Piracy Doesn't Create A Loss To 'The Economy,' But To A Particular Industry

from the good-point dept

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 and illegal, 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.

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Comments on “Piracy Doesn't Create A Loss To 'The Economy,' But To A Particular Industry”

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Anonymous Coward says:

“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.”

IP abolition will hurt the middlemen so, in a sense, they will end up with ‘the short end of the stick.’ and, no, we should do nothing to help them out because when IP law was passed and when copy’right’ lengths got extended the public ended up with the short end of the stick. What the middlemen have is something they are not entitled to. They receive way too much pay for contributing nothing back to society. Their contribution is a negative contribution, they hurt both artists and the public and no laws should not even entitle them to any end of the stick. They should be forced to get a real job.

IP law is not about ensuring that middlemen (or even artists) don’t get the short end of the stick. They are entitled to nothing these laws provide them and so if abolishing IP laws ‘gives them the short end of the stick’ then what they received before was something they were never entitled to. It’s like if you gave me one million dollars a year that I was never entitled and one day decided to stop. I got the short end of the stick. No, I was never entitled to that money.

“infringement leads to a redistribution of income.”

Which means that IP law itself leads to a redistribution of income. Duh. It redistributes income away from artists and the public into the hands of the worthless middlemen and monopolists. The complaint that infringement leads to a redistribution of income is a complaint that IP law is not leading to its intended redistribution of income. The focus of IP law should not be income redistribution. When the government grants monopolies it leads to a redistribution of income but that redistribution is not good for the public interest and such govt. granted monopolies lead to reduced aggregate output. Just because government established monopoly abolition leads to a redistribution of income does not mean that such govt. granted monopolies should be maintained. Monopolies are bad for the economy. They lead to a redistribution of income resulting in income inequality. The purpose of IP law should not be to create income inequality.

Anonymous Coward says:

It’s always taken a damn fool, like a congressman, to believe the money just disappears from the economy. A dollar saved here always gets spent somewhere else.

Maybe it’s time the **AAs went after the oil industry. If I didn’t have to spend $4 per gallon of gas I’d have more money to spend on their crappy entertainment.

Or how about the food industry? If I could still get a pound of lunch meat for $3 and a bag of Doritos for $2, I’d have more money to spend on their crappy entertainment.

But nope! That money all just vanishes.

Anonymous Coward says:

Re: Re:

If you want to weaken an argument by defending it poorly, you need to sound more sincere. The perspective you pretend to take, that of someone who believes that redistribution of wealth and negligible/positive impact on sales are mutually exclusive, is laughably fake. Nobody’s that stupid.

If you want your attack to be effective, you need to try to sound like you really believe what you’re saying. Otherwise you’ll just come off as a paid shill or astroturfer, which reinforces their beliefs rather than shaking them.

That One Guy (profile) says:

Re: Yes to all (sorta)

In the first instance you’ve got hardcore pirates, people who would never have purchased the item in question no matter what it was priced, meaning that when they pirate something it is not a lost sale, because there was never going to be a sale in the first place.

Piracy can increase sales by allowing people to sample something to see if they like it, and if so increasing the odds they will purchase it, and/or other items from that artist/writer/filmmaker.

And piracy redistributes wealth because, unlike the maximalists would have you believe, money not spent on movies, music and books is instead spent elsewhere(and usually in fashions that benefit the economy more, rather than just enriching the middlemen).

Kiara says:

Re: Re: Yes to all (sorta)

See this argument is somewhat invalid to speak for all those who engage in piracy. What piracy ultimately does is prevent revenue from going back into the entertainment industry. It creates lay offs, new jobs for people who want to work in the industry like computer techniqians, writers and producers. These jobs can be easily obtainable if society just did the work instead of stealing it. Imagine the possiblities or the harmony that could be created in these industries if they siezed corruption but encouraged people to create art then contribute to society through being an artist.
Be a criminal or create art.
there is problems with the industry which is unfortunate…but if we were to forget about the names, the labels,the need for money and royalty. Wouldn’t we all be the same….money=corruption. The more money the more corruption

out_of_the_blue says:

Re: @ "Make up your god damn minds. We're starting to look like idiots around here."

You’ve made the mistake of casual analysis and are coming out of the Mike Maze! — RUN for it now! Don’t let them devour your brainz! I’ll stay here and stall them!

Anyhoo, I’d also quibble with “starting”: besides the loony notions that you list, there’s “give away and pray”, musicians selling T-shirts instead of tunes, “you CAN compete with free”, “Pirate Bay is free speech”, “uploading copyrighted content is just sharing”, “Megaupload has mostly legitimate non-infringing content”, and so on.

