Categorized | Speakers, TED

Copyright Math: Real or Memorex?

With a degree in economics and an MBA in marketing, I’m an unusual breed of journalist who also happens to write about “The Real Housewives of Atlanta” and “The Walking Dead.”

I love numbers and track Arbitron and Nielsen ratings religiously. I have been fascinated by the debate over the efficacy of tax credits in Georgia for the TV and film industry.

So I came across humorist and listen.com/Rhapsody founder Rob Reid’s recent Ted 2012 talk about “copyright math” and chuckled my way through his interpretation of the Motion Picture Association of America’s use of numbers to illustrate the impact of copyright theft on the Internet. This came after recent U.S. Congressional efforts to curb online piracy (SOPA) fell through when opposition (including Google and Wikipedia) coalesced, galvanizing people who felt the legislation threatened the free speech and Web growth.

The big number Reid focused on is the MPAA estimation that $58 billion is lost each year due to copyright theft of music, software, videogames and films. This includes 373,000 foregone jobs, $16 billion in lost earnings and $3 billion in  taxes to local, state and federal government.

Eye popping!

But Reid mocks the $58 billion estimate, noting that it’s equal to the entire U.S. revenues from corn, rice, tobacco, cotton, fruit and sorghum. He said he could identify the $8 billion loss in music business, which has taken the biggest hit of the four industries.

It must be foregone growth of something that didn’t exist in the 1990s, he said. So he jokingly presumes it’s $50 billion of ringtone piracy.

In a less farcical tone, the Cato Institute pilloried the $58 billion, citing multiple presumptions:

- The research group believes MPAA uses a multiplier figure that exaggerates the impact of a loss of, say, a DVD or CD sale.

- Films, music and TV shows stolen through online piracy would not all have been purchased anyway.

- The money not spent on a DVD, CD or digital download disappears into the ether and isn’t spent on something else.

I spoke with the author of the 2007 study that came up with the annualized $58 billion figure: Steve Siwek, who works at a firm called Economists Incorporated. (You can find the study here under Siwek’s name in the search function.)

He first takes estimates from the various industries of direct losses due to copyright piracy. He said each industry is creating those numbers based on the presumption that some stealing would never have resulted in an actual sale while others could have.

Without getting too technical, Siwek then takes those direct losses and uses a multiplier formula approved by the Bureau of Economic Analysis in the U.S. Department of Commerce called RIMS II.  This enables him to include the indirect losses that ripple through an economy when demand for a particular product or service disappears. (Or the other way around, if demand goes up for a particular product or service, you can see the upward ripple.)

He said this is a legitimate way to measure the impact of, say, a $15 CD that was not sold because someone simply stole a copy online. He incorporates not just the lost sale to the record label and retailer, but the plastics manufacturer who created the CD cover and the graphics company that created the CD pamphlet. He even includes the lost sale to the shipper who sent the CD from the factory to, say, a Best Buy.  Plus, he said this results in lost tax revenue.

The Cato Institute thinks the multiplier in question wasn’t meant to be used in a scenario of a theoretical “loss” like this.

Siwek acknowledges the $58 billion is not a net loss to the U.S. economy. Presuming that “stolen” money is spent elsewhere, the net loss may not be much at all. The money simply isn’t going into the pockets of the makers of software, video games, films and music. Perhaps it’s spent buying dinner at Applebees or buying a beer at your local pub.

In other words, those 373,000 jobs may simply go somewhere else.

That’s not to say there is no damage to stealing. That is in effect a breakdown in the rule of law, in what is considered morally right in a fair society.

I have a friend who justified stealing music by saying he had spent so much on music in the past, he felt he deserved it. That’s like saying, you bought so much cereal over the decades, it’s okay now to just take a box of Chex off the supermarket shelf and walk out without paying.

Siwek noted that an individual could steal an appliance and presuming no consequences (as is usually the case with online piracy), that individual benefits greatly by getting to use the appliance for free and having the extra money in his or her pocket to use elsewhere. But it ultimately hurts the manufacturer of the appliance, the retailer and consumers who may have to pay more down the road to cover for the thieves. And if enough people steal, the appliance manufacturer may just go out of business.

So whether you believe the MPAA $58 billion number or not (and it’s kind of out of date to boot since Siwek’s study is five years old), rampant online piracy is a major problem that is probably only getting worse.

Rodney Ho is a TV/entertainment blogger for the Atlanta Journal Constitution. You can find his blog at blogs.ajc.com/radio-tv-talk/

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3 Responses to “Copyright Math: Real or Memorex?”

  1. Chris says:

    You see, I believe the MPAA and affiliated studios should be out of business. The MPAA has a nasty stranglehold on movie theaters and the whole lot of them lost any chance that I will want them in business when I realized they’d been pushing so many laws and agreements that revoke Americans’ rights. And it’s not a simple matter of “Swat them on the wrists and they won’t do it again,” because they will do it again. They’re people who need to be “out of power.”

    Now, I don’t think piracy is always right. I think artists deserve peoples’ support for their hard work in all mediums. And without the studios in the art mediums, it would only be better for artists and art. The internet can fill in a lot of the gaps.

  2. Matt Decuir says:

    While I don’t disagree that piracy is getting worse, I don’t think movie and record companies are doing anything to help their case. We’re a society of instant gratification. Yet, these companies make it so hard for us to consume the content the way WE want to consume it, not the way they want us to consume it.

    I feel like this comic on The Oatmeal sums it up best:
    http://theoatmeal.com/comics/game_of_thrones

    The tactics that they use are very REACTIVE in nature, and if they want to see any real change or decrease in piracy, they’ll have to be more PROACTIVE in the future to combat these problems.

    Piracy will never go away. Pirates are nearly always 2 steps ahead of the game. Lawsuits aren’t the answer either. Therefore, the companies that can figure out how to remove these barriers to consuming their content, while keeping in mind that their content can and probably WILL be distributed online for free, will win.

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