Last year, Techdirt reported on the approval by the European Parliament of the Gallo Report, which calls for harsher enforcement of intellectual monopolies. Although the Report has no legal force, it's important, since it functions as a framework for future legislation in this area. And now the eponymous French MEP Marielle Gallo is at it again, with her new "IP Forum":
One of the favorite assumptions of industries based around copyright used to be that every pirated copy is a lost sale. More recently, that rhetoric has been moderated somewhat, as a review of the area in the report "Media Piracy in Emerging Countries" shows, but a variation of that fallacy lives on, expressed now as vague "losses" caused by piracy.
Last week we learned the UK government has precisely no evidence to support its plans for stricter copyright enforcement, which include disconnection upon repeated accusation. Instead, the best it could come up with was:
One of the most important recent pieces of research to appear in the field of copyright and its enforcement was "Media Piracy in Emerging Economies". If you haven't read it, please do so now - I'll wait...
The author of that study, Joe Karaganis, has now penned perhaps the best short explanation of why Europe's policy on strong enforcement of copyright does not make economic sense:
where do the EU’s economic interests lie? Let’s look at the numbers:
*** According to the World Bank, Europe’s audiovisual imports exceed its exports by a ratio of around 4-1. In 2008, Europe (EU 27) imported roughly $14.7 billion in audiovisual and related services (basically, licenses for movies, TV, radio, and sound recording). In contrast, it exported about $3.9 billion, for a net trade deficit of $10.8 billion (International Trade Statistics 2010: 156).
*** About 56% of those imports ($8.35 billion) come from the US. The EU, in turn, exports about $1.7 billion to the US, resulting in a net negative trade balance of around $6.65 billion. This does not include software licenses, where US companies monopolize larger parts of the European consumer and business markets.
*** The US, in contrast, is a large net exporter of audiovisual goods, with roughly $13.6 billion in exports and $1.9 billion in imports.Therefore:
For countries or regions that are net importers of copyrighted goods, higher IP standards and stronger enforcement will result in increased payments to foreign rights holders. Because the US thoroughly dominates European audiovisual markets, stronger enforcement in these areas is, in practice, enforcement on behalf of Hollywood.So pirating of US audiovisual products actually reduces the outflow of money from the European economy. Ah, yes, the industry pundits will retort, but what about the loss of revenue due to pirating of copyright works that circulate purely within the EU?
Domestic piracy may well impose losses on specific industrial sectors, but these are not losses to the larger national economy. Within a given country [or in this case, region], the piracy of domestic goods is a transfer of income, not a loss. Money saved by consumers or businesses on CDs, DVDs, or software will not disappear but rather be spent on other things—housing, food, other entertainment, other business expenses, and so on. These expenditures, in turn, will generate tax revenue, new jobs, infrastructural investments, and the range of other goods that are typically cited in the loss column of industry analyses. To make a case for national economic harms rather than narrower sectoral ones, the potential uses of lost revenue need to be compared: the foregone investment in the affected industries needs to represent a better potential economic outcome than the consumer surplus generated by piracy (Sanchez 2008). The net impact on the economy, properly understood, is the difference between the value of the two investments. Such comparisons lead into very complicated territory as marginal investments in different industries generate different contributions to growth and productivity. There has been no serious analysis of this issue, however, because the industry studies have ignored the consumer surplus, maintaining the fiction that domestic piracy represents an undiluted national economic loss.This is a point I've made elsewhere, and which is almost universally overlooked in analyses of the economic impact of piracy.
For our part, we take seriously the possibility that the consumer surplus from piracy might be more productive, socially valuable, and/or job creating than additional investment in the software and media sectors. We think this likelihood increases in markets for entertainment goods, which contribute to growth but add little to productivity, and still further in countries that import most of their audiovisual goods and software—in short, virtually everywhere outside the United States.
It’s this junior partnership that should be weighed against the wider sacrifices of privacy and freedom of speech built into so many recent national and EC-level IP enforcement policies, such as the French ’3-strikes’ plan, which will cut French citizens off of the Internet for the piracy of Hollywood productions. Strong enforcement reinforces status quo positions in the market, but at an escalating public cost as consumer behavior becomes the real focus of enforcement activities. There is nothing in these policies will alter the balance of cultural power or change the direction of payments. That’s why I’ve characterized the EC enforcement plan as: “send money to the US.”
Moralizing IP rhetoric is also a handicap in this context. Continuing to defend IP as a fundamental right long after it has been made an object of trade policy is to surrender any real leverage in making deals. A trade negotiator would be very lucky have such a partner on the other side of the table.And that's precisely what the US has in Europe, not least thanks to Sarkozy, who has been the main proponent of Europe's counterproductive copyright infringement agenda. The key statement of that topsy-turvy policy was made by him during the global joke known as the e-G8 meeting:
I know and understand that our french conception of author’s rights isn’t the same as in the United States or other countries. I simply want to say that we hold to the universal principles proclaimed in the American constitution as much as in the Declaration of the Rights of Man in 1789: that no one should have the product of their ideas, work, imagination–their intellectual property–expropriated with impunity.
