Media Uncritically Cites Flawed Piracy Studies, Again

from the balance-needed dept

Wed, Oct 3rd 2007 12:27pm — Timothy Lee

The Washington Post has a story about the never-ending lobbying campaign for more draconian penalties for copyright infringement. It's extremely one-sided, quoting several industry executives but not a single person on the other side of the copyright debate, who could have pointed out that Congress has passed "tougher penalties" repeatedly in recent years and the results haven't exactly been good. The report also cites the widely discredited series of piracy reports that, as I explained here and here, dramatically overstate the effects of piracy on the copyright holders by double- and triple-counting uncaptured revenues by adding in "ripple effects."

Those previous studies covered the movie and music industries, and both made the same basic error: after they counted some amount of CDs or movie tickets unsold as "lost revenue," they then counted the same lost revenue again by calculating how much less the movie and music industry is paying their suppliers due to those lower revenues. In some cases, they count the same dollar a third or fourth time when those suppliers pay their suppliers less than they would have without piracy. But that's obviously silly. What matters is the total number of dollars earned, not how many times each dollar changes hands. When you strip out these spurious double- and triple-counted revenues, and correct some of the other questionable assumptions I detail in the posts linked to above, you find out that uncaptured revenues from music piracy to the recording industry are around $3.2 billion, not $12.5 billion as the report claims. Similarly, IPI claims the uncaptured revenue for the movie industry is $20.5 billion, but if you strip out the double-counting, you find it's more like $6.1 billion. I pointed these problems out to them after they released the movie study, yet they still made the same flawed assumptions for the music study, and presumably their latest study has the same problems. The Post says the latest study finds that the combined cost of movie, music, and software piracy is $58 billion. I think it's a safe bet that this number, too, is wildly overstated, and that the actual figure is closer to $15 billion. Unfortunately, this reporter apparently didn't have the time to dig into the report in detail, or to pick up the phone and call someone who could offer a critical perspective. Once again, readers will see these inflated numbers reported as fact and assume there must be some rigorous methodology behind it.

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Filed Under: copyright, piracy, ripple effects
Companies: ipi

27 Comments

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Zaxor, 3 Oct 2007 @ 12:35pm

Again?
Why do these industries always have to whine. They would whine if they lost $1 to piracy.
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RandomThoughts, 3 Oct 2007 @ 12:36pm

OK, so they overinflate the numbers. According to you, the $3.2 billion, $6.1 billion and $15 billion figures are closer to the truth.

Ummm, do you have any perspective? $24.3 billion is still a heck of a lot of money.

$15 billion. Thats about the total revenue of Lipitor, the biggest selling drug in the world. Guess what happens to Pfizer if it goes away.

$24 billion is 2.5 times the GDP of Bolivia. It is enough to house a million prisoners in a federal pen for a year. Its about the cost of 70 million iPhones.

Course, with those free iPhones, piracy would probably get worse.
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Mike (profile), 3 Oct 2007 @ 12:42pm

Re:
Ummm, do you have any perspective? $24.3 billion is still a heck of a lot of money.

Tim and I had this discussion off-line, but it's worth pointing out here as well. My big problem with this study is that it counts all competitive impacts as "lost revenue" and doesn't bother to count any of the positive impacts or the "gained revenue" to other parts of the business. So I'd argue that the "loss" numbers are a joke.

After all, the buggy whip industry "lost" a lot of revenue to the automobile industry -- but we didn't see people whining about how the gov't was needed to save the "billions" lost to the buggy whip makers and all their suppliers...
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Rob Blatt, 3 Oct 2007 @ 12:47pm

@RandomThoughts
I don't think the point is the number, the point is the inflation going on. Yeah, $15 billion is a whole lot, but it's a hell of a lot less than $58 billion.
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RandomThoughts, 3 Oct 2007 @ 1:02pm

I understand the loss inflation point and there is something to it, but if you cut my leg off at the ankle rather than the knee, it still hurts.

