Internet Piracy isn't as economic crushing as MPAA/RIAA make you think

[CaseAgainstFaith]

That said, I remain a bit amazed that it’s become an indisputable premise in Washington that there’s an enormous piracy problem, that it’s having a devastating  impact on U.S. content industries, and that some kind of aggressive new legislation is needed tout suite to stanch the bleeding. Despite the fact that the Government Accountability Office recently concluded that it is “difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole,” our legislative class has somehow determined that—among all the dire challenges now facing the United States—this is an urgent priority. Obviously, there’s quite a lot of copyrighted material circulating on the Internet without authorization, and other things equal, one would like to see less of it. But does the best available evidence show that this is inflicting such catastrophic economic harm—that it is depressing so much output, and destroying so many jobs—that Congress has no option but to Do Something immediately? Bearing the GAO’s warning in mind, the data we do have doesn’t remotely seem to justify the DEFCON One rhetoric that now appears to be obligatory on the Hill.

One reason is that they already are recapturing much of that revenue through “complementary” purchases. As Oberholzer-Gee observes, recording industry numbers show large increases in concert revenues corresponding to the drop in recorded music sales. That suggests that, as people discover new artists by sampling downloaded albums online, they’re shifting consumption within the sector to live performances. In other words, people have a roughly constant “music budget,” and what they don’t spend on the albums they’ve downloaded gets spent on seeing that new band they discovered.  For the firms that specifically make their money from the sale of recordings, that may seem like cold comfort, but if we’re concerned with the music industry as a whole, it’s a wash. Something similar might occur with respect to purchases of merchandise based on licensed film properties.

Another factor is that, notwithstanding projections of a “long tail” effect resulting from lower search and distribution costs in the digital era, most entertainment industries continue to operate on a “tournament” or “lottery” model, where a few hits generate jackpot revenues, sufficient to make up for losses on the majority of new products.  Unsurprisingly, the most heavily pirated movies each year tend to be the ones that are also highly successful at the box office and in DVD sales, with similar patterns in album downloads. In other words, bleeding revenue to piracy is going to be a problem to the extent that your product is a hit, in a market where the core uncertainty about this crucial fact (at the time when the decision whether to greenlight production is made) looms a lot larger than the marginal loss from illicit downloads if you are successful.

Let’s imagine, implausibly, that a measure  like SOPA did manage to reduce online piracy by U.S. consumers by some meaningful amount. A small potion of that reduction, the minority of downloads representing legal purchases displaced by file sharing, would translate into sales for the content industries. What form would these take? It seems reasonable to suppose that the majority of people who were previously getting their music and movies from The Pirate Bay are not typically lining up to buy shiny plastic discs at Wal-Mart. Rather, they’re probably disproportionately displacing legal digital downloads from venues like iTunes and Amazon, or subscription services like Netflix and Spotify, which are pretty clearly where the overall market is quickly going anyway.  (Apparently, literal thieves don’t even bother stealing physical media anymore.) For movies, there’s probably also some displacement of theatrical ticket sales, though as the theatrical experience is in many ways a distinct good, it’s hard to say how much substitution it’s reasonable to expect.

In the very short term, increased legal purchases of digital content wouldn’t seem likely to generate many additional jobs. If spending in the physical retail sector jumps 20 percent, shops need to hire more clerks, and their suppliers more manufacturing workers, to meet the increased demand. If spending in the iTunes store jumps 20 percent, Apple probably needs to pay a few bucks more for bandwidth and electricity, but basically everyone just gets to smile and pocket the extra profit. The jobs effects estimates we’re seeing tossed around, however, are coming from a 2007 study that would have had to employ, at the most recent, adjustments made several years before that to the benchmark multipliers the Bureau of Economic Analysis developed in 2002. Even leaving aside its many other problems, then, the job impact estimates in that study would have been largely based on legacy assumptions from a brick-and-mortar economy. (The loss estimates relied on would also, necessarily, fail to account for the recent rise of popular, legal streaming services that have likely lured many consumers back from the pirate market. There is, alas, no very good data here, but I’d wager Hulu and Netflix have done exponentially more to reduce piracy losses than enforcement crackdowns ever will.) In any event, you’d expect the most immediate effect of consumer spending shifts from widgets and restaurants to digital downloads would be, if anything, fewer net jobs.  The output and employment effects, rather, would show up in the longer term as lower returns reduce incentives to produce new content—and hire the workers needed to support that production.  For some of the reasons discussed above, though, empirically there’s just not much evidence for a dramatic effect of this kind.

