Calculating the costs of online piracy

Estimates vary on how much revenue online privacy siphons.

Kai Ryssdal: Whatever winds up happening with those online piracy bills that're the reason so many websites have gone dark today, I can promise you this: As the congressional debate really gets going over SOPA and PIPA -- as they've become known -- we're going to be hearing a lot of numbers, dollar figures for how piracy hurts our economy, and counter-numbers on why it really doesn't.

Stephen Siwek is with the consulting firm Economist Inc., where he spends a lot of time looking at the costs of online piracy. Welcome to the program.

Stephen Siwek: Thank you.

Ryssdal: So help me -- if it's possible at all -- to come up with a number we might use when we're talking about piracy in this context.

Siwek: Well, it's hard to come up with a specific value if you haven't studied the year in question, but certainly you might be approaching $50 billion.

Ryssdal: $50 billion, how do you get there?

Siwek: There are a variety of studies that really lay out what I think is becoming a fairly standardized methodology, which take a cant of survey results. So you can get data on this question.

Ryssdal: Survey results. You go out and ask people whether they bought pirated stuff?

Siwek: Yes, and in fact -- surprising to many of us -- they will tell you. For example, "Yes, I saw and downloaded three pirated movies in the last month." They will admit this.

Ryssdal: And you take that and you extrapolate by the size of a hypothetical market and you get $50 billion?

Siwek: Well, right. Because if you have this question is: "How many legitimate movies would you buy if you couldn't not buy pirated movies?", recognizing that legitimate movies have a positive price.

Ryssdal: I imagine you have to make some assumptions on the data set?

Siwek: Yes, you do. It's a counter factual look at the world but it can't be avoided.

Ryssdal: So we're talking specifically here about intellectual property in these two bills that are going through Congress. But let's say I'm linking to a eBay site of a fake Louis Vuitton bag, I mean do we roll all of that valuation in there too because that's not -- well it is intellectual property, but it's real property too.

Siwek: Most of the work that I've personally done has been at motion pictures, television programs, recorded music -- which would exclude the Louis Vuitton bag. However there are others who have studied piracy but counterfeiting, which extends well beyond handbags into cigarettes and prescription drugs -- all those sorts of things.

Ryssdal: So, that 50 billion number that we said earlier in the interview could conceivable be -- once you through everything in there -- it could be many multiples of that.

Siwek: Well it certainly would be way north of 50 billion.

Ryssdal: Are we ever going to get a number that we can agree on. I mean, as Congress sets about marking up these bills and they say it cost however much to the American economy, will there be a number that's universally accepted?

Siwek: I don't know if there will be a number that's universally accepted. But it is interesting to me how much fighting there is over these precise numbers when I think the more important question is, "Is the order of magnitude right?" No one seems to quibble with the basic existence of piracy. No one says, "There is no piracy." And so it is a question just of measurement. And I think what will eventually happen is there will be a consensus range -- there will never be total agreement on one number -- but in a range in which policy will be made.

Ryssdal: Stephen Siwek at the consulting firm Economist Inc. in Washington, D.C. Mr. Siwek, thank you very much for your time.

Siwek: Thanks so much.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
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I too find the metrics used and the assumptions made in coming to the conclusions reached by Mr. Siwek dubious. In addition to the article Todd mentions from Ars, there is direct analysis of Mr. Siwek's methods in a recent post by the Cato Institute (http://www.cato-at-liberty.org/how-copyright-industries-con-congress/ and http://techliberation.com/2006/10/01/texas-size-sophistry/) I was disappointed that Mr. Ryssdal, whom I respect and listen to almost daily, did not ask harder questions of Mr. Siwek, or bring up any of the issues addressed in these two articles. In my mind, the main job of journalist is to present all salient details about the subject in order for the reader/listener to make a judgement, and I believe that did not occur here.

I agree with most of the comments above.

The other glaring thing missing from your interview is that there is no discussion of the benefits to the economy of the sharing and use of works of art on the internet. If you are doing an economic analysis, do an economic analysis. Costs without benefits is either just propaganda, or amateurish.

If you want to argue that there is an ethical reason to do something, then make that argument. The economic argument should be based on fact. Especially when throwing around terms like "cost to the economy". The cost to the record companies, even if substantiated, is not equivalent to the cost to the economy.

