Massive Research Report On 'Piracy' In Emerging Economies Released; Debunks Entire Foundation Of US Foreign IP Policy

from the nicely-done dept

Joe Karaganis, from the Social Science Research Council was kind enough to reach out to me last week and send me an advance copy of the (somewhat epic) report that SSRC just released this week, exploring "Media Piracy in Emerging Economies." It's a rather massive 440 pages of research into a variety of issues having to do with infringement, specifically focused on emerging markets. While it was nice of Karaganis to send it to me, I was a bit disappointed to find out that they're not releasing the report for free (for most). Instead, it's released under a "Consumer's Dilemma" license, where they want people in developed countries to pay $8 for the report, but will offer it for free to those in less developed countries (though, it looks like Canadians can get it for free). Though, to their credit, at the end of the license info, they do note:

For those who must have it for free anyway, you probably know where to look.

Unfortunately, that's right under the warning that "non-compliance" with the license in the US could subject you to five years in prison and $250,000 in fines. That's an unfortunate exaggeration, as most non-compliance wouldn't result in criminal copyright infringement. For a report on the subject that seems so insightful in many points, it's disappointing that this report chose to reinforce this type of thinking. Update: Clearly, I missed that this is pure satire by the report's authors. Such is life when I'm so used to seeing such things that are real.

That said, much in the report is extremely forward-looking and thinking. It goes into great detail how fascinating and innovative new business models are appearing around the globe where "piracy" is rampant, and suggests that we really need to rethink the idea of "piracy" in those markets. It highlights how almost all of the policy discussions in the west concerning infringement focuses on "enforcement," but that may be the wrong way to go about it. The research, instead, points out that a better focus may be on setting up the structures for successful business models to emerge -- which include local firms who can compete on price:

Invariably, industry groups invoke similar arguments on behalf of stronger enforcement: lower piracy will lead to greater investment in legal markets, and greater investment will lead to economic growth, jobs, innovation, and expanded access. This is the logic that has made intellectual property a central subject of trade negotiations since the 1980s. But while we see this mechanism operating in some contexts in emerging markets, we think that other forces play a far larger role.

The factor common to successful low-cost models, our work suggests, is neither strong enforcement against pirates nor the creative use of digital distribution, but rather the presence of firms that actively compete on price and services for local customers. Such competition is endemic in some media sectors in the United States and Europe, where digital distribution is reshaping media access around lower price points. It is widespread in India, where large domestic film and music industries dominate the national market, set prices to attract mass audiences, and in some cases compete directly with pirate distribution. And it is a small but persistent factor in the business software sector, where open-source software alternatives (and increasingly, Google and other free online services) limit the market power of commercial vendors.

It also points out that focusing just on enforcement is a key mistake by western nations, when they might be much better served in enabling these markets to emerge to "compete" with infringement:

The centrality of pricing problems to this dynamic is obvious, yet strikingly absent from policy discussions. When it comes to piracy, the boundaries of domestic and international policy conversation are exceedingly narrow. The structure of the licit media economy is almost never discussed. Instead, policy conversations focus on enforcement--on strengthening police powers, streamlining judicial procedures, increasing criminal penalties, and extending surveillance and punitive measures to the Internet. Although new thinking is visible in many corners of the media sector, as companies adapt to the realities of the digital media environment, it is hard to see much impact of these developments on IP policy--and most particularly on US trade policy, which has been the main channel for the international dialogue on enforcement.

In our view, this narrowness is increasingly counterproductive for all parties, from developing-country governments, to consumers, to the copyright interests that drive the global enforcement debate. The failure to ask broader questions about the structural determinants of piracy and the larger purposes of enforcement imposes intellectual, policy, and ultimately social costs. These are particularly high, we would argue, in the context of ambitious new proposals for national and international enforcement--notably ACTA, the Anti-Counterfeiting Trade Agreement recently finalized by the United States, the European Commission, and a handful of other countries.

