The Australian Federation Against Copyright Theft (AFACT) yesterday released a report entitled "Economic consequences of movie piracy", which purports to show that illegal downloading is costing the Australian economy $1.37 billion every year. That is an alarming sum - or rather it would be, if we could take it at face value. The copyright industry is well known for offering up gargantuan figures that don't hold up under real scrutiny.

We encourage a skeptical reading of this report, and in particular, we note:

1. The assumption that 45% of downloads equal lost sales is unproven and insufficient evidence is provided to support it. The survey method cited is better than assuming 100% of downloads are lost sales, but there is better analysis in other studies - for example this piece by Lawrence Lessig. If the study was correct, sales of DVDs and attendance at cinemas would be much more reduced than the reported industry figures. In fact, the movie industry is making record profits.

2. It can't be ignored that downloads have an advertising effect both on the product downloaded and future releases. To the extent sales may be lost, these must be offset against other gains from advertising.

3. Gross revenue is not the relevant metric, due to variables such as investment in capital, distribution and costs of sales. Many of the movies downloaded may not have been available to view or buy in Australia. Profit is the metric of importance, but this is never studied.

4. Flow-on effects to other industries are wholly speculative, and lost tax on profits assumes the entities pay Australian company tax on sales pro-rata to revenue, which is not intuitive or evidenced. It also assumes that money not spent on movies is lost to the economy, instead of helping to create jobs in other sectors.

5. Peer to peer file sharing is merely the latest in a sequence of technologies since the 19th century which have been claimed to be the ruin of the creative arts. See chapter 15 "Piracy" by Adrian Johns (University of Chicago Press 2009) - the copyright owners said the same thing about copies of sheet music, tape recorders, every iteration of personal recording system and indeed public radio. However, "home piracy" acts not only as a loss to industry but also as a boon to distribution, bypassing censorship and limitations on sales by official outlets.

6. The report suffers, as have other industry-funded studies, from "GIGO". With an assumption that "downloads = losses" unproven, all conclusions estimating the size of the loss are equally unproven. What if a vibrant sharing culture increases total sales for media respected as quality by consumers, but reduces sales of hyped media? (Research has shown that the biggest downloaders in fact spend more on entertainment than non-downloaders.)

7. The call-to-action of this report is obviously to "crack down on piracy", shifting the cost of file-sharing from the industry to the taxpayer via increased law-enforcement. No industry, let alone the foreign-dominated entertainment industry, deserves a free ride for its business model. If instead, the industry noted that the report says 55% of downloads created a market for sales, much of which is unsatisfied due to current restrictive trade practices, then its future profitability would be in its own hands.

8. Repeated studies have demonstrated that the entertainment industry vies for money and commitment of time with all other forms of entertainment. The Internet, computer games and mobile telecommunication applications take "eyeballs and dollars" away from DVD and CD sales, but also sports arenas, sales of board games and printed works. Magazines are also suffering from a reduced value proposition with the Internet, and some forms of entertainment and some businesses in the industry will no doubt find it difficult to remain vibrant. Change is consumer-driven, and it's futile for the industry to try to hold fast to a business model and methods of content distribution which are dying with or without fierce law enforcement of copyrights.

We presume that the release of this report is a precursor to a renewed campaign for tougher penalties against file-sharing in Australia, such as a mandatory "three strikes" scheme to remove families from the internet completely. If so, Electronic Frontiers Australia will fight for the rights of Australian Internet users threatened by such a legislative over-reaction.

We urge the movie industry to cease waging war on its best customers, and instead focus on providing a more compelling offering to the public. The best way to ensure future profitability is to make quality entertainment available in an easy-to-use form, free from cumbersome rights-restricting controls, and at a reasonable price.

10 comments

  1. As Australia has relatively low data download threshholds (and relatively high cost of downloads) anyone who wants a hi-def quality copy of a movie will unlikely download (although they may download a lesser quality copy initially). For most Aussies it's nearly as cheap to buy a BlueRay off the shelf than blow 10-20GB of their download limit on one movie in high def. For many that would be roughly half to a third of their download limit. If the movie industry are serious about reducing online piracy, they need to be doing deals with ISPs to allow legitimate movies to be downloaded quota free.