No doubt piracy is costing the content industries something—or they wouldn’t be throwing so much money at Congress in support of this kind of legislation. If we could wave a magic wand and have less piracy, obviously that would be good.  But in the real world, where enforcement has direct costs to the taxpayer, regulation has costs on the industries it burdens, and the reduction in piracy they’re likely to produce is very small, it seems important to point out that the credible evidence for the magnitude of the harm is fairly thin. As a rough analogy, since antipiracy crusaders are fond of equating filesharing with shoplifting: suppose the CEO of Wal-Mart came to Congress demanding a $50 million program to deploy FBI agents to frisk suspicious-looking teens in towns near Wal-Marts. A lawmaker might, without for one instant doubting that shoplifiting is a bad thing, question whether this is really the optimal use of federal law enforcement resources. The CEO indignantly points out that shoplifting kills one million adorable towheaded orphans each year. The proof is right here in this study by the Wal-Mart Institute for Anti-Shoplifting Studies. The study sources this dramatic claim to a newspaper article, which quotes the CEO of Wal-Mart asserting (on the basis of private data you can’t see) that shoplifting kills hundreds of orphans annually. And as a footnote explains, it seemed prudent to round up to a million. I wish this were just a joke, but as readers of my previous post will recognize, that’s literally about the level of evidence we’re dealing with here

full article - http://www.cato-at-liberty.org/internet-regulation-the-economics-of-piracy/

So really while I don't support internet piracy, it does seem that while the they might lose some sales in say selling of CDs, they make up for it for people going to concerts. And my opinion, while yes you can go watch a shitty cam version of movies while they are still in theaters, but cams don't equal in any sense the quality of going to the big screen.

[N. De Plume]

All in all pretty good, but this bit bothers me:

No doubt piracy is costing the content industries something—or they wouldn’t be throwing so much money at Congress in support of this kind of legislation.

That’s pretty much the same as, “The hypochondriac must be ill, or else he wouldn’t be seeing the doctor.” The content industries don’t have to suffer any actual harm to want Congress to do something. They just have to think they are being harmed. Given their resistance to change and phobia of altered paradigms, it is not hard to believe that a lot of the harm may be in their heads. Then again, it may not be. That is why we need decent independent analysis of these issues.

[TenfoldMaquette]

That’s pretty much the same as, “The hypochondriac must be ill, or else he wouldn’t be seeing the doctor.” The content industries don’t have to suffer any actual harm to want Congress to do something. They just have to think they are being harmed. Given their resistance to change and phobia of altered paradigms, it is not hard to believe that a lot of the harm may be in their heads. Then again, it may not be. That is why we need decent independent analysis of these issues.

It is all in their heads. The old paradigm of "I like Band X, so I'll go buy their new CD even if it only has 1-3 tracks on it that I like" has changed irrevocably. The entertainment industry is faced with the problem that people are not satisfied with shelling out $$$ for content they don't want, which means that the industry will inevitably lose revenue if they continue on with the same business model. Rather than adapt to the changing market, they're panicking and throwing away money left and right trying to sue teenagers for millions of dollars and force people to conform to their business model whether their consumers want to or not.

They're a bunch of short-sighted, moronic troglodytes who need a good, hard smack with the industrial-strength Cluebat.

[myusername]

The problem as well is, just because someone would pirate something, doesn't necessarily mean they would buy it. They might just go without it.

