Opinion

Felix Salmon

The best report ever on media piracy

By Felix Salmon
March 29, 2011

I’m way late to the massive and wonderful report on Media Piracy in Emerging Economies by Joe Karaganis and a big team of international researchers. I blame the fact that Karaganis sent me the report a week before it was formally released, on the sensible grounds that it might take a bit of time for me to digest its 440 pages of detailed new information on one of the defining issues of the information age. Of course, like any good procrastinator, I did no such thing. But I’ve read a good chunk of the report at this point, and I highly advise you do likewise — or else sit back with Karaganis’s presentation of its main points.

For starters, Mike Masnick is absolutely right that the report debunks the entire foundation of US foreign IP policy. That policy has essentially been written by the owners of US intellectual property, who jealously protect it and think that the best thing they can possibly do is be as aggressive as possible towards any sign of international IP piracy. As the report shows, this makes a tiny amount of profit-maximizing sense for the companies concerned. But it actually encourages, rather than reduces, piracy in the aggregate.

Think about the NYT paywall, for instance. It’s easy to imagine how the higher the price for which the NYT charges a subscription fee, the more money it gets — even as the total number of people finding ways around the paywall, rather than paying the full amount, would go up. (Here’s a hint: if you run into the paywall, just delete everything past the question mark in the URL, and hit Enter. It’ll think you’re coming straight to the story from outside the wall, and will show you what you’re looking for.)

Similarly, if companies charge only a very high price for their wares in the developing world, most people will become pirates and get that material for much less money. Meanwhile, the piracy notwithstanding, corporate revenues are still being maximized. As the report says,

we have seen little evidence—and indeed few claims—that enforcement efforts to date have had any impact whatsoever on the overall supply of pirated goods. Our work suggests, rather, that piracy has grown dramatically by most measures in the past decade, driven by the exogenous factors described above—high media prices, low local incomes, technological diffusion, and fast-changing consumer and cultural practices.

The big forces driving media piracy in developing countries are real and powerful and will not be changed, no matter how many western politicians get on their moral high horses and insist that countries like India and China build a “culture of intellectual property.” But the irony is that if governments and corporations really wanted to build such a culture, then they would encourage companies to set their prices low enough that the populations of those countries could actually afford to buy music, movies, and software at the full legal retail price. It turns out that domestic companies are quite good at distributing media at low prices, and can build profitable businesses by doing that. But foreign companies have different incentives in the short term, and don’t do that.

One part of the report which is very dear to my own heart is the section on the quality of industry research:

We see a serious and increasingly sophisticated industry research enterprise embedded in a lobbying effort with a historically very loose relationship to evidence. Criticizing RIAA, MPAA (Motion Picture Association of America), and BSA (Business Software Alliance) claims about piracy has become a cottage industry in the past few years, driven by the relative ease with which headline piracy numbers have been shown to be wrong or impossible to source. The BSA’s annual estimate of losses to software piracy— US$51 billion in 2009—dwarfs other industry estimates and has been an example of the commitment to big numbers in the face of obvious methodological problems regarding how losses are estimated. Widely circulating estimates of 750,000 US jobs lost and $200 billion in annual economic losses to piracy have proved similarly ungrounded…

The rationale offered for criminal-syndicate and terrorist involvement is that piracy is a highly profitable business. The RAND report, for example, states (without explanation) that “DVD piracy . . . has a higher profit margin than narcotics”—an implausible claim that has circulated in industry literature since at least 2004.

This study, in wonderful contrast, has enormous amounts of transparent quantitative data, collected over a period of about five years in an attempt to understand just how IP is consumed in emerging economies. (And no, there’s no evidence that organized crime is particularly involved.) To take one of dozens of insights more or less at random:

Our work highlights a more specific transformation in the organization of consumption: the decline of the collector and of the intentional, managed acquisition that traditionally defined his or her relationship to media… it is clearly a shrinking cultural role, defined by income effects and legacy cultural practices.

The collector, our work suggests, is giving ground at both the high end and low end of the income spectrum. Among privileged, technically literate consumers, the issue is one of manageable scale: the growing size of personal media libraries is disconnecting recorded media from traditional notions of the collection—and even from strong assumptions of intentionality in its acquisition. A 2009 survey of 1,800 young people in the United Kingdom found that the average digital library contained 8,000 songs, with 1,800 on the average iPod (Bahanovich and Collopy 2009). Most of these songs—up to two-thirds in another recent study—have never been listened to (Lamer 2006).

