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Have something you want Kai to explain about the economy? Let us know!

The true costs of online piracy

Adriene Hill Jan 18, 2012
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Adriene Hill: The online encylopedia Wikipedia is blacked-out today to protest the Stop Online Piracy Act. The law is meant to help Hollywood and the music industry prevent illegal use of movies and songs. But we wanted to know how much that online piracy actually costs.

So we’ve called up Joel Waldfogel. He’s a professor of applied economics at the University of Minnesota. Good morning.

Joel Waldfogel: Good  morning.

Hill: So what are the estimates of the cost of online piracy?

Waldfogel: Well there really is a wide variety of estimates, and the reason there’s a wide variety of estimates is because it’s awfully difficult to measure. There’s no simple way to get information on the volume of unpaid activity — and even if there were, there’s this very big challenge of translating that volume of unpaid activity into an impact on paid activity.

Hill: Which is to say that if I download illegally a movie online, that if I didn’t download it illegally, I would go pay for it. Right,  that’s what you’re saying?

Waldfogel: Yeah, exactly. But people who try to look at carefully do tend to find, yes, there is an impact — but a lot of the unpaid activity would never have been paid activity.

Hill: As you listen to the debate right now over the Stop Online Piracy Act and the numbers — these giant numbers thrown out by the music industry and Hollywood — what do you make of the numbers you’re hearing from them?

Waldfogel: The industry does tend to assume that every instance of consumption would have been paid, and so they do tend to come up with big estimates.

Hill: But what about the cost to the people that make this content?

Waldfogel: The deep question is not just what’s happened to the revenue of the content. But if you think about why we have copyright — we have copyright in order to provide incentives to bring new creative works to market. We do have reductions in revenue that are catastrophic for the sellers. We haven’t had sort of a death of new music. It doesn’t appear that we’ve had the bad consequences for consumers.

Hill: Joel Waldfogel is the professor of applied economics at the University of Minnesota. Thanks so much.

Waldfogel: Thank you.

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