I also agree that the buggy whip industry lost revenue to the auto industry, but be careful how you talk about that. The whip industry (kinky sex groups excluded) ended due to the auto. Content creators are not being replaced by another product, just copies of their own product. They are being whipped by their own whip.
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RandomThoughts, 3 Oct 2007 @ 1:15pm

And in how many articles can we talk about buggy whips? I know, it stars in one movie and everyone wants to talk about it.
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Steve R. (profile), 3 Oct 2007 @ 1:24pm

CNET just posted a couple of disturbing stories. Video game czar: More countries need a DMCA and NBC chief urges all-hands assault on piracy

What I find particularly offensive about the "piracy" issue is that it is a red-herring designed to hide the fact that these media companies seek to eliminate any rights that you may possess to the use of the media. Furthermore, the news media seems to lack any real insight into this issue and simply reprints the industry press releases.
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Bah who needs one, 3 Oct 2007 @ 1:26pm

Nobody here (even Mike!!) noted that another assumption underlying these figures is that every infringing copy represents a lost sale, which is simply bogus. Factor that in and billions dwindle down to millions, if that. Several studies over the last few years have shown that the effect of filesharing on record sales is not reliably different from zero(!) ...
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Name, 3 Oct 2007 @ 1:45pm

Re:
Good point.

That's what I've been saying all along...
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Someone who cares, 3 Oct 2007 @ 2:04pm

Another Perspective
If I lend my car to a firend who doesn't have one, am I contributing to the decline of the auto industry, or maybe, just maybe (sarcasim) I am actually contributing to it by promoting a product that my friend may in fact buy? Of course, that also assumes that the product is worth buying, and most music today isn't worth buying, hell it's barely worth getting for free.
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Danny, 3 Oct 2007 @ 2:05pm

Re:
Yes $3.2 billion, $6.1 billion, and $15 billion are closer to the real numbers and that is a lot of money.

If that is the case then why inflate them? When you pushing for changes and decide to back up your argument with rigged studies and false data then that weakens your posistion.

The number of child abuse cases on an anual basis already too high so why have a child care organization put out rigged studies and false data to push their agenda?
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Casper, 3 Oct 2007 @ 2:11pm

Re:

I also agree that the buggy whip industry lost revenue to the auto industry, but be careful how you talk about that. The whip industry (kinky sex groups excluded) ended due to the auto. Content creators are not being replaced by another product, just copies of their own product. They are being whipped by their own whip.

Realistically the better comparison would be something like what happened between American automakers who were using people and assembly lines to assemble their vehicles and the mechanization/robotics that happened in Japanese automakers. The Japanese accepted the new technology and incorporated it, the American auto industry didn't want to. Toyota is number one and Ford is thinking about how to avoid bankruptcy.

Just something to think about.
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Someone who cares, 3 Oct 2007 @ 2:13pm

Another Perspective
If I lend my car to a firend who doesn't have one, am I contributing to the decline of the auto industry, or maybe, just maybe (sarcasim) I am actually contributing to it by promoting a product that my friend may in fact buy? Of course, that also assumes that the product is worth buying, and most music today isn't worth buying, hell it's barely worth getting for free.
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RandomThoughts, 3 Oct 2007 @ 2:14pm

Maybe because no one reacted to the reported cases that actually took place?

I do agree though that if you inflate the numbers, people will tend not to believe what you are trying to get across at all. Personally, $24 billion should be enough. A billion here, a billion there, soon you are talking real money.
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Anonymous Coward, 3 Oct 2007 @ 2:19pm

Re:
Absolutely correct. The automatic assumption that someone downloading a pirate copy of a movies equates to a lost DVD sale is total crap. Most of those downloading probably wouldn't have bought that DVD anyway.
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Anonymous Coward, 3 Oct 2007 @ 3:49pm

piracy kills trees
"The automatic assumption that someone downloading a pirate copy of a movies equates to a lost DVD sale is total crap. Most of those downloading probably wouldn't have bought that DVD anyway."

I don't see hard-drive and other digital-storage manufactures crying about the effects of piracy. Nor do I see PETA or The Environmentalists crying over landfills being filled with all the packaging used in piracy.
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Wildo, 3 Oct 2007 @ 3:59pm

RE: Another Perspective
Not exactly the same thing. If you lend your car or even give your car away to someone, you are left without that car. Now if you found a way to duplicate your car, then started giving out copies then you would have an accurate comparison.
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Anonymous Coward, 3 Oct 2007 @ 4:09pm

Re:
A billion here, a billion there, soon you are talking real money.
And big lies.
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Tim, 3 Oct 2007 @ 6:44pm

RandomThoughts, $15 billion was my guess at the figure for all three industries, not for the software industry alone. And I didn't express any opinion on whether that's a big number or not, I'm was just pointing out that the number the industry is citing isn't accurate.