Such numbers describe music and, increasingly, video communities that share content by the tens or hundreds of gigabytes—sizes that diminish consumers’ abilities to organize or even grasp the full extent of their collections… On such scales, many of the classic functions of collecting become impersonal, no longer individually managed or manageable. A related effect is that personal ownership becomes harder to specify and measure: consumer surveys are poorly adapted to mapping terrain where respondent knowledge is unreliable… Increasingly, we live in an ocean of media that has no clear provenance or boundaries.

Or check out this wonderful one-paragraph overview of the history of the Bolivian music industry:

The limit case, in our studies, is Bolivia, where the impasse of high prices, low incomes, and ubiquitous piracy shuttered all but one local label in the early 2000s and drove the majors out altogether. The tiny Bolivian legal market, worth only $20 million at its peak, was destroyed. But Bolivian music culture was not. Below the depleted high-end commercial landscape, our work documents the emergence of a generation of new producers, artists, and commercial practices—much of it rooted in indigenous communities and distributed through informal markets. The resulting mix of pirated goods, promotional CDs, and low-priced recordings has created, for the first time in that country, a popular market for recorded music. For the vast majority of Bolivians, recorded music has never been so prolific or affordable.

I’m particularly partial to analysis which shows a strong correlation between the profitability of a movie and the degree to which it’s pirated. I’ve long had this theory with regard to counterfeit handbags: the existence of the fakes only serves to increase demand for the real thing. The connection is less intuitive with movies: if you’ve seen a high-quality pirated copy, you’re not going to want to pay full price for the licit version. But Hollywood revenues are very healthy indeed, and there’s no evidence at all that they’re being harmed by increased piracy.

The most depressing aspect of this report is the fact that it doesn’t seem to have caused anything like the splash that it deserves. It’s an astonishing work of cooperative international scholarship, and really ought to fundamentally change the debate about intellectual-property enforcement in arenas with names like WIPO and USTR. But I fear that it’s too sensible and empirical for that. If the Obama Administration isn’t welcoming this report with open arms, then I fear no one will.

Comments
24 comments so far | RSS Comments RSS

If everything was legal and easily available, it would destroy half the pleasure and learning of viewing it. Streaming sports are blocked in the US, which is what makes watching them streaming out of Europe or Mexico so pleasurable and educational.

I’m sure I’ll enjoy reading the NY Times much more hacking the paywall than I did before it went up. The NY Times said I read 82 articles in the last month, before the paywall went up. I’m aiming for 90, for free next month.

Maybe you could organize a little contest?

Posted by ameyer32 | Report as abusive
 

Why do I keep thinking about Charles Dickens and his American tour? After all, the IP pirates in the US published his books, and they were pretty good books for the most part, without paying him a dime or shilling or whatever. Thanks to the piracy, his tour was a sell out. Every literate American wanted to hear him talk.

Posted by spiffy76 | Report as abusive
 

An empirical example from one American:

My Indonesian relatives in Jakarta can buy/rent the latest Hollywood films from the pirates at Red Box prices. Quality’s not exactly HDish, but it’s good enough.

On the other hand, the Indonesian government’s raised the tariff on foreign films, to protect the apparently not very entertaining domestic film industry, causing MPAA et.al. to declare they won’t send any more of their product to Jakarta.

Having not seen a film in a theater in more than a decade, I can only say to both sides of the pond: “Good luck with that!”

Posted by Gorillameek | Report as abusive
 

I think that one of the media piracy topics that rarely gets discussed is the relationship between pricing and piracy. Demand for pirated media exists primarily because the owners of intellectual property tend to overprice their goods, thereby causing consumers to seek a lower-priced substitute. If suppliers reduced their prices to a point more in line with demand, then consumers would have no need to seek out lower-priced substitutes.

A second topic that merits more in-depth discussion is the clash over fair use doctrine. Consumers tend to believe that they should be allowed to do whatever they want with a good once they purchase it, be it a physical object or intellectual property, whereas suppliers do not.

Lastly, it needs to be noted that many of the areas of the world where media piracy is most rampant, such as China, have little or no history of property rights for either physical objects or intellectual property.