Echoing the comments made by Greg L., it's not about the cost of piracy. Rather, it's the methods being proposed to solve it. While this may not be 100% accurate, let's try and apply what's being opposed to another form of media: television. Imagine that CBS airs a commercial for "Company A" that mentions "Brand X" available at "Store Y." Someone watching the commercial goes to Store Y looking for Brand X. When they get to the shelf with Brand X products they happen to notice that Brand X also has/makes what appears to be counterfeit products. Would CBS be responsible for the counterfeit products being sold by Brand X at Store Y? Would CBS have to stop airing all commercials for Company A? Would all credit card companies have to stop accepting all transactions from all Store Y's because one of them may have an alleged counterfeit product on their shelf? Further, could all of this be done based on the word of one individual or entity, without proof or legal action? This is what we are protesting about: not the cause, but the solution.

Come on, do a LITTLE research! Don't just present these ridiculous figures as fact.

The study done by Economists Incorporated was one of at least eleven paid for by the MPAA and RIAA through the International Intellectual Property Alliance. The results are horribly skewed to make piracy look much more costly that it is.

If you refuse to get the proper figures, you should at least disclose that the numbers were paid for by Hollywood and the recording industry.

Coming up with a dollar figure showing how much money is being lost to piracy—however large—misses the larger issue of how the legal schemes being hatched, ostensibly to protect copyright, are restricting public, non-commercial access. Is it too cynical to suggest that companies might have an ulterior motive for going after non-profit sites like Wikipedia for a download page link to an illegal site? What’s next, going after public libraries for the threat of competition they pose to private booksellers? We’re already at a point where computer software is designed to protect copyright interests at the expense of personal privacy and non-commercial use of one’s own music: I don’t download anything, but was once locked out of my entire music library except that I go on-line to “authenticate” everything. That’s tantamount to someone coming into your home and demanding receipts for all your furniture. The current legislative effort to regulate content on the Internet to “protect businesses from piracy” just has to be nothing more than a backdoor effort to make users "pay to play." Commercial interests can't stand the idea of people going directly to Wikipedia or Craigslist and getting content-free information devoid of ads and spin, so they've dreamed up a way to get at free sites like Wiki and destroy them financially (with a lawsuit, when they happen to violate some vague proprietary rule). Also, I would like to know if the figures thrown around for losses to piracy are based on all music and video downloads (potential loss), or just those that are actually used for commercial exploitation. Does music or video shared with friends count as pirated?

OMG. Two awful reports on MP on SOPA/PIPA/Piracy TWO days in a row. Did the MPAA/RIAA spoon feed you this guy? No challenging his numbers or his methodology.

So which is it? The $775B number your colleague mentioned yesterday or the $50B this guy mentions.

Now how about getting Cory Doctorow (boingboing.net) or Julian Sanchez from Cato for a contrary opinion?

Is 50 billion the right order of magnitude? Looking at the the 2011 Fortune 500, the largest entertainment company had revenue below 40 billion. All of the companies that made the list had combined revenue of less than 150 billion.

Kai - I listen to your progam daily, however this time I was disappointed in your guest. His methodogy is questionable ...is he unbiased or is he working for the industry that has a vested interest in seeing the piracy numbers large?

From the article : http://arstechnica.com/tech-policy/news/2010/04/us-government-finally-ad...

"The government concluded that "most of the experts we interviewed" were reluctant to embrace Siwek's methodology; his approach comes from the Commerce Department, but it simply wasn't designed to measure what's being measured here. For instance, these studies ignore the obvious points that pirating goods leaves consumers with more disposable income, which is likely spent elsewhere in the economy. Effects on the economy as a whole, then, are terribly speculative and seem more likely to be simply redistributive."

The media industry has a vested interest in this number being large. It assumes that all the pirated media would have been bought legitimately if piracy was ended. How often does the buzz created by broke college students who wouldn't have bought the media, turned into more legitimate sales. In the case of pirated software, often the pirated program used to work at home means pressure to buy the corporate license at work. Again, the home software just wouldn't be sold and the employees then just wouldn't care which one is used.

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