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## Friday, January 20, 2012

### Copyright Talk: The RIAA Bites the Hand That Feeds

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This analysis is based on a survey study and shows us some useful data. The acutal correlation found is counter intuitive to what you'd think was immediately counter intuitive. Honestly that's the fist scenario I've ever encountered like that.

Intuitively, and in my experience, it seems that people initially believe that the more you pirate music, the less you buy through legitimate means.  I then ask people, “What alternative scenario could be going on if I told you it's actually counter-intuitive?” The response is the inverse, “The more you pirate, the more you buy?” Neither of these are shown to be verified, in this paper at least. It's a correlation. No matter what your budget is for buying legitimate music, the majority of people who have that budget are going to be heavier piracy offenders. This means the RIAA could be missing an important aspect of their demographic. The percentage of people who are pirating less and less is a smaller and smaller percentage of their demographic. They are furious about piracy, so the logical thing is to piss off or prosecute ~½ of their total customers, who provide them with ½ of their total profit?

Below is a graph from the paper: "Pirates or Explorers? Analysis of Music Consumption in French Graduate Schools" by David Bounie, Marc Bourreau, Patrick Waelbroeck
Find the paper HERE

Click to enlarge if you can't read the chart.

I know, it's crappy labeling. From left to right, the top columns represent the increasing numbers of [pirated] mp3's in people's possession.  Top to bottom, the rows from the left show the amount of legal cd purchases the people have in their possession.  For each node, the top number is a head count, and the middle number is the percentage of the total row.  The second to last column, middle number is what we're looking at:

Of people with <10 cds,  63%
Of people with 10-30 cds, 45%
Of people with {should be 31} 30-50 cds, 54%
Of people with 51-100 cds, 70%

Point being...this ~½ of their total customers, provide them with ½ of their total profit.

The perpetrators seem to be the RIAA's best friends.  They just haven't have realized it yet.  This should be motivation enough for the RIAA's to halt their lobbying, at least until they learn to read.  In a business sense, for them to push the legislation of SOPA/PIPA seems ridiculous, given this context, doesn't it?

The story of Joe Downloader. Tonight will he be eating pizza?  Or homeless, busy panhandling?

New Scientist posted an article today: (first published online over at Slate Magazine.  Oddly enough NS directs to the main page, and searching the title on http://www.slate.com doesn't bring up the article...)

Here the author, Matthew Yglesia, builds a scenario that is misleading. The logic is not at all sound.

To quote him:
“...even when copyright infringement does lead to real loss of revenue to copyright owners, it's not as if the money vanishes into a black hole. Suppose Joe Downloader uses BitTorrent to get a free copy of Beggars Banquet rather than forking over \$7.99 to Amazon, and then goes out to eat some pizza. In this case, the Rolling Stones's loss is the pizzeria's gain and Joe gets to listen to a classic album. It's at least not obvious that we should regard this, on balance, as harmful.”

It's obvious BS.
His story implicitly says that the market price of mp3 downloads, when pirated, is money then separated and locked into the market in general.  Consider an alternate hypothetical situation: Tom Downloader, with \$1000 to his name goes on an mp3 pirating spree, downloading many artists' discographies at whim. Say he ranks up what would have legitimately cost \$5000.  He'd be hard pressed to go out and spend \$5000.  Unless you're reselling, theft doesn't make deposits in your savings or checking account for you.  There is absolutely no reason to connect piracy to any of his spending that year on pizza, see-saws, or cutlery, even though there are definitely stores that sell these things.

Let me reiterate his last sentence, “It's at least not obvious that we should regard this, on balance, as harmful.” Yes, it is obvious. The two activities are not related.  “on balance” seems to be the core idea, however flimsy, that made the author think up this whole scenario.

The moral of the story of Joe Downloader is:  Don't fully trust even what you consider reputable news sources. Writers are human and fallible.  Maybe he stayed up all night?  Who knows?  As always, remain skeptical.  The clarification of the issue is what's important.  I admit, however, I was surprised to find this in New Scientist.

