No one disputes very seriously that there is a lot of content piracy going on, especially online.
The hip-but-surprisingly hidebound music industry lost it's booty during the late '90s and early 00s after Napster, KaZaa, LimeWire, Morpheus and half a dozen other fixed and P2P ad hoc file-sharing networks turned music appreciation into an all-you-can eat buffet rather than the budget-busting one-course tapas restaurant it had been when music publishers controlled both price and distribution.
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The movie business didn't take quite as big a hit, mainly because its distribution people spent more time looking for new sources of revenue and venues for their products, rather than trying to hunt down every potential customer who'd ever used the product for free, as the music business' RIAA copyright-enforcement thugs did.
The movie business never got in as much trouble as the music business, largely because it was able to find lots of other outlets through which to sell movies – cable TV, Netflix and other online services, ISPs, hotel-TV-movie services, Blockbuster, Red Box, yada, yada.
Still, the numbers quoted by both music and movie companies and their lobbyists are not only unrealistic, they're almost impossible, completely indefensible and based on three major government studies that may never have existed in the first place, according to Julian Sanchez, research fellow at the conservative Cato Institute, who has analyzed and written about the loss-estimates several times.
For years the entertainment industry has cried poor mouth on the whole piracy issue by citing government studies estimating pirated content costs the U.S. between $200 billion and $250 billion per year in revenue and kills 750,000 jobs.
Except, Sanchez found while trying to verify the numbers, the studies from which those numbers came can't be found even by the government agencies that first cited them and may never have existed at all.
The 750,000 jobs figure can be found cited by the U.S. Department of Commerce, Customs and Border Patrol, and the U.S. Chamber of Commerce, among others. Both feature prominently on TheTrueCosts.org, an industry site devoted to trumpeting the harms of piracy. They're invoked by the deputy director of the U.S. Patent and Trademark Office. And, of course, they're a staple of indignant press releases from the congressional sponsors of tough-on-piracy legislation. …Try to follow the thread of citations to their source, and you encounter a fractal tangle of recursive reference that resembles nothing so much as the children's game … "Telephone." Usually, the most respectable-sounding authority to cite for the numbers (the FBI for the dollar amount, Customs for the jobs figure) is also the most prevalent—but in each case, that authoritative "source" proves to be a mere waystation on a long and tortuous journey. – Julian Sanchez, ArsTechnica, 2009
The problem of basing public policy on facts that exist only in partisan fantasies
According to a Government Accountability Office (GAO) report published in 2010, all the estimates on which pro-SOPA forces based their numbers – which became the justification for SOPA and PIPA – are from studies no one can find.
Though both the FBI and Customs and Border Protection are cited as primary sources of the studies – because, presumably, they'd paid to have them done and then published the results – it turned out that neither agency had ever done such a study and had no idea where the numbers came from.
In each case the first use of the figure was in a speech and press release put out by the agency – the FBI's in 2002 – with a vague reference to the origin of the figure.
When even the source every citation references as the originator of a piece of data has no idea where it came from and denies ever funding studies that might have come up with those estimates, the odds that the data are anything but a chimera begin to grow.
The most likely origination for both numbers, according to the GAO report, was that someone from the FBI or CBP used the figures in a speech, quoting or misquoting numbers without an accurate citation that would make fact-checking possible.
Even taking the numbers at face value they have almost nothing to do with real losses by the industry, Sanchez wrote.
The $250 billion figure referred to the total market for all confiscated goods sold anywhere in the world during one year. The bulk of those products are physical, not content. Designer clothes, shoes, furniture, art, perfume, cars, electronics, pharmaceuticals.
Not only does digital content make up only about three percent to four percent of the total volume of counterfeit items sold every year, both the content and volume are almost irrelevant compared to the danger of counterfeit pharmaceuticals and the rich market for fashion knockoffs.
The entertainment industry adjusted its position and its figures, estimating losses of only $58 billion per year rather than $250 billion.
Even that figure is buschwa, according to Sanchez.
It comes from paper released by the Institute for Policy Innovation, a commercial research organization that does custom studies for clients similar to the RIAA, MPAA and other organizations trying to influence national policy to favor themselves.
The problem isn't who conducted the study, though, it's in how it almost randomly established a theoretical flow of goods that allowed researchers to assume that every time a piece of pirate content changed hands – even when it was being mirrored from one server to another or downloaded accidentally.