Each of you understands what I say here because each of you is also a creator, and it is in virtue of these creator’s rights that you have founded businesses that today have become empires. The algorithms that give you your strength; this constant innovation that is your force; this technology that changes the world is your property, and nobody contests it. Each of you, each of us, can thus understand that the writer, the director, or the performer can have the same rights. – French President Sarkozy, opening the ‘e-G8? conference that he convened this past April.As Karaganis points out:
With this fulsome praise of tech and media CEOs at the e-G8, Sarkozy expressed the basic European cognitive dissonance on IP: the embrace of universal rights as a way of pretending equality with the real powers in the room.The rest of his piece looks at how Europe ended up in this position where it would be arguing strenuously for an approach that was against its own best interests. As such, it provides invaluable context for today's moves, and should be read by anyone wanting to understand them - and to counter them.
After the UK Government unveiled its pretty reasonable response to the Hargreaves Report (analysed by me yesterday), the lobbying begins:Leading trade bodies for the film and music industries have warned the government that it must move quickly to implement an effective system to crack down on pirate websites, after Vince Cable announced that plans to block illegal file-sharing websites have been scrapped.
Geoff Taylor, chief executive of music industry body the BPI, said the government must urgently broker a deal between internet companies and rights holders to implement a fast-track procedure to crackdown on piracy or "a failure to do so will see some of this country's world-leading industries irreparably damaged on this government's watch".
"Every day blatantly illegal foreign sites flout our laws, rip off consumers and musicians and wreak huge damage on our creative sector," he said. "Government must now act urgently to put in place effective means to protect consumers, creators and UK jobs from the impact of illegal foreign sites".
Geoff, I think you missed this bit in the Government's response:the Government will in future give limited weight in IP policy-making to evidence that is not sufficiently open and transparent in its approach and methodology, and we will make it clear where we are taking this view. IPO will set out guidance in Autumn 2011 on what constitutes open and transparent evidence, in line with professional practice.
So, you say "illegal foreign sites...damage our creative sector": let's see your evidence, including full data and details of its methodology. So far, I've not found a single, independent report that shows this - indeed, the Hargreaves team specifically lamented the lack of this kind of objective research into the effects of file sharing in their report.
You see, the interesting thing is that there is an increasing number of studies - some anecdotal, some more rigorous - that show exactly the opposite: that piracy actually drives more sales (I include links to a few of them in my submission to the Hargreaves enquiry.)
So before you start calling for piracy to be curbed, it might be a good idea to sort out the evidence you will be submitting in support of that: rhetoric on its own is no longer enough. After all, if you find the studies I cite are confirmed by others conducted elsewhere, perhaps on a larger scale, you should actually be calling for *more* piracy, not less....
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FAST - "Federation Against Software Theft" - is manifestly one of the more risible copyright organisations, since it doesn't even know the law (it's not "theft", it's "copyright infringement" - quite different, because nothing is stolen in these cases.)
Since that is what they are paid to do, its PR company keeps sending me FAST's press releases, which I studiously ignore since they are uniformly ridiculous. But its latest missive is so indicative of what the problem is with the copyright industries, I feel obliged to share part of it (sadly, it's not yet online - I'll add it if and when it appears.)
It's about Newzbin 2, which it inaccurately claimsaggregates a large amount of the illegally copied material found on Usenet discussion forums.
Of course, there's no aggregation whatsoever, just links: Newzbin 2 is a search engine, like Google. Clearly FAST has the same problems understanding that distinction as it does with the difference between theft and copyright infringement.
But the best bit comes towards the end:
Our stance has always been one of carrot and stick – ensuring that customers are educated on the economic impact of piracy as well as advocating compliance with the law protecting creators.
Except, of course, there is no carrot there, just propaganda and threats. And the propaganda is wrong: as I - and others - have noted, there's growing evidence to show that piracy actually boosts sales.
This neatly sums up the problem with the copyright maximalists. Rather than focussing on giving customers what they want - easy access to digital products at reasonable prices - they spend all their time focussing on the stick. Little wonder, then, that the current "victory" in the courts will prove as hollow as all the others, because there is still no "carrot" being offered as an alternative...
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Since Apple has replaced Microsoft as the leading patent-wielding cheerleader for closed-source computing, it will come as no surprise that I have no intention of providing a rapturous run-down of yesterday's wondrous announcements. But there is one aspect I'd like to explore, because it has interesting wider implications.
