A study for the international chamber of commerce reckons 2.7 million jobs have been lost since 2004 in Europe because of unlicensed internet downloads, and warns economic losses could treble to €32bn by 2015. The report is backed by trade unions, including the TUC.
The work was led by Patrice Geffon, an economist at Paris Dauphine University, for consultants Tera. It uses the WIPO definition of creative industries, including software, databases and printing as core jobs, and support and consultancy for example as non core jobs. It’s likely to strengthen calls for legal measures to deter downloaders, since picking up unlicensed music, movies and software is currently largely pain and risk free.
“Stemming the rising tide of digital piracy should be at the top of the agenda of policy makers,” the authors conclude.
But it’s not going to be without controversy. Debate over such studies focuses on the net substitution effect – the degree to which a digital download substitutes for a genuine purchase, minus any positive effect of spending on a legitimate good which might not otherwise have taken place. This ratio varies significantly across various types of goods.
For digital music, most academic studies put the figure at 1:10: for every ten CD downloads, the consumer typically forgoes one legitimate purchase. This is significantly lower than the 1:1 ratio some music industry figures insist upon. But still it’s a net negative effect.
One well known academic study by Oberholzer-Gee and Strumpf (2007) calculated a net positive effect, but this is an outlier, and despite its popularity with downloaders (it makes it look like a “victimless crime”) has been contradicted by others. There’s a deeper and more subtle problem with estimates of losses of substitution – I’ll come to that in a moment.
The UK bears the brunt of unlicensed downloads, reckon the academics, because of its high proportion of jobs in creative industries. Tera estimates that 6.2 per cent of UK jobs are in core creative sectors, with a further 3.4 per cent in interdependent and support sectors, such as software consulting for example. The figure includes a slice of telecoms and retail, and comes to 2.7 million workers. The value of the sectors combined amounts to €175bn annually.
The study calculates future trends by multiplying the current substitution estimate for various goods by the future growth rate for IP traffic across the EU.
For music, the academics suggest that “the decline in recorded music sales across the EU is too dramatic to imply a simple coincidence” – a 36 per cent in gross physical sales from 2004 to 2008 was barely compensated by the rise in licensed digital sales, leading to a 26 per cent decline in the retail value of music.
Estimating substitutions in software is harder, and the team use a 50 per cent ratio. Most piracy, they acknowledge, is still “friends and family” sharing an installation CD. A lower amount is 34 per cent is via unlicensed P2P downloads. But is this fair?
One counter example may be the widespread home use of Adobe Photoshop, one of the most popular Bittorrent downloads, and a $500 purchase. If Photoshop wasn’t so easily available, many users may use a cheaper photo editing program. Is it therefore fair to say $500 has been lost?
I said earlier that there’s a bigger, and more subtle problem than squabbling over substitution ratios; it’s that substitution studies tend to be self-fulfilling. They don’t estimate how much a business sector could grow if it engaged with new technologies. The DVD market is a classic example. More recently, games developers have fought an onslaught of piracy by focusing more on social networked games, and closed platforms.
While only a hardcore freetard would dispute that unlicensed downloads hurt (and there are plenty of people for whom this is politics-as-a-hobby) we’re not counting what could be gained. When a business sector commissions one substitution study after another, it’s hard to conclude that its problem is anything except substitution