The mechanics of piracy. What is the claim of “profit loss”

Servers and maintenance, bandwidth, web domains, hard drive space... These are the elements involved in the actual mechanics, the actual process of pirating. It shouldn't be a surprise to you that the music industry spends exactly 0 money to facilitate this. They are not involved in that operation, obviously. They claim loss of profit. They aren't losing invested capital. What they mean is loss of potential profit. The potential profit they could gain from an individual who is poor, obviously, is not much. In Tom Downloader's situation, the RIAA would very much like to have their \$5k that they think they're due. See ya, Tom, good luck with being homeless. But here Justice is Served!!! Oh, and the actual artists get under 10% of the money too.

Is it really that cold in Canada? I'm just curious...

From "An Overview of Copyright and Intellectual Property" by Marta Ceballos:
You can download the paper free off of The Social Science Research Network HERE

"Copyright holder lobby groups often present arguments to the effect that piracy is so rampant that it is threatening the very existence of legal transactions involving intellectual property. Indeed, in some countries, it is argued that the proportion of consumers using pirate copies of certain items of physical supports of intellectual property is almost as great as those using legitimate copies. Statistics are also given to the effect that piracy is costing immense amounts of money in lost legitimate trade. However such statistics must be treated with a certain degree of doubt, since they are typically based upon the assumption that each pirate copy that is transacted represents the loss of a legitimate sale. This is a shaky foundation upon which to base an estimate of the loss of legitimate trade, simply because pirate copies are always transacted at a lower price than legitimate copies, and so eliminating the pirate copy does not imply that the user would then purchase a legitimate copy. Furthermore, eliminating the option of pirate copies would certainly affect the price at which legitimate copies are sold, presumably increasing it further since legitimate trade would be facing less competition. Hence we may have reason to believe that eliminating the option of piracy may even reduce the number of legitimate copies sold due to price increases. Indeed, recent studies based on more correct economic theory suggest that only about 10 percent of pirate copy transactions represent lost sales of originals (compared to the figures, often between 40 and 60 percent, that multinational record companies discuss). "

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As a caveat, I have to point out that this survey was held in France.  I believe the RIAA collects revenue from all over the world, but SOPA/PIPA is specifically an American issue at the moment.  All around the world, there are people who both pirate and purchases music legitimately. One would have to assume that these behavioral statistics would translate to America and other countries.  If not, well hell, I guess I'll have to translate this post to French!

Marta Ceballos (2003). An Overview of Copyright and
Intellectual Property
Society for Economic Research on Copyright Issues (June)

Bounie, D., Bourreau, M., & Waelbroeck, P. (2005). Pirates or Explorers? Analysis of Music Consumption in French Graduate Schools SSRN Electronic Journal DOI: 10.2139/ssrn.739284

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#### 1 comment:

1. Yeah, that counter-counter intuitiveness is very interesting.
I think the supprise springs from the leading question we are asked 'what effect does music piracy have on record purchases'. A neutral person might expect both tracks pirated and albums bought to be dependent on a persons desire to acquire music.
But we are so used to the absolute arguments from pro/anti-piracy campaigners, that the sensible truth seems unexpected.

I think that limiting this anti piracy debate to music is sad. The Chinese bought 1 of each of the top 5 power plant designs in the world. Now they have a plant which is an innovative combination of them all. It is, they claim, an indigenous invention. And perhaps they can claim this as much as any engineer - on the shoulders of giants we all stand, and nuclear physics is not exclusively an American invention.

The real question is, why did the rest of the world not combine these technologies, and build a safer, more efficient nuclear plant?
Because of Intellectual Property.

Why do drug companies spend thousands replicating one anothers unreleased trials, exploring the same research dead end that another researcher with the same job title and a different employer looked at in the 1960s?
Because of Intellectual Property.

Something is broken here. Something is horribly inefficient.