On Open Enterprise blog.
One of the central arguments I and others make is that piracy is actually *good* for media producers in all sorts of ways (there lots of links to examples in my submission to the Hargreaves enquiry.)
The content industry has simply refused to consider this possibility, because it would undermine all its arguments for harsher enforcement of copyright - even though it might help them to make more money (it seems that control is more important than cash...)
Against that background of pig-headed refusal to look at the objective facts, news of an imminent announcement by Apple of a cloud-based music service could be rather significant:Apple no doubt has paid dearly for any cloud music licenses, and it's unclear how much of those costs it will eat or pass on to consumers. One possibility would be to bundle an iCloud digital locker into Apple's MobileMe online service, which currently costs $99 a year and synchronizes contacts, e-mail, Web bookmarks, and other user data across multiple devices. Users will be able to store their entire music collections in the cloud—even if they obtained some songs illegally. That would finally give the labels a way to claw out some money on pirated music.
I think this could be an important moment: it would suddenly give the recorded music industry an incentive to accept, if not actively encourage, piracy, because it would effectively be marketing for the new service (and for others that will doubtless come along based on the same idea.)
This, of course, is what some of us have been saying all along; but if it takes Apple to get this idea into the heads of the music industry, so be it. The main thing is that we need to move away from the current obsession with repressive "enforcement" measures that will cause huge collateral damage to freedom and society, as the chilling calls for a "civilised" (as in locked-down, monitored and corporatised) Net at the recent eG8 circus made only too clear.
Let's just hope that the labels don't manage to snatch defeat from the jaws of victory on *this* one, too....
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Reports on piracy are like buses: you wait for ever, and then three come at once. In a way, that's not surprising. To begin with, the content industries thought they didn't need to bother with facts, and could simply define the debate with their ex cathedra pronouncements. And that worked for a while, because naive politicians seemed to believe them.
But then a few ill-mannered types pointed out that the Emperor had no clothes, and so, to back up their claims, the copyright maximalists commissioned a few reports that did, amazingly, back up their claims. And then the troublemakers (oh, that would be people like me) actually took the, er, trouble to read the reports in detail, and to check the methodology, only to find that both were pretty worthless: based on extremely naive assumptions, or simply ignoring important parts of the picture.
Worse, research started emerging that piracy really wasn't that much of a problem (lots of links in this submission to the IPRED consultation - BTW, I do hope you've submitted yours, since today's the last day...)
The obvious response to this turn of events is to commission yet more research that's a little bit more rigorous, but that still comes up with "right" answer on piracy. The danger is that this is precisely what the "The European Observatory on Counterfeiting and Piracy" is up to here:Much of the EU’s output is not the work of officials but rather of thousands of firms contracted per project. Tender reference MARKT/2010/03/D requested proposals for:
A study to assess the scope, scale and impact of counterfeiting and piracy in the internal market, through a defined methodology for collecting, analysing and comparing data.
This study will be the flagship publication of the European Piracy and Counterfeiting Observatory. The tender process concluded in December and the winner was announced in January: the RAND Corporation (UK), and they will be paid half a million euros for their labours.
That same blog post has a good explanation of why we have reasons to be worried:Their selection warrants unease because although they would not be regarded as IP specialists, they do have form: in 2009, their US organization produced a lengthy report ‘Film Piracy, Organized Crime, and Terrorism’. This study was financed by the Motion Picture Association, and much of the documentation compiled was assembled by a consultant on ‘organized crime’ employed by the MPA. RAND did at least disclose the relationship with a vested interest.
...
A reading of the document leaves one in no doubt that it’s primary objective is to convince the public that ‘piracy and counterfeiting is not a victimless crime.’ As a result the frame through which the subject is analysed is one where these activities are basically just the work of gangs, which need to be deterred, requiring more enforcement resources and tougher sentences -. it’s sort of the square-jawed GI Joe school of IP policy, in a comic book universe of make-believe economics.
So, how can we little people - the ones that are actually paying for all this work, but that are never allowed to provide any input - head off this danger of a biased, misleading report emerging from RAND Corporation?
I think the only way is to starting making noises about the fact that it *might* be biased and misleading, so that those preparing it at RAND Corporation know that we are watching them like proverbial hawks, and that we will assuredly tear their methodology to pieces when it comes out, and will thus be certain to find - and brandish - the slightest lack of rigour or bias therein.
Got that, RAND Corporation people? Excellent.
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As promised, I append below a near-final draft of my response to the European Commission's consultation on IPRED. Once again, I urge you to submit something if you possible can - this is deeply wrong-headed stuff that needs fixing if openness and freedom are to thrive online.
On Open Enterprise blog.
