures that the software and entertainment industries are using to push this agenda are massively inflated.

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