How Much Do Music and Movie Piracy Really Hurt the U.S. Economy?

(Photo: Srikrishna K)

Supporters of stronger intellectual property enforcement — such as those behind the proposed new Stop Online Piracy Act (SOPA) and Protect IP Act (PIPA) bills in Congress — argue that online piracy is a huge problem, one which costs the U.S. economy between $200 and $250 billion per year, and is responsible for the loss of 750,000 American jobs. 

These numbers seem truly dire: a $250 billion per year loss would be almost $800 for every man, woman, and child in America. And 750,000 jobs – that’s twice the number of those employed in the entire motion picture industry in 2010.

The good news is that the numbers are wrong — as this post by the Cato Institute’s Julian Sanchez explains. In 2010, the Government Accountability Office released a report noting that these figures “cannot be substantiated or traced back to an underlying data source or methodology,” which is polite government-speak for “these figures were made up out of thin air.” 

More recently, a smaller estimate — $58 billion – was produced by the Institute for Policy Innovation (IPI). But that IPI estimate, as both Sanchez and tech journalist Tim Lee have pointed out, is replete with methodological problems, including double- and triple-counting, that swell the estimate of piracy losses considerably.

So what’s the real number? At this point, we simply don’t know. And this leads us to a second problem: one which is not so much about data, as about actual economic effects.  There are certainly a lot of people who download music and movies without paying. It’s clear that, at least in some cases, piracy substitutes for a legitimate transaction — for example, a person who would have bought the DVD of the new Kate Beckinsale vampire film (who is that, actually?) but instead downloads it for free on Bit Torrent. In other cases, the person pirating the movie or song would never have bought it. This is especially true if the consumer lives in a relatively poor country, like China, and is simply unable to afford to pay for the films and music he downloads.  

Do we count this latter category of downloads as “lost sales”?  Not if we’re honest. 

And there’s another problem: even in the instances where Internet piracy results in a lost sale, how does that lost sale affect the job market? While jobs may be lost in the movie or music industry, they might be created in another. Money that a pirate doesn’t spend on movies and songs is almost certain to be spent elsewhere. Let’s say it gets spent on skateboards — the same dollar lost by Sony Pictures may be gained by Alien Workshop, a company that makes skateboards.

As Mark Twain once wrote, there are three kinds of lies: lies, damned lies, and statistics. However true that may be in general, statistics can be particularly tricky when they are used to assess the effects of IP piracy. Unlike stealing a car, copying a song doesn’t necessarily inflict a tangible loss on another. Estimating that loss requires counterfactual assumptions about what the world would have been like if the piracy had never happened — and, no surprise, those most affected tend to assume the worst. 


I feel like this information really needs to get in the hands of the congressmen and women that will be deciding whether to pass SOPA or the Protect IP act. The actual benefit of passing these laws is suspect at best.

I think the bigger concern is the number of jobs that could be lost if these laws are passed. While a certain degree of copyright/patent protection is desirable, it stifles innovation because it makes it harder to climb on the shoulders of those that came before us. I think what has kept this country great for so long is innovation and I would hate for America to lose that edge.


Neil Gaiman says it best.

I'd argue the net effects of downloading will be good for the economy.


This article fails to point out the future money made that could/will be made in many cases because of the piracy (This is impossible to quantify). Let me explain: Not everyone has a large amount of disposable income to download every song/album that he/she wants at any given time. However if an artist has an album pirated which in turn prompts the user to buy a ticket to a future show which could also include merchendise then the artist overall wins. Who is to say that individual will not buy future albums and tickets? If the artist puts out a quality product on a consistent basis then the money will be there.

I do not want to defend piracy, but I do believe there are some hidden benefits that may not be seen on the surface. If you haven't noticed many artists have been giving away free songs whenever a new album is released. Is this just a way to defend themselves against piracy? Or do they see the benefit to giving away free songs in order to gain fans that would otherwise choose not to buy their product? I'm sure this has been analyzed by the music/movie industry to death, but there is my take.