An extremely feeble article in the Guardian parrots the recording industry's line that piracy is killing music:Global recorded music sales fell by almost $1.5bn (£930m) last year as digital piracy continued to take its toll on the industry, with the UK losing its mantle as the third-largest music market after "physical" sales of CDs collapsed by almost a fifth.
Sorry, I think I missed the proof that this fall was *caused* by piracy: any evidence? No, I thought not. Whereas there is growing research that unauthorised sharing actually increases sales (see the list of examples and links in this post.)
Perhaps the problem is rather that the sales being driven by this unauthorised sharing just aren't being generated fast enough to compensate for the overall decline in the recorded music industry. After all, there's nothing that says it must always grow. Maybe people are just fed up with its antics now that there are plenty of other kinds of music available (under cc licences, for example.)
In fact, there's a rather telling graph that the IFPI has kindly provided. It shows, of course, the decline in total sales of recorded music, breaking it down by "physical", "digital" and "recorded rights". The last of these is pretty much constant, while digital is growing at a modest pace.
But as is so often the case, this graph tells us something quite different from those "obvious" figures - and something rather interesting: that digital sales didn't really exist before 2004.
Thank about it: it took five years after Napster was created before the recording industry finally began to acknowledge the existence of a revolution whose inevitability was obvious to anyone who had spent a few hours online. Is it any wonder that people got fed up with the exorbitant pricing and inconvenient packaging of CDs, and despaired of ever being treated fairly with reasonably-price downloads?
In effect, it was the industry's pig-headed refusal for half a decade to sell people what they wanted that has driven users away. If some - even many - of them turned to unauthorised downloads, is it really any wonder? So before we blame the pirates, how about a word or two for the owners of those heads?
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One of the striking features of reports purporting to estimate the “damage” caused by piracy - both of software and content - is that without exception, as far as I can tell, their numbers and methodology simply do not withstand close scrutiny.
The trouble is, when it's a question of lone voices like mine or even that of Techdirt's Mike Masnick, probably the most dogged debunker of piracy FUD, the content industries can ignore such posts, presumably in the belief that our quick analyses somehow don't count.
But that's not possible when the same points comes from a respected organisation like the Social Science research Council, “an independent, nonprofit international organization founded in 1923”, especially when they appear in a meticulously-researched 400-page report:
On Open Enterprise blog.
So the publishing dinosaurs have got together and produced an egg: The Berlin Declaration on the Future of the Digital Press.
Unfortunately, as you probably guessed, this is backward- rather than forward-looking. Try this, for example:It is recognition of copyright which fundamentally underpins investment in editorial content. It enables publishers to make quality works available, whilst providing a framework to secure remuneration for their investment and the sustainable delivery of creative content. Providing new exceptions in this field would therefore represent a direct threat to publishers’ economic sustainability and their ability to respond adequately to digital challenges. Digitization has not reduced but increased the need for the protection of copyright.
Do you detect a sense of desperation here? The idea that there might be the teensiest rolling back of the copyright ratchet through "new exceptions"? Because, of course, the current copyright framework is working so well online, as is the increasingly deranged enforcement legislation designed to "support" it, that we shouldn't dare tinker with it. The idea that it is precisely because copyright is dysfunctional online that publishers are finding themselves in trouble obviously never entered their minds.
The next bit is fun, too:The different possibilities to utilize content on the internet and via tablets make it very easy for third parties, like aggregators, search engines and pirate sites, to use publishing houses’ creative content for free, without authorization and remuneration of the publisher. It is thereby one of the most important tasks of copyright to draw the line between the widely permitted reference to content of third parties and the unauthorized re-use of such content, which is prohibited.
It's interesting to see the flip-side of publishers' ridiculous obsession with tablets. Alongside the hope that they will be the salvation of the industry (newsflash: they won't) there is also a fear that somehow they will make things worse (well, no, not really.) Again, this is indicative of the fact that the publishers don't really have a clue when it comes to the digital world, and over-emphasise surface details like the tablet while overlooking key trends like the arrival of digital abundance.
To be fair, there is one point in their declaration that is absolutely right:The future of the European press strongly depends on the ability of publishers to monetize their digital editions. Therefore the EU should allow Member States to extend their reduced - including the possibility of zero % - VAT rates to the digital press.
One of the things that I learned when I went along to a roundtable discussion of the UK Independent Review of "IP" and Growth was that ebooks are subject to VAT, whereas physical books aren't. That's partly - but only partly - why ebooks are more expensive than you would expect.
I think the publishing industry is spot on here: VAT rates should match those for physical books, and ideally be set at zero. As for the other points of the declaration, they certainly do declare the publishers' positions, but probably not in the way that was intended.
