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catallaxy in technical exile

Self Serving Hyperbole

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That’s how the draft of a leaked report to the Attorney General describes the music and software industries estimates of the losses from piracy. I’ve long held the view that the figures these industries have sometimes thrown around seem to be a bit questionable. And for good reason. The draft report confirms something I have long suspected about many of these estimates.

 “Copyright owners often use street-value estimates to calculate losses, but this assumes that every person who bought pirated goods would otherwise have paid for a legitimate item” (Australian IT)

This suggests to me that the  people doing these particular estimates have never seen a typical downward sloping demand curve. If they had, it might have occurred to them that if the “price” of something is zero, there will be a much greater quantity demanded than at the true, “legal” price. Thus simply multiplying the number of pirate copies download/seized by the full “legal” price is going to overstate the revenue loss, since a great many people wouldn’t have bought a copy anyway.

So what’s the alternative? This is not my area of expertise but I think a better approach would be to look at how much piracy has shifted the demand curve for the legitimate product, rather than bought about movements along an overall demand curve. i.e. treat piracy  as a factor leading to a downward (inward) shift in the demand curve for the legitimate product.

The “loss” from piracy is thus the change in total revenue that results from the price and quantity effects of the inward demand shifts. But this is of course harder than back of the envelope “price times pirate copies” calculation since it involves identifying just how much the demand curve has been shifted due to piracy versus other factors.

The report also claims that the music and software industries are well connected in Canberra, so it’s perhaps not surprising that the Australian Institute of Criminology, (who commissioned the report) are downplaying the leaked draft, telling The Australian that the report is still an early draft that the Insitute is reviewing and revising. My bet is that whoever leaked this report expects the final version to be far less critical of the music and software industries, and wanted to throw some light on things before the more critical elements of the report were toned down.


Written by Admin

November 7, 2006 at 6:54 pm

Posted in Uncategorized

6 Responses

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  1. Precisely my problem with the figures thrown around about entertainment industry losses due to pirating. Besides which, how are they counting the pirated copies of whatever?

    I can’t remember which year it was, but it was the first time I started hearing complaints from music labels about illegal sharing. They claimed multi-million-dollar losses due to the sharing, and pointed to a drop in CD sales, but somehow had a stellar year profit-wise. Turns out they had themselves reduced the number of new CDs released, and made bigger profits off each one.

    And it doesn’t get enough repeating – illegal downloading can stimulate CD sales. I know I have often gone out to buy CDs on the basis of one or two downloaded tracks. MP3s are compressed, so naturally uncompressed music sounds much better, especially played on a good CD player hooked up to a decent amp and great speakers 🙂


    November 7, 2006 at 7:18 pm

  2. This is what Mark Cuban wrote last year aboutt he record industry. I t seems as though iot still applies.

    Cuban is the only billionaire I know of who blogs. Worth about US$1.8 billion. Sold broadcast. com to Yahoo.

    The definition of insanity.. The Music Industry
    Jul 31st 2005 2:36PM

    There is an old saying that the definition of insanity is, “Doing the same thing over and over again expecting the outcome to change”

    I think of this saying everytime I hear about music industry efforts to impact piracy.

    Insanity is thinking that kids with more time than money will stop finding ways to get music for free. Even if the industry found the end all be all DRM solution that stops 100 pct of duplication, kids will sit in front of their radios with recording capability or redirect digital music from any source to their hard drives and then spend the time to pick out the music they like and burn it.

    Insanity is thinking that piracy is the reason music sales are down and then focusing most of your business on selling music to the exact demographic that has the most time to spend on finding free music and most energy to spend on cracking whatever protections you introduce.

    Insanity is ignoring year after year, the demographics with more money than time. Those who aren’t willing, or don’t have the time to troll through the net to figure out which network has the most music to download, searching for songs, picking out which peers to try to download from and then hoping it all worked out right. Those who would prefer to just buy music in the easiest way possible so they can get on with enjoying their music and their lives. Isn’t that why we buy bottled water? It’s easy and convenient?

    Hire someone from Starbucks who understands selling music to demographics who are happy to buy the music they want in a setting they enjoy.

    Insanity is repeatedly telling everyone that piracy stops the creative process by preventing artists from making a living and then time and time again, going out and giving advances to bands. Hello McFly, every start up band thinks the money is in getting the advance of a record label deal, not from selling music. They are just as motivated as ever to make music.

