Does Piracy Cause Economic Harm? How To Think About Economic Frontiers

Lost in the discussion of internet censorship, anti-piracy measures, and the politics of the internet is a simple question: does piracy actually cause economic harm?

Tim O’Reilly read the White House statement on the SOPA / PIPA legislation and came away with mixed feelings.

“I found myself profoundly disturbed by something that seems to me to go to the root of the problem in Washington,” he writes, “the failure to correctly diagnose the problem we are trying to solve, but instead to accept, seemingly uncritically, the claims of various interest groups.”

He goes on to quote this passage from the White House statement on piracy:

“Let us be clear—online piracy is a real problem that harms the American economy, and threatens jobs for significant numbers of middle class workers and hurts some of our nation’s most creative and innovative companies and entrepreneurs. It harms everyone from struggling artists to production crews, and from startup social media companies to large movie studios. While we are strongly committed to the vigorous enforcement of intellectual property rights, existing tools are not strong enough to root out the worst online pirates beyond our borders.”

O’Reilly continues:

In the entire discussion, I’ve seen no discussion of credible evidence of this economic harm. There’s no question in my mind that piracy exists, that people around the world are enjoying creative content without paying for it, and even that some criminals are profiting by redistributing it. But is there actual economic harm?

In my experience at O’Reilly, the losses due to piracy are far outweighed by the benefits of the free flow of information, which makes the world richer, and develops new markets for legitimate content. Most of the people who are downloading unauthorized copies of O’Reilly books would never have paid us for them anyway; meanwhile, hundreds of thousands of others are buying content from us, many of them in countries that we were never able to do business with when our products were not available in digital form.

History shows us, again and again, that frontiers are lawless places, but that as they get richer and more settled, they join in the rule of law. American publishing, now the largest publishing industry in the world, began with piracy. [...]

If the goal is really to support jobs and the American economy, internet “protectionism” is not the way to do it.

As Mr. O’Reilly points out, if we really want to prevent economic harm, a far better way would be to enact patent reform. Patent trolls aren’t the only problem with patent law, either. The entire concept of patents came about before the information age and needs to be brought up to speed.

I think O’Reilly’s framing of this issue as a lawless frontier is fascinating. Do we risk closing off foreign markets by clamping down on foreign ‘rogue’ websites? This actually makes a lot of sense, unless you think that the people pirating these works would buy them instead. Is that likely, though?

The frontier is closer to home when it comes to American pirates. I don’t have the numbers, but from personal experience I know that most people I’ve encountered who actually download music or movies illegally are doing it when they’re young, stupid, and broke. They would almost certainly not be buying the music or movies if piracy wasn’t available. If that’s the case, then no real net economic harm is being done.

In some ways, these young, stupid, broke pirates are the frontier of American consumers. They haven’t become successful yet, but when they do they very likely will become actual consumers who spend their very real cash on music and movies and so forth. Cultivating this frontier is important, too.

In any case, I think that it is important to have this conversation in a public forum where the evidence can be properly discussed. The entertainment industry sees piracy as a very big problem. Some in congress have accepted this unblinkingly. Advocates of a more open internet say that these people are taking too narrow and too short-term a view – and I tend to agree. The only way to really move forward without doing something glaringly awful like full-blown internet censorship is to have the debate in as transparent and open a manner as possible.

I have mixed feelings myself about all of this. On the one hand, I think that Tim is largely correct, and I think that artists and musicians and creative types have a whole brave new world in front of them with possibilities they never had before. The potential autonomy and creative freedom right now is staggering.

At the same time, I think theft is wrong. I don’t think people should steal what others have worked on. But it’s also a response to market realities. CD’s were over-priced and not usually very good before Napster came along. Music, I would argue, has gotten better over the years since then – and more available. Movies and television shows need to be easily accessible online also or people will resort to downloads. Industry can’t simply respond by cracking down.

Some in the entertainment industry do see it differently, like Minecraft creater Notch. “Piracy is not theft,” he said. “If you steal a car, the original is lost. If you copy a game, there are simply more of them in the world. There is no such thing as a ‘lost sale’. Is a bad review a lost sale? What about a missed ship date?”