Correcting the Record on the Financial Impact of Content Theft

by Alex Swartsel 09/08/2011 15:21 (UTC-08:00) Pacific Time (US & Canada)

A recent post on Pajiba, picked up by Techdirt, Afterdawn and others, has misconstrued data on the financial impact of content theft.  We wanted to take a minute to correct the record. 

A 2007 study conducted by economist Stephen Siwek and published by the Institute for Policy Innovation (IPI), “The True Cost of Copyright Industry Piracy to the U.S. Economy,” found that “copyright piracy from motion pictures, sound recordings, business and entertainment software and video games costs the U.S. economy $58.0 billion in total output,” among other harms including hundreds of thousands of foregone jobs and billions lost in earnings and tax revenues. 

It’s incorrect to assert, as Pajiba does, that “according to the MPAA, piracy cost them $58 billion last year, making movie piracy a bigger industry than the GDPs of 10 American states.”  The IPI study, conducted in 2007, covers the copyright industry, which is not only to the film industry but a number of industries that rely on intellectual property protection, including music, packaged software and video games.  To ensure this is crystal clear, we’ve revised our fact sheet to define the copyright industry covered by Siwek’s study; the fact sheet now reads “$58 billion in economic output is lost to the U.S. economy annually due to copyright theft of movies, music, packaged software and video games.”  See here for the updated version, also linked from our rogue sites webpage.

For the same reason, it’s also incorrect to claim that “[a]t $10 per DVD, every household in the United States would be buying an additional 50 DVDs per year if they weren’t so busy downloading,” and then to extrapolate that because our research has found that 13% of American adults have ever downloaded or watched movies or TV shows illegally, this means we assume every person who engages in content theft would otherwise have purchased 200 DVDs each year. 

This line of reasoning is inaccurate in several additional respects.  First, Siwek’s research for IPI covers the cost of copyright theft to the US economy as a result of content theft occurring around the world, not solely by users in the United States.  Second, the IPI study covers both the cost of online theft and “hard goods piracy,” such as bootleg DVDs and CDs.  Third, the IPI study focuses not on lost sales due to content theft, which is the analogy Pajiba makes, but on output loss, which is the full impact of such theft, including on retailers and industry suppliers elsewhere in the economy.  

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