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I've noted elsewhere that there is a major piece of FUD being put about by content producers: that piracy causes massive damage to a country's economy. But as that post explained with regard to the BSA's claims about the harm of software piracy, here's the reality:Reducing software piracy will not magically conjure up those hundreds of billions of dollars of economic growth that the BSA invokes, or create huge numbers of new jobs: it will simply move the money around - in fact, it will send more of it outside local economies to the US, and reduce the local employment.
The basic idea is really pretty simple to understand. When people make unauthorised copies of content or software, they save money. But that doesn't mean they put it in a bank: human nature being what it is, that money is generally spent elsewhere in the local economy.
And yet despite the simplicity of this crucial idea, report after report seems to have difficulty grasping it. Here's another [.pdf], this time on film piracy, put together by UK Ipsos MediaCT and Oxford Economics for AFACT (the Australian Federation Against Copyright Theft). The top-line "results":6,100 Full Time Equivalent (FTE) jobs were forgone across the entire economy (equivalent to more than six times the number of job cuts announced by Telstra in October 2010) including nearly 2,300 forgone directly by the movie industry and retailers. These impacts of piracy on employment persist as long as piracy persists.
Allowing for effects on other industries, some A$1,370m in Gross Output (Sales) was lost across the entire Australian economy.
This was equivalent to a loss of GDP of A$551m across the Australian economy – reducing national economic growth and Australia’s ability to invest in its future.
Tax losses are A$193m, representing money that government could employ for other social uses in areas such as education and healthcare.
What's sad is that the report does try to make reasonable assumptions about piracy:We do not assume that every pirate version equates to a lost sale.
We do allow for ‘sampling’ - those who see an authorised version subsequent to the pirate version are not treated as contributing to lost revenue. In fact, we make the very cautious assumption that no lost revenue results from piracy if any authorised version is seen subsequently.
We do allow for ‘over-claim’ – we apply a ‘downweight’ to those claiming they would have paid for an authorised version (had the pirate version not been available).
But this laudable attempt at rigour is completely undermined by the fact that nowhere in the report is there any recognition that all this "lost" money does *not* disappear, but is simply channelled elsewhere in the Australian economy, where it might actually create more jobs than it would if spent on films (because of revenue outflows to the US, and the fact that local money would be spent on more labour-intensive industries like retailing or catering.) Similarly, it *does* produce tax revenue for the Australian government, just from different sources.
It would be far more conducive to producing an honest debate about the *real* effects of unauthorised copies on national economies if these key facts were included for a change; by continuing to ignore them, these misleading and one-sided reports amount to little more than industry propaganda.
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As I've noted before, one of the tricks used in the current ACTA negotiations is to blur the lines between counterfeiting and piracy, and to switch between the two whenever it suits the argument. So it's no surprise that a conference bringing together many intellectual monopoly maximalists, the grandly-titled "Global Congress Combating Counterfeiting and Piracy", used the same trick.
The emphasis is very much on the frightening "big numbers" of counterfeiting:the problem of counterfeiting is growing, which is illustrated by a report on challenges facing the world in 2011, which was recently published by Robert Greenhill from the World Economic Forum. The report says that the illegal economy, corruption, and organized crime all work together to the detriment of society. It estimates the total value of counterfeits in the world to be $360 billion, including $200 billion in counterfeit medicines and $50 billion in counterfeit cigarettes. There is also $60 billion worth of pirated videos. This lessens the economic competitiveness of many countries.
Even if we accept what are probably inflated numbers, the last sentence is simply wrong. Countries where counterfeits are widely sold may damage themselves in the long term through fake medicines, but in the short term they keep more money in the local economy, which is likely to boost their competitiveness since it allows for greater economies of scale there.
Similarly, a speaker from Interpol talked about:two specific operations taken in the past year to combat piracy and counterfeiting. Operation Jupiter 5 in South America involved 13 countries and led to over 7000 arrests and the seizure of over $200 million worth of counterfeit goods.
Meanwhile:Gerhard Bauer, President of the International Trademark Association (ITA) noted that the size of the counterfeiting phenomena is so vast that it is hard to grasp, and that it leads to the ruination of many legitimate businesses. The ITA participated in a summit yesterday to discuss how different organizations can work together to build awareness of the program and to build support for ACTA.
None of this, of course, has anything to do with Internet piracy, and yet, as the mention of ACTA reminds us, it is precisely in this field that intellectual monopolists have been most active - and disproportionate in their demands.
The crucial role of ACTA was admitted during the conference:ACTA is very important because it is more ambitious than any other previous agreement, including unique provisions on seizure and destruction of infringing goods; more criminal prosecutions; more possibilities for enforcement at the border. Especially significant, ACTA is the first treaty that specifically deals with the internet. He noted civil society concerns with ACTA, which he called “legitimate,” but which “must be allayed.” ACTA is compatible with the Doha Declaration, won’t interfere with trade of generic drugs, contains and contains no measures for intrusive searches of passengers. Civil society must be convinced of this.