Bah, the music study don't actually assume every pirated copy is a lost sale, although they do make some other dubious assumptions I detail in the links above.
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RandomThoughts, 3 Oct 2007 @ 7:43pm

Tim, I doubt that any opinion needs to be expressed concerning $15 billion. I think everyone except for Bill Gates considers $15 billion a large number.

I agree that the industry's numbers are bogus, but that being said, whatever the number is pretty big. Is it Bill Gates big or Donald Trump big, that is the question.
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Cayce Pollard, 4 Oct 2007 @ 12:59am

A big picture
"Course, with those free iPhones, piracy would probably get worse."

Yes, but the economy would get better. The goal of copyright legislation should be to maximize the net welfare, not to redistribute wealth to producer cartels. Copyright should be reduced to 14 years and in return technology companies should do more to identify large-scale violators.
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RandomThoughts, 4 Oct 2007 @ 6:12am

Cayce, that comment about the iPhone was a joke, but I have no problem with what you went on to say. I would even support taking it down to 10 years. Why did you propose 14? Just wondering.
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Vincent Clement, 4 Oct 2007 @ 7:05am

Re:
Ummm, do you have any perspective? $24.3 billion is still a heck of a lot of money.

You make it sound as if $24.3 billion is missing from the economy. It's not. That figure represents uncaptured revenue - it's not a real number. That $24.3 billion is being spent on other things, like Lipitor or an iPhone.

What if the money spent on these other things is better for the economy? What if their multiplier is higher than the multiplier for music and movies? Are you suggesting that the economy be less efficient?

Guess what happens to Pfizer if it goes away

Nothing. It markets a new product. It's called supply and demand.

McNeil Consumer Healthcare still sells Tylenol and Bayer still sells Aspirin, despite the wide availability of cheaper generic versions. Both companies have managed to expand these two products. Competition is a wonderful thing.
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Vincent Clement, 4 Oct 2007 @ 7:13am

Re:
No one is cutting anything off. Lost opportunities do not appear on the balance sheet. I have never seen a line item for "Losses Due To Piracy" on a balance sheet. Have you?

Do you honestly believe that if piracy ceased today, that the music, movie and software industries would show an immediate increase in revenue of $15 billion? Wouldn't other industries complain about $15 billion in uncaptured revenue?
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Vincent Clement, 4 Oct 2007 @ 7:15am

Re:
It's not real money. The music, movie and software companies are not losing any money. At best they are losing an opportunity to sell their wares.
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RandomThoughts, 4 Oct 2007 @ 12:54pm

Vincent, macro economics don't really work here, because if I take a dollar from you, that dollar is still in the economy, but its in my pocket not yours. From society's perspective, no difference, but I am sure you wouldn't like that.

If piracy ceased today, they wouldn't see an increase of $15 billion, but they would see an increase. How much? I don't know, and you don't either, but it would increase.

Seems to me the industries are talking about uncaptured revenue, so not sure what you are getting at here.

J&J still sells Tylenol, but those sales are not what generates profits and funds research for J&J.

If Pfizer lost Lipitor today, I bet you that dollar I stole from you that they would be bought out within a year.
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Bah who needs one, 5 Oct 2007 @ 2:10pm

They would see an increase of somewhere in the neighborhood of $0.00 -- since the entertainment industry already captures 100% of what people are budgeting for entertainment spending (more or less by definition) and will continue to do so, and the amount people are budgeting for this spending won't have changed.

For the entertainment industry to see more revenues, people need to be willing to spend more each month on their wares. This will happen if there's an increase in real wages, a drop in the cost of living in more vital categories like food and shelter, or something along those lines.

Let the RIAA harangue Congress to raise the minimum wage or lower taxes in the working-class brackets or raise income tax at the expense of abolishing sales taxes or something. That sort of thing might actually lead to them seeing revenue increases down the road.
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