Piracy costs the U.S. economy 750,000 jobs, says a spokesman from the entertainment industry’s “Department of Figures We Pulled Out of Our Arse”

Wednesday, October 8th, 2008

Julian Sanchez chases the origins of a statistic that’s been used over and over again to justify horrible legislation.

Reminds me of Michigan v. Sitz, the Supreme Court case where the majority acknowledged that roadlbock sobriety checkpoints are a violation of the Fourth Amendment, but gave them the okay anyway, citing the bogus MADD-NHTSA statistic that 25,000 people die each year in “alcohol-related” traffic accidents.

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12 Responses to “Piracy costs the U.S. economy 750,000 jobs, says a spokesman from the entertainment industry’s “Department of Figures We Pulled Out of Our Arse””

  1. #1 |  Thomas Blair | 

    These numbers, even when rectally sourced, tend to ignore the benefits conferred by piracy.

    It’s just another cause of the broken window fallacy. The companies producing content lose out on sales when media is pirated (the extent of which is quite arguable), but they do not consider what those who pirate the content do with the money they save. They buy clothing and shoes and cars and TV’s and pets and computers, etc…

  2. #2 |  Ben | 

    Interestingly enough, I was recently browsing Youtube for my favorite libertarian-esque band, Bad Religion, and found some new acoustic songs.

    They happened to be excellent, but on a new edition of an album I already have. Guess what? I went out and bought the new version of the album.

    Make good music, and put more than one decent song on your CDs and people will buy them.

  3. #3 |  dave smith | 

    Ben is right.

    Piracy cannot cost society as a whole jobs. In fact, theft of any kind cannot be costly to society. If someone steals my TV, socieity still has a TV. It has just been transfered to someone else.

    What is important, and this is where the loss to society comes from, is what incentives I have for protecting my TV. The cost of theft are door lock, police, etc. All the things I must do to protect my property. Another loss, I guess, would be an incentive for someone to take up theft as a profession.

    Simularly, the loss to society of music piracy would be all the efforts by producers to keep their stuff from those who have not paid for it. So, ironically, the cost of piracy is not the loss of jobs, it is the addition of jobs that combat piracy.

    Moreover, if piracy costs producers money, it lessens the incentive to become an artist. So another potential cost of piracy is fewer artists, holding all things constant. (I am very carefull here, if we lifted piracy laws, and made old style Napster and those mix tapes legal, we’d have a very differnt music industry. Might be better, might be worse.)

    These are very, very open questions to economists and legal policy people. Intellectual property rights is a very rich research field right now and answers to these types of questions (that is, what should intellectual property rights be for a good that can be obtained at zero marginal cost) are still very open.

  4. #4 |  perlhaqr | 

    dave smith: You’re conflating intellectual “property” with real property in a manner that it doesn’t deserve.

    When someone steals your TV, you’re out a large hunk of plastic, silicon, glass, and copper.

    When you copy a CD for someone, the original producer of that CD is out… nothing they hadn’t already sold to you.

    A CD is real property, it can be held in your hand. The data on the CD is property only because it has been defined to be through legal chicanery.

    It may be the case that the music industry functions better because of this overloading of the term “property” (though I doubt it), but that’s not the same thing as piracy being the ethical equivalent of theft, in the Lockean “life, liberty, and property” sense of the term.

    Possibly, one could claim that there exists an implicit contract between the purchaser of a CD and the record company, that the CD itself is just a license to the bits, and that it would be a breach of contract to copy them. But that ignores two important factors, one, that there is often not even this much of an implied contract between someone who downloads a pirated CD and the record company, and two, that most record companies consider the CD to be the real property. If you have a bunch of CDs, and they get stolen, the record company will still not be ok with you downloading the contents of the CD.

  5. #5 |  Mike Leatherwood | 

    As Wally from the Dilbert cartoons pointed out once, all files (music, porn, Powerpoint) are just a collection of 1s and 0s sitting harmlessly on magnetic media. They do nothing. In fact, only the person opening an application may see the contents as intended, and even then there is a probability that it will fail. So, where is the property?

  6. #6 |  Andrew Williams | 

    Old statistics never die. They just get recirculated. This is the provenance of our ignorance. (Excluding readers of this blog natch.)

  7. #7 |  MacK | 

    A couple things in that article were not looked into, that some people believe are important equations in many of the bogus IP theft numbers.

    This is on page 4 of the article:
    “When someone torrents a $12 album that they would have otherwise purchased, the record industry loses $12, to be sure.”

