Wednesday, October 11, 2006

$20.5 Billion per Year!!!

That's what movie piracy costs the U.S. economy, along with 140,000 jobs and over $800 million in tax revenue, according to a new study released by the Institute for Policy Innovation (and paid for, in part, by NBC/Universal and the MPAA). The number is reached at by taking a figure of $6 billion in lost sales of legal DVDs and online films that comes from an earlier report by a consulting firm called L.E.K., and then applying multipliers used by the Bureau of Economic Analysis. Story here.

This is a pre-emptive post, because I haven't yet read either the L.E.K. report or the new report. Here's my guess at the problems:
  1. Generally, the reports issued/commissioned by producers count every illegal copy as a lost legal copy. This is outright crazy and totally ignores the price difference between a legally purchased DVD and a digital file downloaded from the web. I don't have the data that would allow me to calculate the right elasticity, but I think we can all agree its not zero. So, likely, the $6 billion figure is grossly overstated. If I find the report, I'll check back.
  2. Why the hell is it appropriate to apply macroeconomic multiplier to that $6 billion figure to calculate a ripple effect on the economy? There's only a ripple effect if that $6 billion is not spent on legal DVD and is instead but under mattress or buried in the backyard. If the money is not spent on DVDs, but is instead spent on TVs, or hamburgers, or put in a savings account and loaned to someone to build a house, or anything like that at all, then those $6 billion in revenues/incomes are not lost, they are just redistributed. It's possible that the $6 billion causes lost jobs in the movie industry, but they would just be made up by creating jobs in the TV manufacturing, hamburger, or housing sectors. [The Electronic Frontier Foundation makes this point in the WP article.]
Here's the reports:
I hope to read them soon and provide a better critique.


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