    Insanity is continuously trying over and over again to “fix” the CD ripping problem hoping to find DRM software that makes the process more difficult and deters the “good people” from creating illegal copies, while completely ignoring DVDs as a solution. A DVD only allows you to use its increased storage capacity to add more value through more music, games, video, pictures, software, whatever, at about the same cost of a CD, while being far more of a pain to rip than any DRM/CD combination the industry has ever come up with. Dual release on DVDs and CDs and over time elimination of CDs will have far more impact than any DRM on CD solution.

    Insanity is watching the digital download services develop customer relationships with music buyer after music buyer, while year after year the labels have none. When are you going to learn that it’s not only about hitting the numbers for Wall Street every quarter but investing in your customer base. ITunes, Amazon, Netflix, CinemaNow and others have my credit card on file and can find me and sell me something in seconds. Create your own services and sell the music at a deep discount to Itunes and the others. Make it easy to buy, cheap to own. The short term pain will be well worth the long term gain

    The music industry has a very unique opportunity to really re-establish itself as a growth industry. It’s not like they don’t know all of the above. For whatever reason, they just love to do the same things over and over… Which to me is just insane


    November 7, 2006 at 8:27 pm

  3. I agree with JC. Somewhat tangently, I was sent an interesting lecture the other day on television shows being downloaded using bitTorrent. The basic point that was being made was that instead of fighting new distribution platform, embrace it! Say, you release digital episodes of television shows, encode advertising into each episode or something similiar, and release it. Sure, it depends on the advertising market – but I think it can be sold. Look at the exposure Guardian Unlimited gets with the Ricky Gervais Podcast. The Comedy Channel releases The Daily Show on the Internet, and just prefaces each segment with an advertisment. So it’s happening.

    I’m no gung-ho pirate, but for the life of me I don’t understand why the copyright holders are trying to stop the tide coming in.

    Samuel McSkimming

    November 7, 2006 at 9:53 pm

  4. I remember that ARIA was quoting lost revenue figures that were street value*number of downloads during the Kazaa trial. Interestingly, I heard an interview with the head of their security division where the reporter (from JJJ from memory) picked him up on this ridiculous figure. They pointed out that ARIA had reported record sales in the years following the release of Kazaa and asked him to explain how they could possibly argue that they lost some huge portion of their revenue.

    The interviewer also pointed to info in the US (where the record industry had been steadily on the slide since file sharing began) that pointed out that DVD sales were increasing in the time that CD sales were decreasing.


    November 8, 2006 at 12:40 am

  5. Sam,

    I’m not totally unsympathetic to people protecting their copyright and IP. But …

    1) I’ve always been frustrated by what looked like dubious estimates of the “losses”. Getting simple economics wrong truly sh!ts me.

    2) I’ve felt the music/movie industries in particualar were putting too much effort into protecting old business models and not enough into new ones. I’m surprised it took this long to work out that advertising may be a viable model, since it’s how radio and tv statiosn have been making money out of content for years.

    will maybe havemore comments later in the day…


    November 8, 2006 at 6:55 am

  6. I have never seen any convincing evidence that there is any decline in recorded music sales.

    Remember that sales in many previous years were boosted by punters having to re-purchase music that they already owned, on vinyl or cassette, in CD format. A bit akin to having to re-purchase The Road to Serfdom anew everytime there is a typeface or font change in order to read it.

    It is much more likely, and a simpler explanation, that the industry has successfully encouraged, very close substitutes for recorded music, such as DVDs, merchandise – T -shirts etc, which they (and sometimes their clever artists) reap HUGE income and profits.

    Another parrellel expanation is that the industry itself has aggregated and chaged its business model, from one of essentially a cottage and SME industry, concerned with releasing myriad of artists and musics to niche markets, and making a reasonable profit from all or most, to a model that punts only on proven mega artists like, say, Michael Jackson, Madonna, etc who sell squillions in all markets but essentially selling fashion or trends rather than music. There is a natural limit to the fashion/ trend trajectory and it is this ability to milk the trend that has (as it must) diminished.

    “illegal” downloading / sharing is a long way down the list of possible impacts.

    Francis X Holden

    November 8, 2006 at 8:58 pm

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