To be more concrete about these limitations, we have seen little evidence--and indeed few claims--that enforcement efforts to date have had any impact whatsoever on the overall supply of pirated goods. Our work suggests, rather, that piracy has grown dramatically by most measures in the past decade, driven by the exogenous factors described above--high media prices, low local incomes, technological diffusion, and fast-changing consumer and cultural practices.

That last paragraph is a key point that our current policy makers seem to miss entirely. On top of that, the report notes that nowhere in the discussions about enforcement is any discussion found of connecting enforcement to figuring out "how to foster rich, accessible, legal cultural markets in developing countries." Of course, that's because most policy makers don't care about that.

The report kicks off with a piece by Karaganis on the importance of "rethinking piracy." It notes that the industry claims on "piracy" are not exactly credible or trustworthy -- and not very productive towards coming up with solutions, since all they've done is "undermined confidence in the industry research enterprise." In fact, it goes through a rather complete debunking of the overall industry claims, suggesting that they're somewhat meaningless -- and then points out that all of these reports that count "ripple effects" seem to ignore the ripple effects in the other direction: the kind that benefit consumers, especially in developed nations:

But in extrapolating losses beyond the affected industries, these studies also introduce new problems. Fundamentally, they all misrepresent the relationship between piracy, national economies, and international trade. Consistently, none of them model the other side of the transaction--the consumer surplus--in describing overall economic impact. Two basic accounting problems have become emblematic of this approach.

First, domestic piracy may well impose losses on specific industrial sectors, but these are not losses to the larger national economy. Within a given country, the piracy of domestic goods is a transfer of income, not a loss. Money saved by consumers or businesses on CDs, DVDs, or software will not disappear but rather be spent on other things--housing, food, other entertainment, other business expenses, and so on. These expenditures, in turn, will generate tax revenue, new jobs, infrastructural investments, and the range of other goods that are typically cited in the loss column of industry analyses.

The report is chock full of other insightful points, such as noting that, "Predictably, raids scale more easily than due process." Later it goes through the various "education campaigns" that industry and governments have invested in, noting that they appear to have done "very little" to actually slow down the rate of piracy:

Our inquiries (mixing survey, focus group, and interview methods) found a remarkably consistent cluster of attitudes on piracy: (1) that it is often regarded with ambivalence by consumers, (2) that pragmatic issues of price and availability nearly always win out over moral considerations, and (3) that consumers know what they are buying. The classic scene of developing-world piracy--the kiosk or street vendor selling DVDs--produces very little misunderstanding on the part of consumers about the nature of the transaction. Consumers weigh tradeoffs between price and expectations of quality, but within a context of explicit black-market negotiation in which notions of fraud or deception—often borrowed from anti-counterfeiting discourse—generally don’t apply. The price gap between licit and pirated media provides a clear signal of the origins of goods.

On top of that, the report responds to the regular claims by the IFPI and others that piracy is linked to organized crime and terrorism, by noting that they could find "no evidence" of any such connection. Similarly, it mocks policy makers who conflate counterfeiting with media piracy.

And that's all just in the first chapter! From there it first looks at the ongoing effort -- mainly driven by the US and the USTR -- to "harmonize" enforcement efforts, followed by a country-by-country look at the state of "piracy" in various developing nations, highlighting many of these issues in a more localized fashion. The whole report is really fascinating, and an incredibly useful read for policy makers who are so focused on things like ACTA, enforcement and industry claims of "losses." It really is a huge contribution to the research on these topics -- and something that I hope gets delivered to policy makers. I'd send copies to various politicians myself... if it weren't for that license that tells me I could face five years in jail for doing so. So, as a final note, I'll just suggest that Karaganis and the others behind this really excellent research report reconsider their license choice on the document (see update above), and instead encourage sharing of the document -- and maybe take a page from what they're seeing themselves in setting up creative new business models to cover any costs.

Filed Under: emerging countries, enforcement, markets, piracy, research, studies