Again, there is the confusion between counterfeiting - "seizure and destruction of infringing goods...enforcement at the border" - and the digital world, whose goods cannot be seized or destroyed, and for which borders are largely nominal.
Significantly, as the speaker seeks to address "civil society concerns with ACTA", he does not mention the fact that ISPs will be forced to become agents of intellectual monopolists, or the knock-on loss of privacy that will result, or the chilling effect this will have on free speech. That's because he has no answer to these very serious criticisms of ACTA, which has been pushed through largely by exploiting the deliberate confusion between counterfeiting, with its undoubted analogue risks, and digital piracy, which has none.
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A few months ago, I spent quite a few words disembowelling a BSA report on piracy that made some highly-simplistic assumptions and calculations about the alleged impact of pirated software on economies around the world. This was the report's main thesis:
On Open Enterprise blog.
You can argue all you want with words, which are vague and fuzzy, but numbers have hard edges: numbers are facts. Except, of course, they aren't. Numbers that relate to the real world have to be produced, somehow, and although the end-result may be an inarguable number, the assumptions that lead to that number are just as arguable as any wordy persiflage.
But people often forget this, and take numbers at face value. A case in point is the Digital Economy Act, where alleged numbers about the “scale” of piracy were regular quoted by supporters of the bill. Those numbers came from a number of sources, but the ones most used were contained in a report called “Building a Digital Economy” from the International Chamber of Commerce (ICC). I spent some time going through the details of that report, and concluded:So the net result of this 68-page report, with all of its tables and detailed methodology, is that four out of the top five markets used for calculating the overall piracy loss in Europe draw on figures supplied by the recording industry itself. Those apparently terrifying new figures detailing the supposed loss of money and jobs due to piracy in Europe turn out to be little more than a *re-statement* of the industry's previous claims in a slightly different form.
So my scepticism was naturally high when I read the following:In 2009, more than four out of 10 software programs installed on personal computers around the world were stolen, with a commercial value of more than $51 billion. Unauthorized software can manifest in otherwise legal businesses that buy too few software licenses, or overt criminal enterprises that sell counterfeit copies of software programs at cut-rate prices, online or offline.
However, the impact of software piracy goes beyond revenues lost to the software industry, starving local software distributors and service providers of spending that creates jobs and generates much-needed tax revenues for governments around the world.
Curbing piracy has the reverse effect, sending ripples of stimulus through the whole information technology (IT) economy. And lowering piracy faster compounds the benefits. “The Economic Benefits of Reducing Software Piracy” documents these gains in 42 countries, which represent 93 percent of the global market for PC software. Below are the key findings:
Reducing the piracy rate for PC software by 10 percentage points — 2.5 points per year for four years — would create $142 billion in new economic activity while adding nearly 500,000 new high-tech jobs and generating roughly $32 billion in new tax revenues by 2013.
On average, more than 80 percent of the benefits of reducing PC software piracy accrue to local economies — and in some cases it is more than 90 percent.
Front-loading the gain by lowering piracy 10 points in the first two years of a four-year period would compound the economic benefits by 36 percent, producing $193 billion in new economic activity by 2013 and generating $43 billion in new tax revenues.
Software has a ripple effect on the broader IT industry because selling, servicing and supporting software creates downstream economic activity. In the 42 countries covered in the study, the commercial value of unlicensed PC software put into the market amounted to $45 billion in 2009, resulting in total losses of revenue, employment and taxes from related sectors in excess of $110 billion.
Clearly, concerted action to ensure strong protection for intellectual property (IP) and to reduce software piracy should be a priority for governments — sooner rather than later.
Clearly...or maybe not. First, we need to examine where all these big numbers come from, and then pick apart the assumptions that lie behind them. This turns out to be the usual rabbit-hole stuff, as one report leads to another.
The main “Piracy Impact Study: The Economic Benefits of Reducing Software Piracy” [.pdf] turns out to be just a summary. Tucked away at the end is the following:For more information about “The Economic Benefits of Reducing Software Piracy” and a full description of the methodology,see the full report at www.bsa.org/piracyimpact.
Following that link brings us to a slightly longer re-statement [.pdf]] of the first study, with a little bit of methodology tacked on at the end in compressed form, and the following statement:A detailed explanation of that methodology is available at www.bsa.org/globalstudy.
Proceeding once more to that further study [.pdf], we find yet more words, and finally, towards the end, some details of the methodology.
The basic method for coming up with rates and commercial value of unlicensed software in a country is as follows:1.Determine how much PC software was deployed in 2009.
2.Determine how much PC software was paid for/legally acquired in 2009.
