Beware Copyright Statistics


Baker is unimpressed by studies showing vast losses to the US economy from

piracy of intellectual property. He picks on a Washington

Post article by Frank Ahrens, which quotes a study concluding that "intellectual

property piracy — theft of music, movies, video games and software — costs

the U.S. economy $58 billion per year and 350,000 lost jobs in the entertainment

industry and its supplying industries."

Baker doesn’t like the economics:

The article wrongly claims that these violations cost the economy money.

This is untrue on its face. The losses to the industry are gains to consumers,

and those who know economics would know immediately that the gains to consumers

vastly exceed the losses to the industry. Some economic analysis would be

useful in this article.

Baker’s right that the study, from the IPI,

makes no attempt to calculate the gains to consumers from IP piracy. But in

fact the study is worse than that, because it also makes no attempt to calculate

the gains to the entertainment industry from IP piracy.

The methodology of the study is simple. The researchers (the author of the

study is Stephen Siwek) take their best guess of how many CDs and DVDs are illegally

copied or downloaded each year. In the case of CDs, they reckon that 1.4 billion

copied CDs are sold, along with 20 billion illegal MP3 downloads. They then

assume that 65.7% of purchasers of counterfeit CDs would have bought the real

thing instead, had the counterfeit not been available, and that 10% of people

downloading songs illegally would have paid for their music at a legitimate

download site such as iTunes instead.

From these numbers they come to the conclusion the entertainment industry loses

$1.6 billion to fake CDs, and another $3.7 billion to illegal downloading. They

then add those numbers together, to get a total of $5.3 billion, and apply a

"multiplier" which allows them to reach the conclusion that the total

loss to the US economy is $12.5 billion per year.

At no point in the study is the idea considered that wider dissemination of

music might actually help the music industry at all: I’m almost surprised

that Siwek doesn’t calculate the number of people who might buy CDs but don’t

because they can hear music free on the radio instead. Music is naturally viral:

the more people who listen to any given artist, the more people who are likely

to go out and buy that artist’s music. And then, of course, there’s all the

extra revenue to the music industry from merchandise and concert tickets which

are sold to people who didn’t buy the CD but still became fans.

Now I’m not saying that any of these effects completely couteract the losses

due to piracy, because I have no idea whether they do or not. But these effects

do exist, and it might be intellectually honest to at least take a stab at estimating

their magnitude before coming to the conclusion that the US entertainment industry

"loses" tens of billions of dollars a year to piracy.

In fact, of course, one can simply look at the stock price of entertainment-industry

companies to see that the advent of piracy doesn’t seem to have done them a

vast amount of visible harm. That’s why they need to wheel out researchers such

as Siwek to try and demonstrate assertions which, as Baker quite rightly says,

are untrue on their face.

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