Posted by mfw13 | Report as abusive
 

Isn’t the whole concept of intellectual property a crock?
Take for instance this very blog. What makes it exist is Felix’s ideas – and though I am partial to them, I assure you I wouldn’t pay a flat dime for them (except indirectly due to what ever value advertizers attach to my gaze). If it weren’t for the physical infrastructure of Reuters, the blog, and therefore the “intellectual property” wouldn’t exist. There are a zillion ideas, and therefore they shouldn’t cost much.
Or take music – a very good example of the collapse of “intellectual property” If there really less music, of lower quality than there used to be? How much of the value of a song is due to the writer, the singer, PORMOTION, and finally the physical or electronic transport? Many, many, many people can make good music, and the electronic transport of it means that the prices will continue to fall. It is ridiculous what a Dean Martin song costs – it is merely the function of economic rents.

Posted by fresnodan | Report as abusive
 

I had a good laugh when I visited and read the bottom print at the linked MPEE site:

“Non-compliance with this license (or with appropriate fair use/fair dealing exceptions and limitations) is an act of piracy, subject to prosecution under applicable national law. For US residents, this includes criminal prosecution under the No Electronic Theft (NET) Act, punishable by up to three years in prison (for a first offense) and $250,000 in fines per act of infringement.

For those who must have it for free anyway, you probably know where to look.”

That in itself distills the nature of IP protection in the US.

Posted by GRRR | Report as abusive
 

The paper, which is rich, and video (thanks for posting) provide solid information regarding piracy. But its thrust regards international trade. I don’t really see the impact on domestic commerce. The paper posits that piracy results from inefficiencies in price and access, and that enforcement isn’t a viable solution.
With high-speed internet, consuming IP from a legal and from an illegal source often is identical in terms of ease of access. Browsing itunes vs beemp3 (for example). And the legal portal can never underprice its pirate competitor.
So in an environment where producers have lost pricing power, cannot rely on government enforcement of contracts and have a consumer base that does not care how or from whom content is acquired as long as the price is right- isn’t media doomed to a razor-thin margin model? Which isn’t terrible, except it will force many rational individuals into professions that enjoy a competitive advantage where government enforcement works tremendously- such as finance.

Posted by thispaceforsale | Report as abusive
 

Thirty years ago, X, a kid at the time, went and bought Pink Floyd – The dark side of the Moon. That vinyl cost him some good cash. Few years later, he got himself some wheels and decided he couldn’t live without his beloved Floyd, so – he went and bought himself a tape of T.D.S.O.T.M.
Soon after, the tapes went the way of the Dodo and X, his loyalty to good music undiminished, went and bought a cd copy of the classic T.D.S.O.T.M, Animals, The Wall and just about everything else Pink Floyd ever produced.
Fast forward five, six years. X has a computer now – which is replacing his stereo as the medium to listen to music.
By now, between all the things Pink Floyd he bought, the two concerts he went to, set him back few hundred dollars.
One day, X, decided he paid enough and without a trace of guilt, downloaded the entire Pink Floyd discography of the internet. And he lived happily ever after..

Posted by genevo | Report as abusive
 

You say, “But Hollywood revenues are very healthy indeed, and there’s no evidence at all that they’re being harmed by increased piracy”.

I see. And how’s the music business doing, Felix? Or the newspaper business?

What a joke you are. Talk about cherry-picking.

Posted by EconomistDuNord | Report as abusive
 

Yup, no need to pay for anything easy to steal.

I think I’ll start robbing old ladies. If God had meant them not to be robbed, he wouldn’t have made them so weak.

Posted by EconomistDuNord | Report as abusive
 

Here’s another story. A older lad named Y would very much like to purchase a copy of Apple’s Logic Studio. At $499, the price seems excessively high, yet downloading it for free runs counter to Y’s sense of fair play.

Posted by breezinthru | Report as abusive
 

@EconomistDuNord: Are you suggesting the newspaper business is on the rocks because of piracy? Newspapers may cry foul at aggregators and blogs, but that’s hardly the same thing the music and film industries are complaining about.

I’ll give you that the music industry is in decline, but I need more than “piracy exists, the industry is in decline, therefore the industry is in decline because of piracy.” That is a basic post hoc ergo propter hoc fallacy that is endless and unfortunately repeated in so many policy discussions.

Just the other day I witnessed an IIPA representative say the following to a class of law students: “South Korea had weak copyright laws; then they improved them, and now their economy has improved dramatically. Coincidence?” I was embarrassed that this is the kind of statement that passes as reasoning.