3.Subtract one from the other to get the amount of unlicensed software.
A couple of points. To its credit, the main research, carried out by IDC, *does* take account of free software in its calculations. Indeed, it puts it at a rather impressive 12-22% of the market. Note, too, that it refers to “unlicensed software”: this is the correct term, not the “stolen” used by the BSA in their trumpeting of the results. It's the old copyright infringement versus theft argument that BSA still doesn't seem to understand, but IDC does.
The report does make a mistake when it says:$ Commercial Value = #Unlicensed Software Units)/Average System Price
It obviously means these should be multiplied together, but I assume that is just a slip. Moreover, this looks reasonable enough:The commercial value of unlicensed software, which BSA previously referred to as “losses”, is the value of the unlicensed software as if it had been sold in the market. This is calculated using the same blend of prices used to determine the average system price, including: retail, volume license, OEM, etc. In practice, because of the many methods of deploying software, the average system price is lower than retails prices one would find in stores.
So far, so good, then. The problem, I think, comes in the analysis of what would happen if piracy were reduced – in other words, if people stopped using unlicensed software, and paid for licences instead.
One obvious problem is that some might well choose to do without, or to use free software, rather than pay not inconsiderable sums for licences; but for the sake of argument, let's assume that's a small factor. Instead, I want to focus on the following section (from the last report linked to above):Since 2002, IDC has conducted research with BSA on the economic benefits of lowering piracy – in terms of additional jobs, new local revenues and additional taxes generated. These studies have shown that the benefits to local governments are more significant than just replacing unlicensed software with licensed software.
One thing that is always omitted in these analyses is the fact that the money *not* paid for software licences does not disappear, but is almost certainly spent elsewhere in the economy (I doubt whether people are banking all these "savings" that they are not even aware of.) As a result, it too creates jobs, local revenues and taxes.
Put another way, if people had to pay for their unlicensed copies of software, they would need to find the money by reducing their expenditure in other sectors. So in looking at the possible benefit of moving people to licensed copies of software, it is also necessary to take into account the *losses* that would accrue by eliminating these other economic inputs.
One important factor is that proprietary software is mainly produced by US companies. So moving to licensed software will tend to move profits and jobs *out* of local, non-US economies. Taxes may be paid on that licensed software, but remember that Microsoft, for example, minimises its tax bill in most European countries by locating its EU headquarters in Ireland, which has a particularly low corporate tax rate:In November 2005, The Wall Street Journal wrote that "a law firm's office on a quiet downtown street [in Dublin, Ireland ] houses an obscure subsidiary of Microsoft Corp. that helps the computer giant shave at least $500 million from its annual tax bill. The four-year-old subsidiary, Round Island One Ltd., has a thin roster of employees but controls more than $16 billion in Microsoft assets. Virtually unknown in Ireland, on paper it has quickly become one of the country's biggest companies, with gross profits of nearly $9 billion in 2004."
So in addition to causing money to be taken out of the country (and hence the local economy), licensed software would probably also bring in far less tax than money previously spent on local goods and services, which would generally pay the full local taxes.
Another factor that would tend to exacerbate these problems is that software has generally had a higher profit margin than most other kinds of goods: this means any switching from buying non-software goods locally to buying licensed copies of software would reduce the amount represented by costs (because the price is fixed and profits are now higher). So even if these were mostly incurred locally, switching from unlicensed to licensed copies would still represent a net loss for the local economy.
Similarly, it is probably the case that those working in the IT industry earn more than those in other sectors of the economy, and so switching a given amount of money from industries with lower pay to IT, with its higher wages, would again *reduce* the overall number of jobs, not increase them, as the report claims.
IDC also suggests two other reasons why unlicensed software costs more than licensed:Business and consumers waste time and money working with faulty and unsupported software.
For users, using unlicensed software entails not just legal risks, but also security risks
Of course, the idea that "official" software from companies like Microsoft is exempt from such "faults" and "risks" is droll, to say the least: licensed proprietary software is probably plagued with malware and affected by downtime almost as much as unlicensed versions (just ask users...)
So although the IDC numbers turn out to be reasonable enough, the conclusions drawn from them are not. Reducing software piracy will not magically conjure up those hundreds of billions of dollars of economic growth that the BSA invokes, or create huge numbers of new jobs: it will simply move the money around – in fact, it will send more of it *outside* local economies to the US, and reduce the local employment. And it certainly won't do anything to ameliorate the quotidian problems of poorly-written software...
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Here's a fascinating item:A new EU-funded report has declared that it is OK to buy fake designer goods.
The study, co-written by a Home Office adviser, says consumers benefit from the market for knock-off designer clothes at knock-down prices.
