Govt Questions RIAA, MPAA Piracy Figures

Govt Questions RIAA, MPAA Piracy Figures

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.

Stay tuned.

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Tags gao, pro-ip act
Jared Moya

I've been interested in P2P since the early, high-flying days of Napster and KaZaA. I believe that analog copyright laws are ill-suited to the digital age, and that art and culture shouldn't be subject to the whims of international entertainment industry conglomerates.

World Anarchy
World Anarchy

It's often forgotten that there is more than one alternative to a pirated product. In addition to commercial products, there is also freeware and shareware. This doesn't just apply to computer programs; you have free videos (with all those video-hosting sites), free books, ( has plenty), and free games, (such as Cave Story). Indeed, one wonders whether a crackdown of pirated versions of Windows will lead to more people using Linux.

Jared Moya
Jared Moya

Hmm, good point. A piracy crackdown is though to lead to increased legal purchases outright, but in many cases LEGAL alternatives - aka freeware/shareware - are used instead. Case in point: Open Office >


Doesn't matter; this used to be done w/ BBS and dialup. Then w/ http: (yahoo, homestead, etc.). Then pubs (ftp: port:21). Then free drive services (like Freedrive, Filesanywhere, Freediskspace). Then back to pubs and pubstros (hacked servers IIS/NTpass). Finally, p2p with Kazaa and then Bittorrent. None of this matters, it cannot be stopped short of just shutting down the internet entirely. There will always be a workaround. Think maximum security prisons. We build them and then some wizeguy hacks his way out using a toothpick and a gum wrapper. The fact is that this used to be more difficult and p2p has reduced it from something l33t to something that all l4m3rz can partake of. The scene (if any of you know what that is) has broken down and gotten lazy. This will just return things to where they were about 10 years ago. This will all just return to the scene and move back underground. Who knows, maybe the Freenet project will finally go somewhere? As far as losses to the industry? Every time some 12 y.o. downloads a copy of the Oracle Suite the BSA would say it was a 380K loss to the industry. I'm sure the kid's parents would have purchased it for him, right?