Adding the full list value of a product none of the players in the chain of possession would have paid for is inaccurate at best, disingenuous at worst.
Though Sanchez and others have debunked the figures, they still turn up in industry press releases and in Congressional fact sheets, he wrote.
Eventually the MPAA dropped its loss estimate even further, to $6.1 billion if you cut out the fallacious multiplier. Even that figure is in question, though, because no one can find that original study either, and the number itself refers to global piracy of movies. The amount that can be pinned on U.S. consumers is actually about $446 million – "which, by coincidence, is roughly the amount grossed globally by Alvin and the Chipmunks: The Squeakquel," Sanchez wrote.
So how much money has piracy actually cost the music and movie businesses?
The best estimates of actual behavior – the ones that factor in how often a customer would have bought a movie or piece of music that was obtained for free illegally – predict the user would have paid for the content only about one time in five. The other 80 percent of the time, if the content had cost anything at all, the pirate wouldn’t have bothered, Sanchez concludes and the GAO confirms.
So even the lowest estimates of the total amount lost by the entertainment industry to content piracy are overstated by about 80 percent.
That's not the $250 billion figure, it's $446 million, at least for movie content. That puts the total loss to the entire movie industry in the U.S. due to content piracy at $89 million.
Sanchez estimates the cost of enacting, administering and enforcing SOPA would be in the range of $47 million.
So, even under the most ideal conditions and assumptions that SOPA will actually stop some content piracy (it won't), that the U.S. would have to spend 53 cents on enforcement for every dollar saved for the movie industry.
That's a pretty high cost to slow the distribution of Alvin and the Chipmunks: The Squeakquel (though if I thought spending $47 million on prevention would keep me from having to sit through the thing I'd consider it a bargain).
What was that again about the main studies not existing?
I'm not a complete purist about research and surveys, but I have studied enough and worked with enough of them to realize how easy it is to warp even the best-intentioned research so that it offers clear, unequivocal evidence of something completely wrong.
I've never seen a set of studies cited so often and used so heavily as key evidence for so long without any of the principles checking back to try to get a copy of the original research.
It's a flamingly unsupported conclusion, but I have to assume more than one person within RIAA, MPAA or other organizations did go look for the research, but didn't raise a flag when they couldn't confirm the data.
I can't think of any other reason associations representing two very sophisticated, aggressive industries would stick with and defend information that has clearly been debunked, even after using the data in those reports to justify their own public policies since as early as 1991. That's a long time to rely on fake data as an excuse to press the national legislature, national law-enforcement agencies, international trade organizations and their customers to make big changes to laws, lifestyles and rights protected in the Constitution just to repair what turns out to be inconsequential and possibly non-existent damage to industries that carry well-earned reputations for sharp, often exploitive dealing with suppliers, artists, partners and customers.
Clearly the entertainment industry doesn't need help with its piracy problem. It needs help with its poor grasp of math.
Here's part of the summary of the GAO report on where all that supposed research went:
First, a number of industry, media, and government publications have cited an FBI estimate that U.S. businesses lose $200-$250 billion to counterfeiting on an annual basis. This estimate was contained in a 2002 FBI press release, but FBI officials told us that it has no record of source data or methodology for generating the estimate and that it cannot be corroborated.
Second, a 2002 CBP press release contained an estimate that U.S. businesses and industries lose $200 billion a year in revenue and 750,000 jobs due to counterfeits of merchandise. However, a CBP official stated that these figures are of uncertain origin, have been discredited, and are no longer used by CBP. A March 2009 CBP internal memo was circulated to inform staff not to use the figures. However, another entity within DHS continues to use them.
Third, the Motor and Equipment Manufacturers Association reported an estimate that the U.S. automotive parts industry has lost $3 billion in sales due to counterfeit goods and attributed the figure to the Federal Trade Commission (FTC). The OECD has also referenced this estimate in its report on counterfeiting and piracy, citing the association report that is sourced to the FTC.However, when we contacted FTC officials to substantiate the estimate, they were unable to locate any record or source of this estimate within its reports or archives, and officials could not recall the agency ever developing or using this estimate. These estimates attributed to FBI, CBP, and FTC continue to be referenced by various industry and government sources as evidence of the significance of the counterfeiting and piracy problem to the U.S. economy. – Government Accountability Office, Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods, April 12, 2010
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