It also rejects the complaints of designer companies, claiming that losses to the industry as a result of counterfeiting are vastly exaggerated – because most of those who buy fakes would never pay for the real thing – and finding that the rip-off goods can actually promote their brands.
The report adds that the police should not waste their time trying to stop the bootleggers.
It disputes claims that the counterfeiting of luxury brands is funding terrorism and organised crime, and argues there is little public appetite for tough law enforcement measures as consumers enjoy the bargains offered by the illegal trade, which has been estimated to be worth £1.3 billion in the UK.
Professor David Wall, who co-authored the report and advises the government on crime, said the real cost to the industry from counterfeiting could be one-fifth of previously calculated figures.
There are a number of interesting points here.
First, is the obvious one of what the research claims about the difference between the real threat of fakes and the, er, fake threat that the industry likes to proclaim.
Secondly, there is the similarity between what is going on here and what the content industries claim about the extent and damage of piracy.
But in many ways the most striking thing about this story, which effectively declares fake goods to be socially acceptable these days, is its provenance. It appeared not in some lefty rag, but in the The Daily Telegaph, not known for its whacky, pinko leanings.
My reading of this is that whatever the industries concerned might say about how awful, deceptive and damaging fakes and piracy are to the economy, ordinary people - and the newspapers that try to mirror their views - know that the true picture is rather different. It also means that ACTA is even more wrong-headed than even I thought.
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I'm am currently staggering to the end of Neal Stephenson's The Confusion, loving every minute of this impossible, wandering, hyperbolic, anachronistic, shaggy-dog story. So I was naturally delighted to see that he (along with a band of fellow creators) is not only working on yet another huge, outrageously-ambitious epic, The Mongoliad, but one that pushes story-telling in new directions by using technology:Our story unfolds in weekly installments over the course of a year. We've planned out a true epic—the last great epic of the middle ages, in fact--and written a fine chunk of the tale, but much depends on you. We’re hoping you’ll ultimately interact with our artists and writers and share in the story’s creation.
When we can, we'll include extra tidbits of art, video, music and history. Those extras will be made available to premium subscribers, an excellent value--less than the price of a hardback book for a year's worth of story and mixed-media entertainment. We’ll soon be taking subscriptions for app delivery to some of the most popular mobile devices and are working hard to add more.
The user-editable Foreworld 'Pedia is the ultimate repository of all information about our world. Some of it coincides with the world you know. Some does not. We welcome your additions.
I was particularly heartened to find the following intelligent approach to DRM - or lack of it:
We put in a lot of effort on an ongoing basis to ensure that the best value our fans can get out of our stuff is by participating interactively with us and each other, and enjoying our interwoven content in context, in the way it was meant to be enjoyed. So, we think that if people take our content without our permission, their experience will be suboptimal, and given our modest prices, we think most people will be happy to pay us, thereby enabling this experiment to keep evolving. That said, the bits that can be copied and pasted and put into a torrent are still going to be fun, and people are going to end up redistributing those bits without our permission and against our wishes. However, we still don't use DRM.
The reasoning is absolutely spot-on:
The biggest reason is that DRM is futile, and we don't like to waste our time doing things that aren't going to be effective, and which are just going to annoy our legit supporters. Our concentration is on providing great experiences and great customer service to our customers, and we trust that those people who really appreciate what we are doing will become our customers. Because it's part of our ethos to be constantly producing and expanding and improving our work, the pirated content people may find elsewhere online will be static and out-of-date copies; we think that when people find this stuff it may give them a taste of what the full experience is like; hopefully, that taste will be enough that they'll want more, and in seeking out more, will become happy (and paying) customers of ours. We like that.
That is, piracy isn't a real problem if you *out-innovate* the pirates, making your paid-for offering better than their free one. Indeed, if you do, pirated copies become like tasters, encouraging people to upgrade and pay for the full, latest version. Similarly, by the sound of it, part of the strength of this project will be the interweaving of other elements into the text - again, something that pirates can't offer.
But I think this is slightly off the mark:However, we don't believe that pirates are doing us any favors, and our not using DRM is not an invitation to cadge our stuff. Because of the way intellectual property law in this country (and most other jurisdictions) works, we are obligated to defend our copyrights, trademarks, and other IP--otherwise we lose them: if we find piracy we will try to stop it; if we find unauthorized use of our IP at commercial scale and/or commercial intent, we will come after it with vigor, because we have to.
That may be true for trademarks, but not, I think, for copyright: it's not something you have to "defend". Still, quibbles, aside, I'm looking forward to seeing what Stephenson and his fellow creators get up to here. I also hope that this new Foreworld proves something of a foretaste of future extended novels - not least in terms of dropping DRM.
As for reading it, well, I have the small matter of The Baroque Cycle to finish first: I may be gone some time...
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