Posts Tagged digital media

We are all thieves: the cost of piracy

I used to download tons of movies, series and software (and occasionally games) and I convinced myself that it was not doing any harm. But it was. Piracy is a problem, both ethical and economic.

  1. As long as people pirate with impunity there will be pressure to enact legislation that will restrict what we can do on the internet. We saw this with SOPA, when even Wikipedia protested. However, next time such efforts may fail. I like a free internet. Piracy threatens internet freedom. This is not the fault of the multimedia companies: they have a right to seek legislation to protect their revenue.
  2. Freedom may also be restricted in other ways. The DRM on games has become increasingly restrictive and I refuse to buy ebooks partly because the DRM is annoying. There may come a point when movies are no longer sold on DVDs. Instead, perhaps, everything will be streamed in encrypted format using special software to make it harder to copy.
  3. The arms (and legal) race between product providers and piraters (which is most noticeable with games) is a cost to society.
  4. The makers of a product should have a right to receive revenue from the use of that product. You may argue that such revenue is unfair (for instance if the producer has monopoly power), but the solution is not to pirate. If you want a product, you should pay for it. If products are priced too highly, then this is a case for some kind of anti-trust commission or the government could consider subsidies.
  5. Piracy impedes the natural functioning of the economy. The more people there are who are unwilling to pay for movies and series, the harder it is to produce good quality movies and series. The industry will fail if it cannot profit. I do not know how profit figures look at the moment, but it is probably television channel subscriptions and cinemas that keep the industry going. What happens when people stop their channel subscriptions? The younger generation is far more technological and far more likely to download rather than pay. Will they change their habits when they grow up?
  6. It does not matter if downloading pirated media is legal in your country. The ethical and economic implications are the same.

As a Christian, I think piracy is unethical. As an economist, I think it is dangerous. Electronic media is a good with a positive externality when produced – lots of people get to use it for free. Too little is usually produced of such goods. At the moment, I think it is inertia that is keeping the system going. Perhaps soon a tipping point will be reached where there are too few people willing to pay.

I have sympathy with the fact that some people really cannot afford to buy movies or series. And renting is expensive (at least it is in the Netherlands). But the problem is, how poor is poor enough? I am by no means rich (but that depends on your perspective), but by buying second hand and old movies and some of the cheaper series, I have gotten by. First see what you can buy legally before just hitting “download”.  Perhaps, if you have access to broadband internet and a computer you are rich enough.

Piracy is probably also responsible for the demise of DVD rental stores. There are few left in the Netherlands. They are probably suffering everywhere. That these stores are going out of business is not bad per ­sé. Schumpeter’s creative destruction says such things must happen. And replacement business models are on the rise, but they are at risk of dying in infancy.

Piracy has both highlighted and a consumer need and made it harder to profitably fulfill that need. Consumers want what they want when they want it. On demand. And they want a large selection. Pirate Bay provides this. You search for what you want. You download it. No fuss. Pay on demand services such as offered by Amazon and iTunes allow much the same thing. But they will only work if people are willing to pay rather than simply downloading. At the moment, in the Netherlands, people are not willing to pay and on-demand services are not popular.

I think perhaps the best solution is something akin to that offered by, which allows you to stream videos for free, but with ads. They also have a subscription service with more content. Hulu is currently only available in America and Japan but I hope that it will expand to other regions as well.  Hulu’s solution only works in places with high bandwidth, of course.

I understand there is certain grandeur, a nobility, to the idea that all content and information should be available freely. However, such freedom comes at a cost.  I cannot comment on the intentions of creators of Pirate Bay and Napster or even Aaron Swartz. Perhaps they were noble. But the path market failure is paved with noble intentions.

(I admit I do not know all there is to know about the current market for digital media, so if I have said anything nonsensical, please leave a comment.)

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