Government Accountability Office says the “illicit nature” of piracy means there is no real way to quantify actual losses, and that some studies have in fact shown piracy to have a “potential positive economic effect.”
Throughout the years the entertainment industry has trotted out ever increasing figures of enormous losses due to piracy, and the effect it has on consumers, businesses, government, and the U.S. economy. Many have always questioned the numbers however, noting that they’re biased estimates at best, gross exaggerations at worst.
After Congress passed the the Prioritizing Resources and Organization for Intellectual Property Act (PRO-IP Act) back in 2008, the Government Accountability Office, Congress’ investigative arm, was tasked with quantifying the impacts of counterfeit and pirated goods.
It examined existing research on their effects on consumers, businesses, government, and the U.S. economy, and tried to identify insights gained from those previous efforts.
It’s first problem was that the “illicit nature” of counterfeiting and piracy makes estimating their true economic impact extremely difficult, so assumptions must be made in order to offset the lack of data.
“Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on the resulting estimates,” it says in the report. “Because of the significant differences in types of counterfeited and pirated goods and industries involved, no single method can be used to develop estimates. Each method has limitations, and most experts observed that it is difficult, if not impossible, to quantify the economy-wide impacts. ”
What the GAO found was what most already knew: the effects weren’t as simple as lost sales or profits, that counterfeiting and piracy has had a range of effects, some negative, others positive. It cited lost profits and tax revenue as negatives for businesses and govt, but that consumers benefited from increased access and lower costs.
Of particular concern to the GAO was the “substitution rate,” the rate at which an illegal copy would have been otherwise legally purchased had it not been available. The MPAA and RIAA always use a 1:1 ratio to boost their figures and make the problem seem far worse than it actually is. However, many a file-sharer will tell you there’s no way they would have purchased anywhere near the amount of stuff they’ve downloaded (hello 1TB ext HDD people).
“The assumed rate at which a consumer is willing to switch from purchasing a fake good to the genuine product is a key assumption that can have a critical impact on the results of an economic loss estimate,” adds the report.
It mentions the Business Software Alliance and its 2008 claim of $9 billion dollars in lost business software sales in the US, noting that its assumptions “have raised concerns among experts we interviewed, including the assumption of a one-to-one rate of substitution.”
It also calls into question the figures regularly trotted out by the granddaddy of all inflated claims – the MPAA. The GAO says the MPAA relies on consumer surveys to determine piracy losses, yet was unable to figure out either its substitution rate nor how the survey was extrapolated to the rest of the population.
The biggest question mark the GAO adds to the debate concerns positive effects, how “some experts and literature also identified some potential positive effects of counterfeiting and piracy.” It says that there needs to be a balance in consideration of both positive and negative effects if it is to determine a a true “net effect…with any certainty.”
Here it should consider reviewing both the Canadian govt-commissioned study that found P2P actually increases music consumption, as well as that of the BI Norwegian School of Management, the largest business school in Norway and the second largest in all of Europe, that concluded file-sharers actually buy 10 times as much music as they download for free.
The GAO report also mentions a need for differentiating the effects of counterfeiting and piracy among industries. Counterfeit drugs are almost always bad for the consumer while counterfeit DVDs are not.
When it comes to economic effects, copyright holders warn of lost jobs and revenue. What it leaves out is that that “lost” money doesn’t just evaporate, and worker will simply migrate to other areas of the economy.
“The money does not just vanish; it is used for other purposes,”says an expert quoted in the report.
I think that says it all.