Maybe the record industry is in decline because of piracy. Maybe it’s in decline because people have finally stopped replacing their LPs and tapes with CDs. Maybe it’s becaue the industry missed the boat big time by refusing to enter into what would probably have been a very profitable licensing agreement with Napster. I don’t know, but I do know that yelling “piracy” isn’t a convincing explanation of anything.

Posted by langelgjm | Report as abusive
 

EconomistDuNord wrote, “And how’s the music business doing, Felix?”

Answer, the music business is doing better than ever. It’s the recording industry that has suffered because it can’t seem to adjust to the new reality.

So maybe there won’t be many rockers that become multi-millionaires like before. (Well … there were never all that many anyway.) But now more independent musicians than ever before can make a living by leveraging the new digital media. But they have to connect with their fans and give them a reason to buy.

This has been proven to work many times with artists with big name recognition as well as artists just starting out.

Adapt or die. Isn’t that the free market philosophy that Americans are so proud of? And rightly so. Many are adapting. The others are trying to hold onto the old ways with lawyers and lobbyists.

Posted by Engraver | Report as abusive
 

Here’s another story: Young econblogger wannabe visits Felix Salmon’s blog regularly with AdBlocker on. Impressed with Felix’s depth of research and analytic thought, he writes simple a script to steal all of Felix’s post and put it on his own blog, unattributed and unlinked to Felix.

True story.

And I’m sure Felix commends the behavior.

Posted by EconomistDuNord | Report as abusive
 

@EconomistDuNord: I don’t think anyone is talking about ip that is unattributed. That’s plagiarism and is a different topic altogether. But if your true story had left the unattributed part out, I’m sure Felix would very much commend your behavior. In fact he’s argued in favor of that very topic several times. For instance the various paywall posts. It’s pretty funny that you picked that as an example actually because it drives his point home rather well.

Posted by spectre855 | Report as abusive
 

mfw13, another reason is because with pirated media you tend not to have to deal with all the DRM crap. In the far east I must have been the only idiot to actually buy DVDs. This meant:

1) I had to buy AGAIN my old DVDs just to play them in the far east. If i ever leave the far east i will have to replace the new ones.
2) I have to sit through ads about why i shouldn’t buy pirate DVDs on my legit DVD. Can’t skip them either.
3) When i tried copying them to a hard drive to cut down on the amount of crap i take from place to place turns out i can’t play them because of encryption, something that would not be an issue with pirated stuff.

So legit DVDs are more expensive AND more of a pain. Is there any wonder there is piracy?

Also China does have a history of property rights, in particular land rights. What it also has is a rampantly corrupt legal system.

langelgjm, Newspapers are collapsing because frankly most of the “journalists” are not terribly bright, cut and paste from each other anyway and barely fact check. NYT isn’t going bankrupt because of piracy but because its “news” is mostly worthless. Why pay for regurgitated propaganda? and ps in South Korea, virtually no one buys dvds, so much for that argument.

Posted by Danny_Black | Report as abusive
 

Engraver wrote, “the music business is doing better than ever”.

Clearly you know nothing about the music business. The fact that kids can put some kind of crap together in their basement in Garageband (a pirated version, of course), and put it on their Facebook page has NOTHING to do with the music business. If you want to say that “musical expression” is alive and well, fine. That’s certainly true.

But the Rolling Stones didn’t come out of someone’s basement. The Beatles weren’t some kid in a garage. They took lots of time to develop, learn, improve, try, fail. Great music takes investment. And without a hope of return, no one will invest. If anyone can just steal anything you do and society doesn’t care, and morons like Felix are even out cheerleading it, no one with any talent (or sense) will do it.

The only ones who will do it are those who don’t care about making money off their work.

So there will never, ever be another musical act with the recognized quality and recognized contribution to the culture of the world of the Beatles or Rolling Stones. I’ll be more than happy to take an escrowed $10,000 bet against anyone who disagrees. (We’d have to make it a period of, say 10 years, since “never” is an unuseful betting period).

Thanks to Felix and the like, new music is going to be crap for the rest of our lives.

Posted by EconomistDuNord | Report as abusive
 

spectre855 wrote, “I don’t think anyone is talking about ip that is unattributed.”