Karl (profile) says:

Re: Re: @ "Make up your god damn minds. We're starting to look like idiots around here."

You’ve made the mistake of casual analysis

Exactly. If you really want to be insulting and debate straw men, you’ll have to do a lot better than that. OOTB offers up some excellent suggestions. I’ve outlined some of them below.

Misrepresent criticism as advocacy

“Give it away and pray” is a phrase that Techdirt uses as a criticism. It is Techdirt’s primary example of what not to do when creating a business model.

So, you should outright lie and say that “give it away and pray” is the only business model Techdirt has ever advocated.

Misrepresent the argument through oversimplification

Example #2: It is a basic fact of free market economics that when the marginal cost to produce a good drops to zero, its price will also drop to zero. So, rather than focus on selling infinite goods, you would be better off selling goods that are rivalrous and exclusive – whether those be physical goods, access to the artist, or the labor itself.

But that is an argument that is nuanced and intelligent, so instead you should misrepresent it as “musicians selling T-shirts.”

Present the defense of legal rights as the defense of specific, bad actors

This one was famously used to smear the ACLU when they defended the free speech rights of white supremacists. But it works just as well here.

For quite a while, commenters on Techdirt (including myself) have raised grave concerns about the ex parte seizures that were intended to block entire websites. This is because it is well-settled First Amendment law that when you are blocking unprotected speech, the government must use the least restrictive means to do it, so that protected speech isn’t blocked as well.

But that argument actually makes sense, so you should lie, and say that Techdirt is claiming that the “Pirate Bay is free speech.”

As another example, the Supreme Court in Sony ruled that courts must take into account whether a device or service made by a third party “is capable of commercially significant noninfringing uses.” This ties into the significant questions raised about third-party liability in copyright cases, and whether a content-neutral service provider can or should be found liable for the acts of its users.

But you want to deflect from the whole argument, so you should lie and say that Tachdirt claims that “Megaupload has mostly legitimate non-infringing content.”

Now, there are additional fallacious tactics that can be used to misrepresent or smear the arguments made, but that OOTB didn’t cover in this particular post. A fairly widespread tactic is to use ad hominem attacks (claiming Mike is “pro-piracy,” saying that he produces nothing worth reading, and so forth). And you can ignore all the arguments that conclusive prove you wrong, as OOTB consistently does, and dismiss the people who make them as “fanboys” who “drank the Techdirt kool-aid.”

But the above suggestions are a good start. Take OOTB’s advice, and you too can be an uninformed, lying douchebag, just like him!

Ninja (profile) says:

Re: Re:

No we are not. Actually it shows that unlike our friendly dumb-asses at the MAFIAA we can see it is a NUANCED issue. At some parts piracy may increase sales, in others it won’t affect sales and having no effect as there’s no surplus money to go anywhere and there will be the cases where it will redistribute wealth WITHIN the entertainment business by increasing sales for artists that are able to get exposed and make a living without the legacy players.

I know it’s complex but not impossible to understand.

Keroberos (profile) says:

Re: Re:

No, you and all the other shills need to realize that there is–and can never be–any absolute answer to these questions.

Does piracy increase sales? Yes, in some circumstances, it does.

Does piracy equal a lost sale? Again, yes, in some circumstances it can.

Does piracy have no effect on sales? And once again, in some circumstances, yes.

Does piracy redistribute wealth? For Bog’s sake, yes. This is basic economics–money not spent in one sector of the economy is always transfered to another (unless the pirate is some kind of cheapskate freak, and hoards the money he saves by pirating in a mattress, never to be seen again).

Anonymous Coward says:

Re: Re: Re:

Exactly. It’s like within a filament light bulb: electrical energy is converted to three types of energy – heat, light and sound. Only one of those is “useful”, and that is light. That does not mean, however, that all of the energy used is wasted – merely that it is converted into one energy used correctly and two used incorrectly for that purpose.

Anonymous Coward says:

Re: Re: Re:2 Re:

Yep, just like very little of the money spent on a movie actually goes to the people who labored to create it.

Those people get paid up front, an extremely high minimum wage, through their guilds (SAG-AFTRA, the WGA, or DGA). It is those who PRODUCE the content by paying to have it created who lose money to piracy, and who lose their incentive to continue producing.

out_of_the_blue says:

Mike likes "zero-sum game", if re-distributed to grifters!

Of course piracy is a LOSS overall: the money then goes to the non-productive, AWAY from the producers, which is offensive morally and for that reason prohibited in statute and common law.

