Online Piracy and the Entertainment Industry

A flag representing online piracy

If you live in a country with stringent copyright laws, chances are that you've seen advertisements harping on the dangers and “immorality” of torrenting movies, TV, music, and games.

One of the most famous and mocked examples of this is an old advertisement that would play before many movies. It compared torrenting a movie to stealing a car, a purse, a TV, and a physical movie copy from a store.

This failed effort by the MPAA was one of many examples of the attempt to moralize torrenting by rights organizations in the 1990s and early 2000s. Thankfully, in the modern age, intellectual property rights agencies generally focus more on creating legal avenues to obtain their products and less on threatening the public.

Still, it's valid to ask whether torrenting at large negatively impacts the entertainment industry. These advertisements always operated on that premise, yet they never used quantitative studies to demonstrate harm. We'll take a look at both sides of the issue: the arguments that the entertainment industry made to support their anti-piracy crusades and the arguments by P2P advocates, that there may be little to no harm done by torrenting. Then, we'll examine quantitative studies to determine which side is likely correct.

The Industry's Arguments

Of course, rights agencies like the RIAA and MPAA have a vested interest in preventing piracy and legally pursuing users who torrent content in jurisdictions where it is not legal. Regardless of whether social and fiscal harm arose from piracy, they generally took the stance that one work pirated was one sale lost. In turn, these wealthy agencies felt that their coffers were being drained by P2P activity.

Agencies like these often argued that piracy put people out of work. For instance, they often used guilt tactics to insinuate that those who torrented movies put camera crews out of business by making it less profitable. They also put forth more extreme arguments.

A musician holding his profits

For example, music rights groups argued that torrenting music prevented new artists from emerging. They claimed that artists believed the industry wasn't profitable.

However, artists who are signed to record labels typically earn very little for every download and stream. They have to rely on concerts and merchandise as primary sources of revenue.

The P2P Community's Arguments

On the other hand, P2P communities' main arguments are that content-sharing is not inherently harmful to anyone other than already wealthy corporate entities. Many contend that piracy often draws more attention to media works, increasing overall profits.

They also often point out that copyright organizations never cited quantitative statistics to support their claims of job losses and that new artists had a disincentive to create. When anti-piracy ads were more prominent, many people pointed out that they often used false equivalency. For example, the famous ad in the introduction compared digital piracy to the theft of physical merchandise.

However, it costs nothing to produce a digital copy of something. That makes it arguable that no material losses are incurred simply by the downloading of copyrighted materials.

The Gradual Backing Off

Out of all rights groups, the RIAA has been the most aggressive. The President of the organization from 1998 through 2003, Hillary Roden, launched a massive campaign aimed at making examples of individual torrent users.

Despite that, a combination of factors eventually led to the end of this crusade. A 2002 Gallup Poll showed that only 13% of adult Internet users believed that the availability of pirated works made people less likely to purchase them. This, of course, indicates a significant lack of public support for such efforts.

A judge deciding a copyright lawsuit

Many newspapers and the Electronic Frontier Foundation (EFF) also published articles questioning the RIAA tactics. Such tactics lead to a famous lawsuit against a child, one against a deceased person, and other egregious legal errors.

The death of the mass movement to sue consumers occurred in 2008, leaked by The Wall Street Journal. Effectively admitting that their campaign was unsuccessful, the RIAA and other rights organizations announced they would instead work with Internet Service Providers. In this system, people caught downloading and uploading copyrighted content are usually given one or two warnings. After that, they have their Internet access either throttled or even terminated.

Who's On the Right Side of Science?

Given that it's been more than a decade since mass lawsuits against consumers were common, plenty of think-tanks have performed studies on the usefulness of these. Though results are mixed, it's become clear that these lawsuits did more harm than good.

Megaupload Case Study

Academic researchers in Switzerland and Germany studied the famous Megaupload website seizure and shutdown. Available to read on SSRN, the research focused solely on commercial movie releases.

The researchers found some impressive results. It turns out that the shutdown of Megaupload, notorious for hosting copyrighted content, negatively affected revenue for lower-budget box office releases! While very popular and high-budget releases' revenues weren't affected, films made by those with less capital received much less fanfare.

The study speculates that this is likely because torrent communities work as free advertising, so fewer people knew that these movies existed.

The Pirate Bay Case Study

The Pirate Bay, a Sweden-based torrenting site, is well-known for taunting copyright holders. They publicly post their cease and desist letters while not acting on them. A study similar to the one performed on Megaupload was conducted by an impartial party and is also accessible on SSRN.

This study found that when movies were leaked before their release, revenue was indeed harmed, as rights organizations claimed. However, there was a minor increase in revenue when major films were put on P2P community sites, like The Pirate Bay, after they were released. The average net revenue increase was about 3%.

A Quantitative Analysis of Music Purchases and Piracy

Respected industry research giant MusicWatch Inc. performed a study to evaluate the post-mass lawsuit era impact of music piracy in America. A survey of people between 13 and 50 extrapolated that about 57 million people in America alone obtain music from unlicensed sources on a regular basis. This is the highest number ever reported, though this may be because there's much less fear about getting sued than there has historically been in the country.

The study aimed to see what the net impact of torrenting had on overall revenue. It considered concerts, merchandise, and legally purchased music. In an unexpected twist, the researchers found that “pirates” actually put more money into the industry as a whole than people who solely legally obtained music.

Copies of pirated music

And that makes complete sense. Most people who torrent music are more avid fans, often mixing legal and not-so-legal sources. This group was also far more likely to pay for legal music streaming subscriptions and purchase merchandise.

Making Sense of It All

Both sides are biased towards their own interests. But, it's quite clear that the initial authoritarian responses by rights agencies were overkill. In summary of studies performed on the matter, the only type of piracy shown to have a slight decrease in industry revenue was that of unreleased works.

Other types of torrenting generally have a small boost of revenue for the industry and artists. Notably, these studies included sources of income that benefited individual artists far more than wealthy studios and record labels and their Venture Capitalist backers. It appears that their motives were not, after all, to preserve the livelihoods of small artists and creators.

The fact that so many studies got to similar conclusions is not a coincidence. These rights agencies were practically the only entities harmed by piracy. Predicting that the public would generally not care about hurting these already very wealthy organizations, they framed P2P sharing to make the average person feel either too guilty or too scared to engage in it.

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