-I- am talking about unattributed IP. Felix doesn’t think my output as a creative is worth protecting, so I don’t think he gets any rights as regards his creative. Pure and simple. So I guess I’ll just do with it whatever I please; Who cares what he thinks? He gets to make up his own rules, I get to make up mine.

Tough titties: “adapt or die”, as Engraver writes.

Posted by EconomistDuNord | Report as abusive
 

langelgjm wrote:

“Maybe the record industry is in decline because of piracy. Maybe it’s in decline because people have finally stopped replacing their LPs and tapes with CDs. Maybe it’s becaue the industry missed the boat big time by refusing to enter into what would probably have been a very profitable licensing agreement with Napster. I don’t know, but I do know that yelling “piracy” isn’t a convincing explanation of anything.”

The music industry is in decline for all those reasons. The business side shouldn’t have been so inertial, they should have adapted, yes.

Everyone knows economic behavior is about incentives: a kid with no money who can get that song or movie or expensive software in one click will do it. You can’t really blame the kid. It’s just the way people work, like it or lump it.

But this is why laws exist. To adjust incentives. To raise the cost of engaging in societally unbeneficial behavior.

No surprise, economics works on the supply side too: if you want people to produce something, you need to have incentives in place for them to do it.

This is why what Felix and so many others (like Julian Sanchez, Brad Delong among others) are doing is so culturally reprehensible. These people know better; incentives are their expertise. They like to steal stuff, and cheerlead it on their blogs. But they’re smart enough to know that without laws to incentives creative production, creative production goes away (apart from what’s generated as result of narcisstic need for self-expression, but which work product brings little value to anyone but the narcissist in question).

This is a moment when BOTH sides of the story need to be told: 1) How do we increase global marginal utility of creative work (which is happening, since anyone can get anything now instantly), BUT ALSO 2) how do we incentivise production of societally beneficial creative work?

Everybody loves #1 because they get free stuff and justify in their own little way why they shouldn’t have to pay for it. Felix sits happily in the self-justified thief camp.

But people like Felix, who are broadly-read public intellectuals on the topic, have the obligation to look at #2 seriously.

And it disgusts me that he doesn’t.

Posted by EconomistDuNord | Report as abusive
 

EconomistDuNord, recognised for their “contribution” by who and how? What “cultural contribution” did the Stones make? Is your claim that the music business is in decline based on more than you not liking the racket that kids these days listen to? Because i cannot think of a single thing in the world that would substantially change if the Stones had not existed.

As for incentives, the key thing you miss is that downloading the song is EASY and PAINLESS. If it was about the money then no one wold use ITunes, yet it is a 5bn a year business.

Give me a rigourous definition and i’ll take your bet. I will happily bet that there is a band as dominant as the Stones – not very – in the next ten years. So please stop whinning and give some facts and figures to back up your claim that piracy is the cause of woe if such woe exists.

Posted by Danny_Black | Report as abusive
 

EconomistDuNord, ps I haven’t seen Felix claim your “creative work” is worthless but based on what you have written here I would like to heartily agree with him.

Posted by Danny_Black | Report as abusive
 

EconomistDuNord, go publish significantly without giving credit (and taking credit) and watch what will happen to your credibility when the plagiarism is discovered.

Conversely, go “pirate” someone else’s quality work (with attribution) and watch their brand value and opportunity go up.

So, the author is likely going to benefit one way or the other (at least over averages and over the long run). Give credit so that they benefit more quickly and you suffer less in the long run or pick the other choice. It is your choice.

Creating a work is half the battle. You should position yourself to take advantage of your unique position and significant skill as the work becomes more and more popular.

Posted by Jose_X | Report as abusive
 

By the way, just tested it – because I ran into it only today – but that hint about the NYT paywall, works. Thanks, Felix.

Posted by GRRR | Report as abusive
 

@EconomistDuNord

“They took lots of time to develop, learn, improve, try, fail. Great music takes investment.”

Apparently you know nothing about stolen content from these bands,they abused a lot of “black” musicians creativity by cutting and remixing their work and now they go after kids who do the same with no purpose of profit…Copyrights exists only for hollywood evryone else has no rights to it,so yes its moral to do whatever they have done to others,and yes i refuse to pay $10.000.000 to X actor or band.If we live in democracy let the people decide.I have never downloaded media and never bought media.Radio and streaming is enough i think ;)

Posted by leavemealone | Report as abusive
 

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