Global piracy of digital media is rooted in a problem of pricing, according to Joe Karaganis, program director of the Social Science Research Council (SSRC).
After three years of research by a team of 35 people, Karaganis helped coin the SSRC’s latest revelation on digital piracy in a 440-page report, “Media Piracy in Emerging Economies.”
The report brings a new voice to the debate on digital piracy and is among the first objective reports to study its causes and true impact in individual countries including Russia, Brazil, and China. In its entirety, it debunks many of the claims being used to combat the practice.
“In all the countries we looked at there are very high levels of piracy in media goods. We argue that’s mostly a problem of inadequately developed markets for legal access,” said Karaganis.
Products from DVDs to software are often sold at the same prices globally. According to the report, “Relative to local incomes in Brazil, Russia, or South Africa, the price of a CD, DVD, or copy of Microsoft Office is 5 to 10 times higher than in the United States or Europe.”
This creates a problem in countries with lower income brackets, where a $15 DVD in the United States could equal a price 10 times higher when translated to the local economy. Imagine paying $150 for the latest movie.
Pricing becomes even more problematic with software, where applications can cost hundreds of dollars in the United States, which can translate into thousands in developing countries.
“Software is priced at levels that are just totally unaffordable to the local populations. They are catering to a very small sliver of the population,” says Karaganis.
The issue is complex. Although the companies set prices at levels unaffordable in most developing countries, they are also wary of lowering prices. It may not be profitable to sell at lower prices and there is also concern of devaluing the idea of what a specific program should cost.
“They would face a marketing problem where there are wildly different prices for the same goods,” Karaganis said.
Pirated software, in particular, also has some benefits that companies are wary of losing. Among them are word-of-mouth marketing, peer-provided support, and market saturation. The last of the three is among the most important, as it keeps competitors out of the market while they wait for economies to rise.
Debates around piracy are heated, to say the least. Arrests, heavy fines, and the closing of websites that engage in the act are regular occurrences. “It is estimated that the U.S. economy loses 373,375 jobs annually due to piracy,” states a Department of Professional Employees 2010 fact sheet.
There is also pending legislation to combat piracy. In the United States, much of the debate is around the Combating Online Infringement and Counterfeits Act (COICA) that will fight piracy by closing websites that engage in copyright infringement both directly and indirectly. If passed, even YouTube could be shut down.
A joint letter from Reporters Without Borders (RSF) and eight other organizations states that they “believe that key provisions in the bill will result in serious unintended consequences for freedom of expression and human rights on the Internet, undermining global Internet freedom abroad.”
The entertainment industry takes a different stance on the bill, however, outlined in a Sept. 29 letter representing 300,000 individuals in the industry. “The opposition to this legislation will do all they can to confuse this reality. ... They will turn a blind eye to the looting of one of the strongest American industries by profiteers who contribute nothing to our economy or our culture.”
After three years of research by a team of 35 people, Karaganis helped coin the SSRC’s latest revelation on digital piracy in a 440-page report, “Media Piracy in Emerging Economies.”
The report brings a new voice to the debate on digital piracy and is among the first objective reports to study its causes and true impact in individual countries including Russia, Brazil, and China. In its entirety, it debunks many of the claims being used to combat the practice.
“In all the countries we looked at there are very high levels of piracy in media goods. We argue that’s mostly a problem of inadequately developed markets for legal access,” said Karaganis.
Products from DVDs to software are often sold at the same prices globally. According to the report, “Relative to local incomes in Brazil, Russia, or South Africa, the price of a CD, DVD, or copy of Microsoft Office is 5 to 10 times higher than in the United States or Europe.”
This creates a problem in countries with lower income brackets, where a $15 DVD in the United States could equal a price 10 times higher when translated to the local economy. Imagine paying $150 for the latest movie.
Pricing becomes even more problematic with software, where applications can cost hundreds of dollars in the United States, which can translate into thousands in developing countries.
“Software is priced at levels that are just totally unaffordable to the local populations. They are catering to a very small sliver of the population,” says Karaganis.