[Eniliad]

My opposition to SOPA/PIPA has nothing to do with the amount of financial damage piracy causes. Whether it was billions per year or loose change from the couch, I don't like piracy in general. If you pirate, I'm not going to say anything, but I don't approve either, based strictly on the principle. I'm all for protecting the people who make the movies/songs/video games that we all enjoy, and I would never claim they don't deserve to make full profit for copies sold (yes, even if the movies/songs/games suck. It's the dark side of the free market). Large numbers of pirates contribute to the restrictive DRM that many mediums have in place today, and I think further piracy only encourages more, stricter DRM - which I believe is more damaging than any dollar amount of loss.

That having been said, SOPA/PIPA is completely the wrong answer here. It shifts the burden of proof to the owners of the websites, implying overtly creating a "guilty until proven innocent" mentality to software piracy. I think the Feds need a much more precise method of hunting down people who upload and share copyrighted material, which should be executed in such a way that the site owner is unharmed, and the Feds still have to prove the piracy in question. That would fit in so much better with our ideals here in the States. We're big on words like "freedom", "justice", etc... but unless we're willing to actually back those words up with actions, and the structure of our legal system, they are completely meaningless.

[TenfoldMaquette]

Large numbers of pirates contribute to the restrictive DRM that many mediums have in place today, and I think further piracy only encourages more, stricter DRM - which I believe is more damaging than any dollar amount of loss.

The funny thing is, the DRM bullshit is actually creating more pirates. I've heard so many people say they've turned to pirating because they bought a copy of a video game, only to have the DRM block them from playing a game they legally own because their computer setup could have been used to burn a copy of the disk. So what do they do? Hit up a pirating site and download the damned thing anyway, and go there every time they want something new because they can't trust that they'll be allowed to use the content they are purchasing legally.

Prior to all this, one of the most common reasons for pirating were, in essence, "trying out" a game/song before the user committed to buying it. Most people don't want to settle for the downloaded version - they're prone to glitches and malware, or are otherwise unreliable. But using those sites allows them to take a look at it without throwing down $$$ just to see it.

Yes, there are people who use pirating to the exclusion of more legal options. Like with anything, there are always going to be greedy dipshits that crap all over everything, and like every other case it's not appropriate to punish everyone for the actions of a few. You cannot control everyone, regardless of what methods you use, and it's foolish (never-mind wasteful) to try.

[anti-nonsense]

Large numbers of pirates contribute to the restrictive DRM that many mediums have in place today, and I think further piracy only encourages more, stricter DRM - which I believe is more damaging than any dollar amount of loss.

The funny thing is, the DRM bullshit is actually creating more pirates. I've heard so many people say they've turned to pirating because they bought a copy of a video game, only to have the DRM block them from playing a game they legally own because their computer setup could have been used to burn a copy of the disk. So what do they do? Hit up a pirating site and download the damned thing anyway, and go there every time they want something new because they can't trust that they'll be allowed to use the content they are purchasing legally.

Prior to all this, one of the most common reasons for pirating were, in essence, "trying out" a game/song before the user committed to buying it. Most people don't want to settle for the downloaded version - they're prone to glitches and malware, or are otherwise unreliable. But using those sites allows them to take a look at it without throwing down $$$ just to see it.

Yes, there are people who use pirating to the exclusion of more legal options. Like with anything, there are always going to be greedy dipshits that crap all over everything, and like every other case it's not appropriate to punish everyone for the actions of a few. You cannot control everyone, regardless of what methods you use, and it's foolish (never-mind wasteful) to try.

This, I know of a lot of people that have pirated EA games because of the horrible draconian DRM used by EA (Securom is pretty much malware). If they didn't have such horrible DRM many of those people would have bought the games legally.

[Old Viking]

Since there is a direct correlation between the decline in piracy and global climate change, it would behoove us as a species to encourage as much piracy as possible.

