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. 


jaime

Okay but how does piracy impact artists? Does it mean fewer artists can create music, literature etc? So, does it contribute to a sort of culture void at a certain level? I mean, you can find pleny of amateur (even great) work on the web but how is art/culture impacted when artists cant make a living (even a paltry one) off their work? What i am wondering is, piracy must have some "cost" somehow, maybe not an obvious one but a cost nevertheless. Although it's true im not quite sure what it is, i feel something is lost.

Julian Sanchez

Actually, yes; the past decade has seen a substantial spike in concert revenues, largely offsetting the corresponding decline in physical media sales.

And whatever issues folks coming from different ideological perspectives may have with Cato, the beauty of the Web is that you can always click through to the primary data source and make the more granular call about whether we're reliable on THIS issue.

LAZtheinfamous

I think that piracy is only an issue because people are still holding onto an outdated ideal of copyright and IP. Ideas cannot be bought or sold, nor can a performance. A concert is merely renting a seat for a few hours, a book is a collection of paper, a DVD is a plastic disk. The contents falsely inflate the price. The internet has made the free exchange of ideas which includes music, movies, and stories possible in a way that was unthinkable even 20 years ago.

Trying to enforce these outmoded ways of making money off of ideas is silly. It will take more money, time, effort, and intrusion into people's privacy then most law enforcement offices will want to deal with. It would require another body just to deal with it. Even then it will be almost unenforceable, (with the mandatory metaphor) a bit like someone urinating on street corner on St Patrick's day. The police will arrest you if they find you doing it, but none are going to bother investigating it.

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James

I think someone should ask how much the effort to stop internet-based audio & video piracy is going to cost those of us who use the internet for other purposes. I can honestly say that I've never downloaded music or video, pirated or purchased, yet I use the internet every working day.

Weaver

I download and if I like it, I buy it. Many others do the same.
There is an interesting psychological idiosyncrasy here.

If you *really* like something, you want to possess it for yourself and there's only two ways you can do that.
Create it yourself or buy somebody else's creation.

Download and burn doesn't accomplish this.

mfw13

One cannot have a informative discussion of piracy without addressing its' root cause, namely the overpricing of goods by the owner of the intellectual property. There would be no demand for pirated goods, for example, if they were not significantly overpriced by their owners. So that extent, pirating of intellectual property is simply a normal market response in which buyers seek to find goods for sale at the price they are willing to pay and suppliers come into existence to provide supply at that price level.

Elimating piracy doesn't require legislation...it require property owners to be a little less greedy and sell their goods at the price which buyers are willing to pay. For example, if Harry Potter DVD's were priced at $5 each instead of $20-30 each, demand for pirated versions would likely disappear overnight.

Victor

Copyright, in what for shape or form, always slows economic growth. You enable micro monopolies, and monopolies overcharge and underachieve. The free exchange of culture, thought, invention and ingenuity is the ultimate driver of economic wealth and human wellfare, and the entertainment industry is no exception.

SAO

I live in Russia and here, if the movie is released promptly, at an affordable price, people buy it rather than pirate it.

Pirating of American e-books is pretty rampant, since most of them aren't sold in a way Russians can buy them. I think most people feel that if they can't legitimately buy something, downloading a pirate copy isn't harming anyone. But, the industry statistics count it as a lost sale.

They also assume everyone who buys a pair of cheapo "Nike" slippers sold on street corners for a buck or two would otherwise have gone to a store and paid 25$ for them if the street corner vendor wasn't there.

In reality, the picture is different. The country's biggest chain of phone stores offers Motorola phone batteries at two prices. The salesman was perfectly happy to explain that the half-price one was a fake from China. They looked identical and the store was selling both. No one was fooled as to what they were buying.

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