Report: Piracy a “global pricing problem” with only one solution

A major new report from a consortium of academic researchers concludes that media piracy can’t be stopped through “three strikes” Internet disconnections, Web censorship, more police powers, higher statutory damages, or tougher criminal penalties. That’s because the piracy of movies, music, video games, and software is “better described as a global pricing problem.” And the only way to solve it is by changing the price.

Over the last three years, 35 researchers contributed to the Media Piracy Project, released last week by the Social Science Research Council. Their mission was to examine media piracy in emerging economies, which account for most of the world’s population, and to find out just how and why piracy operates in places like Russia, Mexico, and India.

Their conclusion is not that citizens of such piratical societies are somehow morally deficient or opposed to paying for content. Instead, they write that “high prices for media goods, low incomes, and cheap digital technologies are the main ingredients of global media piracy. If piracy is ubiquitous in most parts of the world, it is because these conditions are ubiquitous.”

When legitimate CDs, DVDs, and computer software are five to ten times higher (relative to local incomes) than they are in the US and Europe, simply ratcheting up copyright enforcement won’t do enough to fix the problem. In the view of the report’s authors, the only real solution is the creation of local companies that “actively compete on price and services for local customers” as they sell movies, music, and more.

Some markets have local firms that compete on price to offer legitimate content (think the US, which has companies like Hulu, Netflix, Apple, and Microsoft that compete to offer legal video content). But the authors conclude that, in most of the world, legitimate copyrighted goods are only distributed by huge multinational corporations whose dominant goals are not to service a large part of local markets but to “protect the pricing structure in the high-income countries that generate most of their profits.”

This might increase profits globally, but it has led to disaster in many developing economies, where piracy may run north of 90 percent. Given access to cheap digital tools, but charged terrific amounts of money for legitimate versions of content, users choose piracy.

In Russia, for instance, researchers noted that legal versions of the film The Dark Knight went for $15. That price, akin to what a US buyer would pay, might sound reasonable until you realize that Russians make less money in a year than US workers. As a percentage of their wages, that $15 price is actually equivalent to a US consumer dropping $75 on the film. Pirate versions can be had for one-third the price.

Simple crackdowns on pirate behavior won’t work in the absence of pricing and other reforms, say the report’s authors (who also note that even “developed” economies routinely pirate TV shows and movies that are not made legally available to them for days, weeks, or months after they originally appear elsewhere).

Indeed, the authors have seen “little evidence—and indeed few claims—that enforcement efforts to date have had any effect whatsoever on the overall supply of pirated goods. Our work suggests, rather, that piracy has grown dramatically by most measures in the past decade.”

The “strong moralization of the debate” makes it difficult to discuss issues beyond enforcement, however, and the authors slam the content companies for lacking any credible “endgame” to their constant requests for more civil and police powers in the War on Piracy.

Joe Karaganis, who writes the report’s opening chapter, “Rethinking Piracy,” concludes his section with an endorsement of the idea that piracy is a “signal of unmet consumer demand.” Many content companies and trade organizations have started to embrace this view, but turning a ship this large takes years.

In the meantime, says Karaganis:

Our studies raise concerns that it may be a long time before such accommodations to reality reach the international policy arena. Hardline enforcement positions may be futile at stemming the tide of piracy, but the United States bears few of the costs of such efforts, and US companies reap most of the modest benefits. This is a recipe for continued US pressure on developing countries, very possibly long after media business models in the United States and other high-income countries have changed.

Footnote: The study itself uses an interesting “Consumer’s Dilemma” license, which charges $8 for the report to residents of high-income countries and offers it free for noncommercial use to everyone else (including Canada, which is not “high income.” Who knew?)

Further footnote: Canada’s not on the list because a government-funded development agency contributed some of the report’s funding.