    Comment by @TehJedMeister on 18 February 2011 at 7:57 am
    • I have 400 GB per month, for less than $80 per month... I could have stayed on the top plan and had 1000 GB (1 TB), but I didn't feel I needed it, so I downgraded. 10-20GB for a movie is not too bad. I prefer good quality ones. my only issue is that a 1 TB hard disk costs about the same as 1 TB download per month. So if I was to REALLY use it, I'd have to spend double to buy the space to store all my downloads!!

      But of course I only download Linux ISOs ;)

      Comment by @Skyhawker420 on 18 February 2011 at 1:15 pm
    • Unlimited downloads at $60 a month with TPG

      Comment by DirkGently on 18 February 2011 at 2:54 pm
    • This is so obvious that I'm at a loss to understand why the industry ignores it. AFACT seems to enjoy pulling numbers out of its arse in a shabby attempt to vilify almost every internet user. As for our home of two adults who enjoy a good cable internet connection and a liberal data allowance, we don't go to the cinema, we don't buy DVDs, and we don't rent movies. Nor do we "illegally download" movies. Why? Because we satisfy all our movie-watching lust with a premium Foxtel account, preferring to watch movies in the comfort of our lounge room, on our nice little HD 46" LCD screen. With our IQ PVR, we always have a couple of dozen watchable movies in store for when the mood takes us. Evidently AFACT chooses to impugn people like us, accusing us of crimes we haven't committed. A pox on them!

      Comment by Michieux on 26 February 2011 at 12:46 am
  2. Excellent summary on the inaccuracies of AFACT's report. By their reasoning, the cost of electronic entertainment in Australia is a form of theft itself. I think one of the big reasons people are not buying these products as much anymore is due to the low quality of the products they produced today. The plots are basic and rehashed from other movies, focus on effects, advertising products within the movie/game for extra revenue, looks are more important than acting, rushed productions instead of producing quality to make a quick profit, the large amount of terrible remakes because they don't want to invest in a new idea/story etc...

    For example: Inception was classed as a excellent movie, good acting, good plot ect.. But when you compare it to movies that were released in the 90's it would of been classed as an average movie. But due to the other movies that year being so poor, an average move stands out and gets awarded with such high reviews because of those factors. Today, we are lucky to see 5 good movies a year. 10-20 years ago, I doubt we would of had 10 bad major production movies.. It's not due to a lack of new ideas, it's due to the marketing and profit focus the industry has adopted. Most entertainment products released today are about money more than a great product. The industry doesn't only need to change their sales model, they also need to look at the quality of the product their producing. We can't return movies, games, music etc.. because they are terrible or not what they claimed them to be via their advertising. If we could, then you would find a massive increase of sales and quality of the productions would be truly something consumers would want to pay for.

    Most other industries need to abide to this, why shouldn't the entertainment industry?

    Whatever happened to providing quality products and customer satisfaction?

    Comment by Brad on 18 February 2011 at 10:04 am
  3. a study done by the .jp gov claiming that online piracy actually leads to more sales.

    http://www.rieti.go.jp/en/publications/summary/11...

    Comment by nic on 18 February 2011 at 10:24 am
  4. Good summary. I created this alternative flowchart for a few key decision points that the AFACT one misses: http://mattblr.tumblr.com/post/3353620023/david-s...

    Comment by Matt Giuca on 18 February 2011 at 11:04 am
  5. @nic - interesting study! We'll make a note of that one.

    @Matt - like the flowchart! I'll tweet that one out.

    You forgot "Would you have bought it if there was an easy way to grab it for a few dollars legally with no DRM?"

    Comment by efa_oz on 18 February 2011 at 11:15 am
  6. @efa_oz: Have you read the rebuttal here - it's interesting, and truth be told, it is pretty critical of your analysis and really appears to shut down many arguments you make. Certainly makes some of your references of Lessig appear to be taken out of context.

    Partially covered here: http://www.zdnet.com.au/afact-rebuts-privacy-pund...

    and the press release pasted below. I hope the irony is not lost on you that you support an IPSOS study (music survey) to try and debunk another IPSOS study....

    Your thoughts?

    The full reply below:

    Comment by ExquisiteKJ on 24 February 2011 at 6:52 pm
  7. Sorry - too long to attach - here is the link: http://www.afact.org.au/pressreleases/2011/23-2-2...

    Comment by ExquisiteKJ on 24 February 2011 at 6:53 pm