What about the positive economic effects? Greater demand for complementary goods like hard drives, higher bandwidth internet service, mp3 players, home media players, etc.


I agree with John. There are countless time where I've personally downloaded songs, albums or entire artist catalogs for free - but this has led me to discover many new "favorite" artists whose live shows I then pay money to see. If we assume that passing these anti-piracy laws would make it impossible to pirate music, one consequence would be a decrease in the discovery of new talented artists, since the cost of "trying out" a new album (let's say it's $10 - the cost of purchasing an album) would be a deterrent.

I actually think that the availability of free/pirated music helps artists who make quality music and tour frequently (think Arcade Fire) while lowering income for artists whose only previous method of becoming "discovered" was to be manufactured and marketed by major record labels so that they could gain radio airplay (think Backstreet Boys, Britney Spears, Jennifer Lopez).



Finally...the truth. To say piracy cost the economy "that" much money is crazy. Most of these products/items that are pirated wouldn't be purchased in the first place. The other thing is sometimes items are pirated (like software) because a small business can't afford the SW. Eventually business grows and they can afford it and do purchase SW, licenses and hire people.

Nir Kozlovsky

There is a reason that we use "piracy" to describe theft of IP. Hollywood pirates might be romantic, but I doubt that any of its real life victims would agree. I realy like however the logic behind the comparison of IP piracy to car theft. Why not argue that when a car is stolen, it actually helps the economy. The thief now has a car (he would not have necessarily bought one), but the person whose car was stolen would buy a new one. This actually creates jobs!
Or better. A musician (or software engineer) who cannot support himself because of IP piracy, will steal a car. Why didn't we think about it?


I have a fairly simple answer for your car theft example, Nir, though I assume you've heard it before, since I've heard the answer about 10,000 times. The difference between car theft and the copyright violation that is online piracy is that in one case, someone has actually lost property, and in the other, both people have the same or more amount of property.

Let's look at that example more closely. When a person steals a car, the car dealership no longer has that car. They can no longer sell it, because it does not exist in their hands. That means, if they spent $10,000 to acquire it, they have lost $10,000. In order for Disney to experience the same loss, pirating The Little Mermaid would have to mean that Disney no longer has the Little Mermaid to sell. They'd have to go through the expensive process of redrawing, reanimating, and recording sounds. Now, as you and I know, that's absurd. Of course Disney still has The Little Mermaid. They haven't lost it. They haven't even lost the physical disk it comes on. They can continue to sell it as many times as they want without spending a cent to get a replacement copy. As such, they are in no way, shape, or form, as bad off as the car dealer who just got his car stolen.

Now let's consider the opposite. Suppose for a second that a car could be "copied" with no loss. Wouldn't that be AMAZING!? And not just cars. What if food, clothes, water, gas..., essentially everything important to life could be copied in a way that doesn't cause anyone else to lose those same essentials? That'd be the immediate end of world hunger. Power, the greatest expenditure of life, would no longer be an issue. If we could do to a car (and all these other things) what we can do to online music, I would consider it the height of immorality to decide not to do it. If you can end world hunger and thirst, you are the most evil person alive if you choose not to.

Long story short, the comparison of theft to copyright violations like piracy is absolutely invalid and terribly wrong headed (when taken in reverse). I don't really have a problem saying that piracy is morally wrong. Or even saying that piracy causes losses (we assume, based, as the article notes, on no actual way to record losses) for one industry, though possibly not for the economy as a whole (that part, also as noted in the article, is unknown). Those things are fine. But calling piracy "theft" is the height of illogical thinking.


Dale Sheldon-Hess

We "don't know"? Nice cop out. And the only estimate you include was the high end, the $58 billion and up, obviously still exaggerated when held to the standards the GAO used on the previous IPI claims. Why not include Lee's or Sanchez' conclusion?

Lee: $6.1 billion, less than 10 percent of the new IPI claim.