Where Mike “supports copyright” — except when he supports grifters who use someone else’s copyrighted material.

out_of_the_blue says:

Re: Re: Mike likes "zero-sum game", if re-distributed to grifters!

@ “Tman”: “So you must be a millionaire by now.”

I’ll guess that’s attempt at elliptical insult, but you’re too incompetent and too timid, you pitiable noob. You’d better stick to vulgarity or copy-paste.

This is Techdirt! If you value civility leave at once!

out_of_the_blue says:

Re: Re: Mike likes "zero-sum game", if re-distributed to grifters!

@ AC: “Explain exactly what it is that the middlemen produce while paying as little as possible to the real creators?”

As I’ve WRITTEN MANY TIMES, I don’t defend middlemen! You’re just making up LIES about what I believe. They’re grifters too. I definitely don’t defend middlemen like Kim Dotcom who does NOTHING except grift off the value of stolen content. Nor do I care for Mike’s favored NEW bunch of middlemen, such as Pandora. Let’s “disintermediate” middlemen and fat cats as much as possible with the ONLY proven method: steeply progressive income taxes. Make it so that no matter how “innovative” grifters are, they get trimmed back. — THAT, by the way, is a PROPER and legitimate re-distribution, because NO ONE is worth more than, say, $10 million a year to the economy, besides that it’s social justice and keeps them from ruling over the rest of us, ruining the delicate balance that led to present civilization.

out_of_the_blue says:

Re: Re: Re:2 Mike likes "zero-sum game", if re-distributed to grifters!

@ “Rikuo”: “What about the hundreds of past comments of yours defending middle-men like the movie studios, with your “waah waah what about the $100 million movie studios!!!” (or is that bob I’m thinking of?)”

Short answer: creation/funding is separate from grifting.

Now, I NEVER know what the hell you’re thinking, sonny! If you don’t, try WRITING down exactly what you believe in bullet points and keep for copy-paste AS I DO. But I am sure that you have me tagged in mind as “enemy” and react automatically, just like an ankle-biter.

I don’t hold grudges — in fact, the only way I recall ANYONE here is if continually reminded — so let’s just agree to take each other’s current posts one at a time, not go barking off on your mistaken recall.

Richard (profile) says:

Re: Re: Re: Mike likes "zero-sum game", if re-distributed to grifters!

I definitely don’t defend middlemen like Kim Dotcom who does NOTHING except grift off the value of stolen content

Actually Dotcom DID provide something – he provided infrastructure – like telcos and ISPs do and unlike many more traditional MAFIAA middlemen.

Oddly though I agree with a lot of the rest of what you said.

out_of_the_blue says:

Re: Re: Re:2 Mike likes "zero-sum game", if re-distributed to grifters!

@ “Richard”: “Actually Dotcom DID provide something – he provided infrastructure”

Dotcome did NOT, does NOT with new pirate site Mega, in any degree provide the DRAW that fund the “infrastructure”. He’s nothing without stolen content, totally GRIFTS.

Anonymous Coward says:

Re: Re: Mike likes "zero-sum game", if re-distributed to grifters!

Explain exactly what is that middlemen produce

What exactly do venture capitalists “produce”?

This blog is tangible proof that you bozos have failed so colossally in trying to justify your douchebag behavior that you’re actually now the ones making the case for cracking down on piracy.


Rikuo (profile) says:

Re: Mike likes "zero-sum game", if re-distributed to grifters!

“Of course piracy is a LOSS overall: the money then goes to the non-productive, AWAY from the producers, which is offensive morally and for that reason prohibited in statute and common law.”

Quick hypothetical. College student with a tiny income downloads a hundred movies one month, which would be for the sake of argument ten bucks a DVD in a store. Instead of spending $1000 on those movies, he instead uses that money on something which you classify as “non-productive”, like food, gas, rent, tuition, etc.
How in the hell are any of those non productive? How is spending the money that might have been spent on the movies on life’s necessities immoral?

Anonymous Coward says:

Re: Re: Re: Mike likes "zero-sum game", if re-distributed to grifters!

Irrelevant to the question asked. Par for the course with you, really. When you can’t rub two neurons together to get enough of a spark to give an answer to the question given, you should just enter politics. Seems more your speed, anyways.

Anonymous Coward says:

Re: Mike likes "zero-sum game", if re-distributed to grifters!

But wait, how can the money be going to the non-productive, by which I assume you mean the dirty ‘pirates’ who ‘steal’ the content and make it available online, if to compete with said ‘pirates’ is to ‘compete with free?’ Are they offering it for free or aren’t they?

