Bogus Piracy Report Misleads EU Legislators

A new report commissioned by the creative industries claims that piracy could result in €240 billion in lost revenues and 1.2 million job losses by 2015. By selective use of sources and shoddy research techniques, lobbyists hope the report will open the doors to tougher anti-piracy laws.

The entertainment industry is known to commission reports and research that hugely benefit their lobbying practices. A new report, “Building a Digital Economy” was released yesterday. This report investigates the impact of piracy on Europe’s creative sector and was paid for by the same industry.

As expected, the reports paint a disastrous picture. In just 5 years from now the total number of lost jobs in Europe could grow to 1.2 million and the lost revenue for the industry may skyrocket to €240 billion in the same time frame. The report was quickly praised by anti-piracy outfits including the BPI and IFPI who will use it in their political lobbying efforts.

Of course, those who took the time to take a good look at the report will have seen that there are many assumptions and statistical tricks that led to these outrageous claims. We will discuss a few of them below and show that depending on what sources are used, one could come to entirely different conclusions.

- The report suggests that there’s a direct correlation between Internet traffic growth and lost jobs. That is, the more traffic that is generated on the Internet, the more money will be lost. This correlation is 1 according to the report, which assumes that all growth in Internet traffic will increase piracy at the same rate.

- The report makes another bogus assumption by stating that more traffic will mean more piracy and thus more lost revenue. It does not account for the fact that people might consume higher quality files which are greater in file-size. All projections are based on bandwidth and not the number of pirated goods.

- The report cites some academic literature which suggests that piracy leads to a decrease in sales. Studies that reported the opposite or a null-effect were carefully left out. This bias defines the entire outcome of the report. If they used studies that found a positive effect they would have found that piracy would create hundreds of thousands of jobs in the years to come.

- The report uses fixed substitution rates. They assume that 10 downloaded albums results in one lost sale and this figure is not adjusted for the projected increase in piracy. One would think that the public’s budget for entertainment is limited and that the substitution rate would go down as piracy goes up.

- Related to the previous point, if the industry did indeed lose over €240 billion in revenue by 2015, consumers would have a lot of extra cash to spend. Depending on where this money was spent it might create more jobs than the entertainment industry claims it is losing. As a report commissioned by the Dutch Government showed last year, the overall effect of piracy on the economy might actually be positive.

- It gets even more ridiculous when we take a closer look at the claims. In the UK consumers spent €6.3bn on audiovisual products in 2008. If the projected trends continued, the ‘lost’ revenue because of piracy would exceed the actual revenue, meaning that the music and movie industries would end up having to pay people for pirating their products.

- Lastly, the researchers seem to have trouble putting a decent report together as they messed up the legend of one of the critical figures. In this figure the bars for “file-sharing” and “global Internet traffic” are switched around. This makes us skeptical about the other statistics that are published in the report.

We can go on for a while listing the many implausibilities and research failures but we have to draw a line somewhere. Unfortunately, most news outlets won’t take the time to read through the report, meaning that these figures will be re-posted without questioning the source.

Both the UK Pirate Party and the Open Rights Group have responded to the report criticizing its one-sidedness and propagandistic nature.

“I am fed up of hearing corporate propaganda being deployed in order to justify intrusions on our rights to freedom of speech, privacy and to a fair trial,” Jim Killock, Executive Director of the Open Rights Group said in a comment on the report.

“The claimed losses of £1200 per household in the UK are clearly ludicrous. I certainly don’t know anyone who has an extra £1200 in their pockets thanks to piracy,” Pirate Party UK leader Andrew Robinson added.

The entertainment industry lobby, however, has already managed to get support from various politicians in the EU Parliament and will continue to use the report to justify their call for tougher measures against online piracy. We can only hope that the majority of them will see through the misleading setup and bogus numbers.

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