The issue is complex. Although the companies set prices at levels unaffordable in most developing countries, they are also wary of lowering prices. It may not be profitable to sell at lower prices and there is also concern of devaluing the idea of what a specific program should cost.
“They would face a marketing problem where there are wildly different prices for the same goods,” Karaganis said.
Pirated software, in particular, also has some benefits that companies are wary of losing. Among them are word-of-mouth marketing, peer-provided support, and market saturation. The last of the three is among the most important, as it keeps competitors out of the market while they wait for economies to rise.
The Piracy Debate
Debates around piracy are heated, to say the least. Arrests, heavy fines, and the closing of websites that engage in the act are regular occurrences. “It is estimated that the U.S. economy loses 373,375 jobs annually due to piracy,” states a Department of Professional Employees 2010 fact sheet.
There is also pending legislation to combat piracy. In the United States, much of the debate is around the Combating Online Infringement and Counterfeits Act (COICA) that will fight piracy by closing websites that engage in copyright infringement both directly and indirectly. If passed, even YouTube could be shut down.
A joint letter from Reporters Without Borders (RSF) and eight other organizations states that they “believe that key provisions in the bill will result in serious unintended consequences for freedom of expression and human rights on the Internet, undermining global Internet freedom abroad.”
The entertainment industry takes a different stance on the bill, however, outlined in a Sept. 29 letter representing 300,000 individuals in the industry. “The opposition to this legislation will do all they can to confuse this reality. ... They will turn a blind eye to the looting of one of the strongest American industries by profiteers who contribute nothing to our economy or our culture.”
Read More... Tone around the piracy debate
Such is the general tone around the piracy debate. According Karaganis, much of the debate is “defined almost entirely by claims of massive losses to the U.S. industry. ... But if you look closely at the data about losses, it becomes very unclear what’s the loss and who’s losing.”
Many companies no longer report piracy losses. It used to be the case that numbers were calculated based on the amount that every pirated item would have brought in. The calculations have “been pretty widely discredited and the industry has been fairly responsive to that criticism,” Karaganis said.
What would be useful is the “substitution rate,” which refers to how many individuals may have actually purchased the item if they did not pirate it. “There is almost no work outside the U.S. and Europe on substitution rates, in part, we think because any finding about those rates would be extraordinarily low,” Karaganis said.
Also, despite reports of massive losses from piracy, sales are growing through most of the entertainment industry. According to the SSRC report, “Software, DVD, and box office revenues in most middle-income countries have risen in the past decade—in some cases dramatically. Sales of CDs have fallen, but the overall music business, including performance, has grown.”
“There are some deliberate misconceptions that are driving the debate,” Karaganis said. Adding that piracy of digital media is often coupled in with the counterfeiting industry, which includes harmful practices including counterfeit pharmaceuticals.
Karaganis believes the latest report will add some much-needed discussion to the piracy debate. He believes its impact will be heard most in countries with developing economies, but, “In the long term I think it’s a necessary adjustment on piracy and enforcement that the U.S. will have to respond to.”
Many companies no longer report piracy losses. It used to be the case that numbers were calculated based on the amount that every pirated item would have brought in. The calculations have “been pretty widely discredited and the industry has been fairly responsive to that criticism,” Karaganis said.
What would be useful is the “substitution rate,” which refers to how many individuals may have actually purchased the item if they did not pirate it. “There is almost no work outside the U.S. and Europe on substitution rates, in part, we think because any finding about those rates would be extraordinarily low,” Karaganis said.
Also, despite reports of massive losses from piracy, sales are growing through most of the entertainment industry. According to the SSRC report, “Software, DVD, and box office revenues in most middle-income countries have risen in the past decade—in some cases dramatically. Sales of CDs have fallen, but the overall music business, including performance, has grown.”
“There are some deliberate misconceptions that are driving the debate,” Karaganis said. Adding that piracy of digital media is often coupled in with the counterfeiting industry, which includes harmful practices including counterfeit pharmaceuticals.
Karaganis believes the latest report will add some much-needed discussion to the piracy debate. He believes its impact will be heard most in countries with developing economies, but, “In the long term I think it’s a necessary adjustment on piracy and enforcement that the U.S. will have to respond to.”
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