[Eniliad]

The funny thing is, the DRM bullshit is actually creating more pirates. I've heard so many people say they've turned to pirating because they bought a copy of a video game, only to have the DRM block them from playing a game they legally own because their computer setup could have been used to burn a copy of the disk. So what do they do? Hit up a pirating site and download the damned thing anyway, and go there every time they want something new because they can't trust that they'll be allowed to use the content they are purchasing legally.

That... is a very damn good point. I would have to say, if there was any reason for piracy, making a broken game work on your computer would have to be the best one.

Prior to all this, one of the most common reasons for pirating were, in essence, "trying out" a game/song before the user committed to buying it. Most people don't want to settle for the downloaded version - they're prone to glitches and malware, or are otherwise unreliable. But using those sites allows them to take a look at it without throwing down $$$ just to see it.

I would contend that this is a reason why we should push for better demos of games and songs. Just spit-balling here, I'd think allowing a user to listen to a song X number of times for free, then having to buy it, would be a pretty decent system. As for games, some companies have really damn good demos, but most really don't; perhaps if the industry put more effort into more comprehensive demos, the "trying out" pirates would be sated.

Yes, there are people who use pirating to the exclusion of more legal options. Like with anything, there are always going to be greedy dipshits that crap all over everything, and like every other case it's not appropriate to punish everyone for the actions of a few. You cannot control everyone, regardless of what methods you use, and it's foolish (never-mind wasteful) to try.

Absolutely. Sorry, it's just that I'm used to idiots who say that everything should be free and nobody should care if they pirate anything they want for any reason. I'd say "no really" but this is FSTDT; that shouldn't surprise anyone by now. That's why I have such a "fists out" knee-jerk reaction to the mention of software piracy.

[N. De Plume]

Prior to all this, one of the most common reasons for pirating were, in essence, "trying out" a game/song before the user committed to buying it. Most people don't want to settle for the downloaded version - they're prone to glitches and malware, or are otherwise unreliable. But using those sites allows them to take a look at it without throwing down $$$ just to see it.

I would contend that this is a reason why we should push for better demos of games and songs. Just spit-balling here, I'd think allowing a user to listen to a song X number of times for free, then having to buy it, would be a pretty decent system. As for games, some companies have really damn good demos, but most really don't; perhaps if the industry put more effort into more comprehensive demos, the "trying out" pirates would be sated.

Definitely this. It is just what I was going to say. Additionally, providing a legal means of demonstration is only fair in order to give the customer some idea of what he or she is buying.

[Vene]

Large numbers of pirates contribute to the restrictive DRM that many mediums have in place today, and I think further piracy only encourages more, stricter DRM - which I believe is more damaging than any dollar amount of loss.

The funny thing is, the DRM bullshit is actually creating more pirates.

Which leads to a stricter DRM, yay positive feedback loops.

[DasFuchs]

There's also another reason. Some people go after pirated stuff because it isn't available. Lots of countries only allow or sell certain things, the only way to get the rest people want is by relying on pirated stuff.
I know some people in Europe that had to look for pirated material because music wasn't either allowed or released to their country.

The entertainment industry is faced with the problem that people are not satisfied with shelling out $$$ for content they don't want

Very much so. Lots of the bands I listen to only have one or two good tracks per album, whether because most bands are one trick ponies, or because their label splits their stuff up, I don't feel like shelling out 13 bucks+ for a CD with two songs I'll listen to and 10 more I'd rather do without.

My main gripe was, and still is, given the reactions with DMCAs over the past few years, I'll laugh in the face of any nit wit that says that the industry will control itself and not go batshit overboard, especially when it hits website owners that have nothing to do with the problem.

[Smurfette Principle]

I buy physical CDs because I'm old school and like having the ability to keep my music library even if my computer breaks down. My problem is that it's so fucking easy to pirate that most people don't know they're doing it. Some people I've met had no idea that Torrenting is illegal, or that singing in a talent show is illegal, or that sharing earbuds with someone is illegal. If you follow copyright law to the letter, you have to arrest everyone. Since you can't, they end up going for those least likely to be able to fight back. And that's bullshit.

[Aqualung]

[Eniliad]

Holy shit! What face is THAT?