Michael (profile) says:

Not True

I am very careful to take every dollar I save from pirating movies, music, and television shows and stuff it into my mattress. This ensures that this money will never again see the light of day and is a 100% economic loss.

In addition, this has saved me from having to purchase a new mattress, so I took THAT money and stuffed it into my mattress as well. However, since my mattress is now as hard as a rock, I would not call this a ripple-effect so much as an anti-ripple effect.

Rekrul says:

Re: Not True

I am very careful to take every dollar I save from pirating movies, music, and television shows and stuff it into my mattress.

Yes, but someone may steal that money, or find it after you die and put it back into circulation. I make sure to take all the money I save by pirating movies and burn it so there’s no chance that it will ever re-enter the economy!

Anonymous Coward says:

“The fact that infringement may be redistributive instead of destructive does not make it acceptable, of course. A violation of a government-granted right is normatively undesirable, because it flouts an entitlement that ? at least in theory ? reflects the will of the public. This is bad. Even if infringement is ?only? redistributive, we still make strong normative societal judgments against involuntary wealth redistribution. This happens regardless of whether it results from law (e.g., by tax policy), or contrary to law (e.g., infringement).”


The question is are the monopolies themselves acceptable?

“it flouts an entitlement that ? at least in theory ? reflects the will of the public.”

IP laws should not be designed to be an entitlement, no one is entitled to such privileges. IP law should only be intended to serve the public interest. When the government grants monopolies it results in income inequality and such income inequality is a redistribution of wealth. but the government should not pass laws with the intent of redistributing wealth and creating income inequality. Part of the point of having these discussion is to determine if the public wants these monopolies to exist and to what extent so that we can determine the will of the public and what laws should be in place. I, as a member of the public, do not want these monopoly privileges to exist. Abolish them.

and IP law does not, in practice (or even in theory), reflect the will of the public. 95+ year copy protection lengths and retroactive extensions were not a result of public protesting that we need more restrictions. They were the result of industry lobbying, campaign contributions, and a revolving door problem that got politicians to pass these laws. SOPA wasn’t being negotiated in secret because the public is being represented by IP laws. No, industry interests were the ones invited. So, no, these laws reflect the will of industry interests and only the will of industry interests. Maybe not in theory but at least in practice. and the government, in theory, should not pass laws that flout the will of the public. but that’s what they are doing. In theory, the reason why industries contribute so much to campaign contributions and revolving door favors and the reason why they spend so much on lobbying is because it gets them more representation. It gets them disproportional representation. So, in theory, our laws do not reflect the will of the people, they reflect the will of those being disproportionately represented. They ought to, in theory, reflect the will of the people but they don’t.

Anonymous Coward says:

Re: Re:

“The content and technology industries affected by copyright and its exceptions, and in some cases balancing the two, have become increasingly important as sources of economic growth, relatively high-paying jobs, and exports.”


Again, IP law should not be about creating ‘high paying jobs’ or income redistribution (which really just translates to income inequality).

Anonymous Coward says:

no study tells the whole truth. the really annoying thing is that the various governments come out with the same shit, that there is $10 billion gone from the economy. that is done, in my opinion, to justify the new laws trying to outlaw any type of downloading and ‘file sharing’ and also to give backing to the laws the entertainment industries want implemented, not, however, to aid those industries but more to be able to continue with the surveillance programs that have been going on. those, i am sure, are a two-way street, but only for the security agencies and the entertainment industries. if the security agencies find file sharers, they are passed on to the industries so they can sue them, get the sites blocked or closed and then get thick fuckers like Cameron in the UK to implement the very things that take away what a democracy is all about, freedom of choice, privacy and freedom itself. this is done as payment to the industries by the security forces for getting the surveillance laws introduced. the only losers are ‘the people’ as has been revealed over the last few weeks!!

Anonymous Coward says:

Read the comments in the linked article

Lowery is in there claiming it is all bunk. Man I wish some real experts would shut him the fuck up! He simply isn’t challenged by people far more qualified enough, when he is, he looks for the Google-Connection. Rather than argue, he discredits.

Lowery missed his calling, he should be another useless bullshitting politician.

ECA (profile) says:


Misleading is NOT a young person leading something..

Its funny.
Piracy tends to SHOW a problem in a system.

HIGHER prices on a product, when the pirates can make it CHEAPER?? Who will get the money?

If something isnt distributed EQUALLY, in an ABUNDANT fashion, the Pirate will supply it..

You cant record it and watch at the TIME you want, and it WONT be shown again, EVER..A pirate will find it for you..

WANT a copy of an OLD FAVORITE, that hasnt come out into print, or been TRANSFERRED TO DVD(YET) the pirate will do it..



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