The Money Aspect of Piracy

Argh, kiddies!  Today we’re going to be taking on a particularly contentious issue in modern day society: Piracy!  So, polish up those peg legs, get out your eye patches, and teach your parrot to say ‘Walk the plank, you bilge rat’, because today is all about the costs and ethics of piracy!

Well, actually, the type of ‘piracy’ we’re looking at today has less to do with stealing doubloons from passing galleons and more to do with illegally downloading music, movies and software.  While not quite as romantic (well, at least until Johnny Depp portrays a software copyright infringer in a movie), it is probably more pertinent to the modern reader (those who will be passing by Somalia aside). The ethics of the issue are a bit outside my per view (to paraphrase DeForest Kelley as Dr. McCoy, ‘I’m a money blogger, not an ethicist’), but, since I’m always up for a spirited debate, I figured I’d dive into the money portion of the piracy debate.  Just how much impact does piracy have?  To find out, let’s look at the numbers.

The Economic Impact of Piracy

An odd thing happens if, like me, you start to search for solid, reputable numbers on just how much of an economic loss piracy causes modern society: you find them nearly as hard to pin down as a greased pig.  The most commonly cited numbers of both overall economic loss and the number of jobs lost as a result of intellectual property are $250 million and 750,000 jobs, respectively, which certainly sounds like quite an impressive amount.

“Avast, Ye Scurvy Bilge Rat!”

But the truth is that those numbers are, well, fabrications.  A rather detailed report on Ars Technica notes that neither of the organizations most commonly cited as the source of the given numbers (the U.S. Customs and Border Patrol for the job figure, the Federal Bureau of Investigation for the economic loss) have anything to do with creating them.  In fact, the best source for reliable numbers on both counts, a survey done by the International Trade Commission, indicates losses to the economy of (at most) $61 million and 13,774 jobs, and this report dates back to the Reagan era (no more recent reports seem to be available).

Why the wide discrepancy?  Well, given the illicit nature of piracy, it’s awfully hard to come up with accurate numbers, and there are numerous problems with trying to do so.  First, most figures for the loss caused by piracy typically use self-reports from the businesses affected, whom, as you might guess, have an incentive to maintain that those losses are quite substantial.

Second, there’s the assumption made by most companies that every incident of piracy indicates a lost sale; that is, if there was perfect enforcement of copyright laws, everyone now pirating music/movies/games would go out and buy a copy of everything they currently pirate.  This is absurd, if for no other reason than the fact that people who earn $500 a month simply don’t have to the ability to buy the 50 games/movies/CDs per month that they currently illicitly download.  (Of course, the pirate supporters can take this argument too far the other way, claiming that nobody who currently pirates media would buy anything if they could not obtain it through piracy.  The truth is somewhere in the middle; in a no-piracy world, there would likely be more sales, but not nearly up to the number of copies currently pirated.)

Finally, as Ars Technica notes near the end of their report, the money that pirates don’t spend on the music/movies/games they download doesn’t disappear from the broader economy; it gets spent (or saved or invested) elsewhere.  Calculating the actual loss to the total economy, then, is a much more complicated process than figuring out the number of units pirated, multiplying by the MSRP, and spitting out a number.

In Summary

So, what does all of this mean for the monetary impact of piracy?  Well, it’s kind of hard to tell, frankly, as both sides of the debate have reasons to over- or underestimate the impact to make it seem like their side is more justified.  That said, piracy almost certainly costs software and media companies some income, as the pirates don’t always purchase products they pirate; but the costs in lost sales are probably not as high as the company estimates claim.  (Both because not every pirated copy represents a truly lost sale, and because some pirates do end up purchasing the media they really like, although likely not as many as the pirates who claim that piracy enables a good ‘trial period’ would seem to believe).  For larger, established media firms, this undoubtedly leads to a decrease in revenue (although, smaller firms and bands that are just starting out might see a rise in revenue if piracy helps get the word out).  Which explains the rising number of such firms that attempt to use anti-piracy devices in order to minimize their losses, as well as increased pushes for stricter punishments for pirates.

Which side will eventually triumph is uncertain (although my money is on the pirates, both due to their numbers and due to the fact that international law makes catching some of them all but impossible), but the money aspect of media piracy, while interesting, is certainly quite murky.  Here’s hoping that, if nothing else, this article encourages you to take a closer look the next time you hear a statistic about media piracy (or really, any statistic).

5 Responses to The Money Aspect of Piracy

  1. I find those sorts of reports by the industry to be quite bogus because if they could crack down 100% on piracy many products would simply go unsold.

    I think that legal norms are going to have to catch up to modern tech and that companies are going to have to adapt to new models. Many are starting to move to a server/client model since in this case there isn’t really anything to pirate away — the logic is in the server.
    Invest It Wisely´s last blog post ..Why I Support Ron Paul for President 2012

  2. @Invest It Wisely: Very true; there’s really no telling how a total crackdown on piracy would affect media sales. Would some pirates start to purchase the media, and if so, what portion of them would do so? Would some legitimate customers refuse to purchase anything, out of spite or solidarity with the pirates? Would the costs of enforcement (whether borne by the companies in question or by governments) be recuperated with higher sales levels? I don’t know (and I imagine that nobody does), and without knowing all those things (and probably plenty of other aspects that I’m not thinking of), it’s impossible to say the total economic impact of a piracy free world.

    As to companies starting to switch to a server/client model, that does seem to be where the future is headed. Who knows, in twenty to thirty years, the idea of ‘owning’ a movie, song, book or other piece of media (rather than downloading it on demand from the omni-present internet) might seem completely foreign to my (future) children. The future is going to be interesting, to say the least.

    @krantcents: Interesting point. It’s hard to know what exactly the ethical norms will be in a generation or two, particularly with how much the Internet is shifting things. I’m hoping that the net impact is a positive one, although there’s certainly more than a slight chance it could prove fairly negative. Here’s hoping the good ends up out weighing the bad.

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