Sanchez: $446 million, less than ONE percent of the new IPI claim.


Any time I hear a think tank, like Cato, mentioned I shutter. Credibility lost almost instantly. Even if they're right, I wouldnt believe a Catoan


Thank you for writing this. It echoes much of my thinking on "IP Piracy" and the assumptions of how much damage it does to the economy and even individuals.

Interestingly, it may create some free rider issues, but on the whole the fundamental assumptions that are made in estimating the damage to the economy are highly suspect, and likening IP infringement to theft is equally disengenous.

Thank you, for putting the spotlight on some of the Industry assumptions which are clearly erroneous.

William Sears

This link from the Swiss Government is in German (but Google will translate it for you if you don't know German).

The interest part is they concluded that piracy doesn't change the spending on media very much, though it probably shuffles the winners and losers a bit.

My own thought is that a lot of improperly copied material is stuff that would not have been purchased at full price anyway, and that there is a significant marketing component to downloaded material. I also believe that a lot of such material is downloaded either because it is otherwise unavailable, or because the legal packaging is inappropriate. There are also derived works of merit that aren't properly licensed but that bring value as derived works, and may prompt sales of the original.


Of course there has been counter research in recent years that shows bittorent users actually being higher spenders on music and movies than none users. ie: there could well be a trend of 'try before you buy' or even that they are supplementing an already large content spending habit that probably couldn't have been stretched much larger.

For balance I would love to know whether the counter research is just as bogus and flawed or what the reality really is (I would guess somewhere in the middle?)

Rather than just dismantling the flawed measures and data of the SOPA lobbyists (which is just too easy a target), what should be the measures both for and against by which the pros and cons of a world with or without privacy can be compared?


Great article, and oh so true!


My family 'pirates' a great deal of media because we live outside our native culture and it is simply not available where we live. I recently sat down and worked out how much money we had 'saved' by pirating, vs. how much we'd spent on merchandise (talking a lot of kids' stuff here), books, theme park visits when back in country etc. - all directly related to the 'pirated' content. Unsurprisingly, the 'piracy' victims have received more from our subsequent investment in their products as a result of our 'piracy' than they would have had we not known about their product or engaged with it so by downloading it. Add on top of that the technology investment in connection, software & hardware and flights back to our country to visit related museums and theme parks etc and it is abundantly clear that our piracy has not only not harmed anyone at all, but it has hugely benefitted the pirated parties and a host of other industries and entities.



While everyone attempts to justify their beliefs/actions, by using analogies of whether something is actually lost or not, there's still one factor that they choose to ignore. No matter how you look at it, piracy is still theft and under copyright laws, it's still illegal.

I wonder how many would feel the same way, if it was their time, effort, money and other work that went into the development, production and distribution of the "work" and had people stealing their product?

With that said, I certainly don't support SOPA or the Protect IP act. We already have laws that govern the theft of copyrights and I don't need big brother to protect me.

Jerry in Detroit

There is no doubt some people download instead of buying. In other cases, the music or movie is unavailable. Try to buy the Star Wars Christmas Special or the soundtrack for obscure movies. How is IP worth anything if it is not available for sale? It's worthless. Worse yet are debacles like the movie "Sita Sings The Blues". The director used an obscure torch singer from the 30s thinking the music was in public domain. One her heirs showed up and sued for more money than the film was worth. The director finally agreed to hand over all profits then released the film to public domain. The film was pretty much spoiled and no one made any money except the lawyers. It was stupid. A successful film could have rekindled interest in the singer and made money for the rights holder.


Jim, as a person who works pretty heavily in the open source software field, it makes me extraordinarily happy when people copy the work of my associates and I. The more our work is copied, the more popular we become, which in turn opens up massive new opportunities. Right now, our software is used by about a million people. That is INTENSELY awesome. My general opinion, therefore, is that, if I can make a living (and maybe even potentially become pretty well off) while people are using and copying my work for free, then hooray! Does that answer your question?