For years, we've pointed out that many claims of "losses due to piracy" are incredibly misleading, but there are different levels of misleading. The first is the claim that every download is a lost sale. While that was popular in the early days, most
researchers (finally) avoid this sort of claim, though a few will still try to sneak it in as something along the lines of "value of pirated goods," and then the press will run with that number without making the distinction. A second order of misleading is the claim that whatever "losses" are calculated are "losses to the economy
." We see this all the time, with various maximalists insisting that without stronger protections that somehow this money goes away from the economy entirely.
Matt Schruers, over at Project DisCo has a good post discussing this exact point
, noting that infringement leads to a redistribution
of income. We can argue over whether or not that redistribution is good or bad (or societally beneficial or not), but to claim it's an overall loss to the economy is clearly wrong. He notes how rarely this even comes up in the discussion, which is unfortunate. However, he also points us to this hilarious Adult Swim ad, that I'd not seen before, which explains how piracy feeds babies
(except, of course, TV piracy):
Matt makes it clear that this is, in no way, a defense
of infringement, but rather just a reality. If we're going to be talking about copyright reform, the discussion should be honest, and that means not pretending that the money just disappears from the economy entirely. Like any redistributive economic system, it creates some winners and some losers, and a thorough economic analysis would study carefully who those winners and losers are, and whether having those winners and losers matches up with what the law is supposed to do. Similarly, recognizing that there are always some losers whenever you shift around a redistributive system, it can be worthwhile to look at whether or not it's necessary to do something to help out those who end up with the short end of the stick.
Matt's article is well worth reading -- and remembering, when the next group of "studies" claims massive losses to the economy. However, I'd argue in some ways, he actually understates
the nefariousness of the "economic loss" claims that are often used. That's because one of the favorite "loss" stats that maximalists like to use -- such as the annual report that IPI puts out done by Stephen Siwek -- makes use of ridiculous "ripple effect" calculations
. That is, they don't just say that "movie piracy costs the economy $6 billion per year," but they then add in a multiplier effect
, claiming that this is to count the "ripple effects" of the money not spent on the movie. This is simply bad economics in a variety of ways. First, it's counting the same dollar over and over again
In IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefitted by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.
So not only are they recounting the same dollar over and over and over and over and over again, pretending it's new each time, they're also only counting such ripples in one direction
. That is, they assume that the money saved by not purchasing the content in question doesn't go back into the economy productively elsewhere. And, like the "piracy feeds babies" joke above, at times, the "ripple effect" in the other direction can be
quite beneficial for the economy. For example, say a small company uses unauthorized copies of expensive software to build an amazing tool that drives all sorts of productivity growth elsewhere. That may be wrong
, but the impact on the economy
can actually be quite positive.
Again, the point of all of this is not to say that infringement has no economic impact at all -- or that it's good or bad. There are a lot of different variables at play here. And that's the key point. Any serious look at the economic impact of changing the laws needs to take a look at all of that in determining the overall economic impact, and not just at the aggregate
economic impact, but the economic impact throughout the chain. Unfortunately, so far, very few studies appear to go that far, and, instead present very misleading statements about the overall impact on the economy.