    Now what is the loss if they torrent that $12 album, but NEVER would have otherwise purchased it? It is not a $12 loss, because it would never have been $12 purchase.

    I run Linux myself, and contrary to many beliefs it is no longer a text based OS. In fact it is very much a GUI based OS from install to everyday use. Your granny could learn to use it as easy as MS Windows right now. That last statement is completely true, it is as easy to use as windows, and it is FREE.

    Then why aren’t we all using FREE Linux? In fact almost all of us use Windows, and at Best Buy retail it cost $240 for Vista Home, $320 for Vista Premium. Is it because Windows is better then Linux, or easier to use? Maybe, but many Linux users would argue those points pretty quickly. I think it is because Windows is free, or at least perceived to be free. It is perceived to be free by many, because it is installed in nearly every computer we buy. It is freely pirated, and it is pirated right with the best of them. In fact most of us have a copy, or know someone that has a copy of Windows that has been installed on a computer without the purchase of that IP license.

    So what does this piracy of Windows do? Does it cost MS millions of $$$? I think it makes them $$$ compared to what would happen if somehow piracy could be stopped instantly. That would mean that you would have a choice between Windows at $240-$320, or Linux at $0, instead of Windows at $0 also. Believe when given a choice of $$$, and FREE your wallet will choose the FREE each time. This would take the Windows share of the market from 90+% to around 50% easy in very little time. That would hurt much more then some piracy is right now.

  8. #8 |  Nando | 

    So what does this piracy of Windows do? Does it cost MS millions of $$$? I think it makes them $$$ compared to what would happen if somehow piracy could be stopped instantly. That would mean that you would have a choice between Windows at $240-$320, or Linux at $0, instead of Windows at $0 also. Believe when given a choice of $$$, and FREE your wallet will choose the FREE each time. This would take the Windows share of the market from 90+% to around 50% easy in very little time. That would hurt much more then some piracy is right now.

    I think you hit the nail on the head. This is the argument that I have with many of my IT industry piers. I argue that since Windows comes pre-installed in so many machines, people take it for granted and Micro$oft is able to keep/increase market share. The market share is really important when it comes to advertising dollars and products being developed for your OS. If Linux/OS X increased their combined market share to, say, 50%, Microsoft would not only lose billions in advertising revenue, but they’d also lose billions in licensing fees. So many software engineers/designers that have to pay Microsoft in order to build software that is compatible with their system would, if so driven by market share, create their products exclusively for the other OSs out there, therefore dragging Microsoft’s market share even lower.

    If people out there were not able to pirate Windows XP, Vista, or Microsoft Office, they’d be using Linux and Open Office instead, therefore driving Microsoft’s power (it’s market share) down.

  9. #9 |  Eyewitness | 

    Nice article. The writer is closer than he knows about those numbers. How do I know? I wrote that 1988 ITC report. I was required to put the estimates in that appendix by the Commission because the USTR demanded an estimate (which I did not have the data to even remotely accurately estimate). I qualified it as much as I could and gave a range. At the USTR’s press conference announcing the report they immediately began using the upper limit.

    As a footnote, I can tell you how the figure started to grow from $61 billion. A few years after the original report, the ITC Chairman needed an updated estimate for a speech. I called the IACC and asked what figure they were using. They gave me one, but warned me that it was an extrapolation of my earlier figure. So I knew it was BS, then and now. No one ever wanted to hear the truth, they just wanted a number and that’s what they got.

  10. #10 |  dead_elvis | 

    “citing the bogus MADD-NHTSA statistic that 25,000 people die each year in “alcohol-related” traffic accidents.”

    It would be helpful to include a link with that, so I have ammunition next time I’m trying to convince someone of MADD’s ill intentions. If I have something more concrete I can refer to than “I read it on a guy’s blog that I like”, it helps.

  11. #11 |  Kevin Carson | 

    “Intellectual property” *is* piracy. And I have no doubt its economic cost is very high.

    Tom Peters likes to gush that the great majority of commodity price consists of “intellect” rather than materials and labor cost. English translation: most of the money we pay for stuff is embedded rents on artificial property rights.

    If this component of commodity price were to implode, and prices fall to actual cost of production (and cost of production fall as well without IP bolstering a business model based on planned obsolescence rather than repair and recycling), we’d probably be able to support our present standard of living with considerably shorter work weeks.

  12. #12 |  Straight from the Source | 

    [...] I can’t verify his identity for certain, a commenter at Radley Balko’s site claims to have some firsthand knowledge of how those bogus piracy stats came about: Nice article. [...]

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