An investigation by Julian Sanchez has shown that the key figures used by the content industry to lobby for IP reform, and in particular the Stop Online Piracy Act (SOPA) and Protect IP Act (PIPA), are based on flawed or unsubstantiated research. Sanchez’ post was prompted by a recent column by New York Times’ David Carr which asserted:

Regardless of what Web evangelists tell you, SOPA is an effort to get at the very real problem of rogue Web sites – most operating from overseas – offering illicit downloads of movies, music and more. The Motion Picture Association of America cites figures saying that piracy costs the United States $58 billion annually.

Mark Elliot, an executive from the US Chamber of Commerce, said in a letter to The New York Times that such piracy threatened 19 million American jobs.

Sanchez says that the $58 bn figure comes from a paper written by Stephen Siwek for the Institute for Policy Innovation. It is flawed because Siwek used “multipliers” to inflate an existing estimate of losses to the movie industry of $6.1 bn. That estimate itself, based on a survey by LEK Consultancy, is unreliable: Even Congress’ Government Accountability Office (GAO) could not gain access to the underlying research in order to evaluate it.

The black out to stop SOPA. AP

When the MPAA released the results of its survey in May 2006, it said that in addition to the $6.1 billion that piracy cost the US film industry, piracy cost the worldwide film sector $18.2 billion. […] LEK Consultancy, the “international strategy firm” that conducted the survey, reported that the study was done over 18 months and surveyed more than 20,600 consumers in 22 countries “using focus groups and telephone, Internet, and in-person interviews.”

But missing from the report was how LEK came to the dollar figures. The report did not detail the methodology or what assumptions LEK researchers made.

Furthermore, the $6.1 bn figure is for all piracy, not just online infringement, says Sanchez:

Of the total $6.1 billion in annual losses LEK estimated to MPAA studios, the amount attributable to online piracy by users in the United States was $446 million.

So the estimate of losses from online intellectual property infringement, from the MPAA’s own figures, is actually $446 mn, not $58 bn. To put that number in perspective, Avatar grossed more than six times that amount, worldwide.

But what about the 19 mn jobs at risk? That’s more people than are officially unemployed in the US at the moment which is 13.1 mn,according to government figures. Is the content industry really that big?

No, not according to the Congressional Research Service. Says TechDirt’s Mike Masnick:

As for employment, Hollywood loves to claim that it employs millions of people. One popular number is that 19 million people have jobs in “IP-intensive industries.” Of course, we’ve discussed how misleading a term that is, as they lump in all sorts of jobs that have absolutely nothing whatsoever to do with copyright. So, how many people are actually employed in the movie industry? Not that many. 374,000 in 2010 — and that includes both full and part time workers. And that’s really not much different from the 392,000 in 1998.

The content industry has a habit of producing wildly inflated numbers in support of its case. Three years ago, Sanchez debunked claims that infringement was costing the US economy $200-250 billion per year and 750,000 jobs. He tracked the cost to the economy down to a Forbes article from 1991 which gave an “unsourced estimate of the total size of the global market in counterfeit goods”. The 750,000 jobs number came from a 1986 speech by the secretary of commerce that estimated that “counterfeiting could cost the United States ‘anywhere from 130,000 to 750,000’ jobs. Nobody in the Commerce Department was able to identify where those figures had come from.”

At its heart, SOPA and PIPA are both examples of pleading by the content industry for special treatment by the American government. It is quite shocking that they have been able to get away with using old and discredited figures as the basis for their case without being hauled over the coals for misleading Congress.

What makes it worse is that, even if they were right about $446 mn, or more, being lost to the content industry each year, that money doesn’t simply evaporate as they insinuate. Instead, Americans spend it on something else. Games, perhaps, or food. The overall American economy isn’t damaged, it’s only the content industry that might suffer a slight knock. Although the Congressional Research Service shows that box office receipts have not been dented at all:

Box office receipts historically have been used to measure the financial health of the motion picture industry. Box office revenues for the United States and Canada rose from $5.3 billion in 1995 to 10.6 billion in 2010, according to the National Association of Theater Owners.

It’s not clear if these figures have been adjusted for inflation, but even if they have not, that’s $2.8 bn more than can be accounted for by inflation.

The case for the massive disruption to the web that SOPA and PIPA would engender has been based on fallacious and exaggerated numbers. It is disturbing that Congress hasn’t simply tossed the MPAA and their kin out on their collective ear. But the content industry isn’t short of money and knows how to bring their power to bear.

Publish date: January 20, 2012 8:05 am| Modified date: January 20, 2012 8:05 am

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