Raised on robbery (part 2)

Many internet activists and leaders of technology businesses disagreed. Sure, a lot of people around the world were now watching movies and listening to music for free, they said, but what evidence was there that this was hurting anyone? Perhaps, the decreases in sales were attributable to changes in consumers’ preferences and an increase in other entertainment options. And while the Recording Industry Association of America (RIAA) argued that 30 billion songs had been pirated in the years 2005 – 2010, certainly the vast majority of the downloaders would have never purchased the music in the first place.

Increased exposure due to piracy might even help artists by allowing new fans to discover their work. The popular press soon began echoing such messages. In 2013, summing up the findings of a widely cited study on piracy released by the Institute for Prospective Technological Studies, CBC News wrote: “Entertainment industries are beginning to realize that the sharing of films and music online generates marketing benefits and sales boosts that often offset the losses in revenue from illegal sharing of content.

Some early academic studies reinforced these points. Early theoretical models showed that piracy could benefit the industry by removing the most price-sensitive consumers from the market, by establishing an initial customer base, and by increasing overall diffusion and product awareness in the market. One of the earliest empirical papers on the subject, published in the highly respected Journal of Political Economy, found that music piracy had no effect on legal sales.

So maybe piracy actually isn’t such a bad thing. Indeed, what if it is actually increasing overall consumption by generating unprecedented amounts of buzz, attracting new audiences to concerts and merchandise, and encouraging at least some portion of a vastly expanded global audience to buy legal copies of what they had just consumed for free? And what if, while serving a useful function as a discovery mechanism, it is also forcing the creative industries to lower their prices and increase the availability of their products? Shouldn’t that boost sales and benefit society? Isn’t that exactly what happened with iTunes and digital downloads? Moreover, haven’t the creative industries always complained that product sharing based on new technologies is about to destroy their profitability – and haven’t they always been wrong? Why should this moment be any different?

All those questions really are variations on the same question: Does piracy cause harm? In what follows, we’ll explore that question as it affects producers and then consumers.

Does piracy harm producers?

At first, answering this question seems simple. If consumers can use pirated content to get their music and movies for free, of course they will purchase less content as a result. Isn’t that why music sales fell so dramatically after Napster was released? Consider the graph reproduced here as figure 6.1, produced by Alejandro Zentner in 2006, which illustrates the rise and fall of global music sales between 1990 and 2003.

Something clearly happened around 1999, when sales began a four-year decline that reduced total revenue by almost 25 percent (from a peak of $40 billion to about $31 billion). Digital piracy is a reasonable suspect here, in view of the correlation between the decline in sales and Napster’s rise to prominence in 1999.

However, a correlation between the rise of Napster and falling revenue in the music industry doesn’t mean that digital piracy caused revenue to fall. Revenue can rise and fall for all sorts of reasons, and there are plenty of other potential explanations around the turn of the century that should be considered. Between 1999 and 2003, for example, the expansion of broadband internet access created a wealth of new entertainment possibilities for consumers, who for the first time could easily while away hours online browsing the web, playing games, chatting with friends and strangers, spending time on social networks, and more – things that cut into the limited time that they had available for music, books, and movies.

Maybe what caused the decrease in sales shown in figure 6.1 was simply a shift in how consumers were spending their leisure time, not a shift in how they were acquiring their music. Or maybe the decline in sales was just a natural by-product of the shift from album sales to unbundled digital-single sales. And who can say that consumers would have made more purchases if piracy hadn’t been an option? Students, after all, typically do a lot of pirating (because they have the time and the technical savvy), but with their limited income, maybe they wouldn’t have purchased the content they were pirating. And if that’s the case, so the argument goes, why not just let them be pirates, and assume that by freely sharing files they are helping media companies run a global social-marketing campaign?