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.