Copyright Math in Detail

Rob Reid

Rob Reid’s TED talk about copyright math made the rounds this past week. In case you missed it, here it is. The point of the talk is not to suggest that Copyright Law should disappear, or that everything should be free to share, rather it is his attempt to use humour to point out the ridiculous dollar figures places on pirated music, movies, and games.

Some people were unsure where he arrived at some of his numbers, so he wrote a short piece with more background and references.

First, the Motion Picture Association’s claims of $58 billion in actual US economic losses and 373,000 lost jobs came from this press release[1] (which can also be found on Scribd[2]). These numbers originated at a think tank called the “Institute for Policy Innovation” – an organization thatBusinessweek once profiled in an article called “Op-Eds for Sale.”[3] In it, an IPI analyst freely admitted to taking payoffs from disgraced lobbyist Jack Abramoff[4] in exchange for writing “op-ed pieces boosting the lobbyist’s clients.” The IPI’s president supported this behavior, saying it was neither wrong nor unethical, and dismissing those who apply “a naïve purity standard” to the business of writing op-eds.

This doesn’t necessarily mean that MPAA lobbyists paid the IPI to conjure up these numbers. But whatever their genesis, they’re not easy figures to support. In a February New York Times piece,[5]an MPAA spokesman did his best by attributing the eye-popping $58 billion sum to “piracy’s impact on a range of tangentially related industries — florists, restaurants, trucking companies, and so on.”Florists? Really? Exactly how many bouquets go unsold whenever someone swipes a copy of My Sharona?

Since the creation of Napster, the music industry has undergone a major change, and considerable loss of revenue. Sales plunged from $14.6 billion down to $6.8 billion, a drop he rounded to $8 billion in his talk.

My TV, satellite and cable figures (showing spectacular growth during the same period) came from the same outstanding report. I didn’t have time to discuss them during my talk, but numbers from local media analysts BIA/Kelsey showed robust growth in radio[8] in the years immediately following Napster’s debut. This was followed by a brief, agonizing contraction in the 2007-09 timeframe[9], which the organization attributes wholly to the recession, rather than piracy.[10]

So where is the missing $50 billion in piracy? It’s hard to accept that it’s foregone growth in markets that have grown in line with, or (in the case of the giant TV/ satellite/ cable market) farfaster than historic norms. So we’re left looking for a market that has no historic norms. Because in such a case, one can tenuously argue that but for piracy, it might have grown at such a blistering rate as to make $50 billion in foregone sales at least hypothetically possible. So what significant American media market literally didn’t exist at all in the ’90s?

His reference to the addition of ringtones as a $50 billion industry is totally facetious and his examples hilarious.

And in case you’re wondering, at 30 seconds per ringtone, and $1.39 a pop (this was the lowest price I could find for ringtones anywhere, and I figured we’d get a bargain by buying in bulk), we’re looking at 34,218 years worth of ringtones — which, laid end to end, would stretch clear back to the late Neanderthal period.[13] And for you astrophysicists, the penny is ¾ of an inch in diameter.[14]5.8 trillion of these suckers would therefore stretch for 68,655,303 miles, which can easily connect the Long Beach Westin to Mars when we’re on a close approach.[15]

A quick look at employment claims shows how totally implausible the numbers are.

As for music industry employment, I took the average revenue per employee at Universal Music in 2010 (roughly $852,000),[19] at EMI in 2009 ($300,000),[20] and Warner Music Group in 2008 (about $875,000).[21] This gave me an average revenue-per-employee of about $675,000 throughout the industry. Applied to the industry’s 1999 revenue, this ratio implies total employment of about 22,000 at record labels, which I doubled to account for the retail side of the business as well. This is clearly an imperfect estimate, but even if it’s off by 100% (and I’m quite certain that it’s not), it doesn’t undermine my bigger point. In any event, I combined my music industry number with the Bureau of Labor Statistics’ filmed entertainment number to get my starting-point content industry employment. I then subtracted the claimed 373,000 in job losses to infer in the (obviously playful) “negative employment” statistic.

The discussion on the blog almost immediately moves towards the existence of copyright laws in a digital environment. Reid responds to one commenter.

I appreciate your engagement on this blog & all of your articulate thoughts! However, with all due respect, at NO POINT in my talk or in my lengthy blog post do I say that “it’s okay to steal someone else’s work.” Therefore I do not consider this statement – which I wholly agree with, by the way – to be a relevant rebuttal to my points.
I’m very much against the theft of intellectual property – not merely for conceptual & moral reasons (although that’s certainly a VERY BIG part of it), but also selfishly & pragmatically, because I’m an author who seeks to make a living from his work. However, I also vehemently oppose any law that penalizes tiny misdemeanors with penalties that are normally associated with significant felonies. A $150,000 penalty for the theft of a digital object that’s typically priced at 99¢ is grotesquely disproportionate. You certainly wouldn’t see penalties of that scale associated with the theft of physical property.
I consider this $150K per copy/per song fine to be a perversion of our legislative system. If you consider it to be a just & legitimate penalty – one that will engender deeper respect for intellectual property, and actually put a dent in its theft – I’d welcome a debate with you on this point. But I will not debate the against the “mom & apple pie” assertion that theft is bad, because I happen to agree with it.

We all have grey areas in our morality and societal responsibility where we decide where we are willing to bend things a bit without totally straining our ethical sense, even when we know our actions have the potential to cause harm to others. How many of  us have gone too fast on a highway, slipped through a Stop sign, or pushed the limits of a potential breathalyser?  If you arrive home and realize the clerk missed ringing in your second pineapple, do you run back and pay for it? If you said never, I’d call you a liar. In virtually all cases, we weigh the potential for harm and the risk of punishment.  In most of these instances, the punishment is proportionate to  the potential for harm, whether physical or financial of the crime. While there are areas of disagreement in such things as drugs laws, in general, the penalties are agreed to by the members of society. In copyright law, the penalties are decided by the companies involved; those who have inflated their losses and spent millions lobbying governments to impose these penalties.

Stealing is wrong, but financial losses should only be based on the lost sales. If people download a movie or album that they would never have paid for in the theatre of on disc, they are committing a crime, but the loss to the company is considerable less than $150,000 per disc.

What the answer is, I really don’t know. I am quite sure that inflating the value of artists’ work to such ridiculous heights doesn’t do anyone any good.

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