Is the Cost of Internet Piracy Overhyped?

“Any other musicians notice that ever since they shut down MegaUpload, the money has just been POURING in?”

So tweeted independent songwriter and recording artist Jonathan Coulton yesterday, in what might be the most succinct challenge to the federal government’s claim that, the file sharing service facing federal charges of intentionally pirating content, has cost singers, actors, writers and producers $500 million in lost revenues and royalties.

Coulton’s comment, which was followed by a more in-depth blog, both spotlighted at TechDirt, contributed to the ongoing debate over the accuracy of the half-billion-dollar number. In addition to the due process concerns raised by the government’s abrupt shutdown of the Megaupload site, more and more commentators are challenging industry assertions about the amount of losses piracy creates. Actor Wil Wheaton, for example, said Hollywood loses more money through “creative accounting” than it does through piracy.

Coulton himself, who does not have a label but sells recordings via the Web, believes the cost of piracy is overstated:

Is it really as dire as all that? It’s an emergency is it? Tim (O’Reilly) points out that he and a lot of other content creators have been happily coexisting with piracy all this time, and I’m certainly one of them. Make good stuff, then make it easy for people to buy it. There’s your anti-piracy plan [emphasis Coulton’s]. The big content companies are TERRIBLE at doing both of these things, so it’s no wonder they’re not doing so well in the current environment. And right now everyone’s fighting to control distribution channels, which is why I can’t watch Star Wars on Netflix or iTunes. It’s fine if you want to have that fight, but don’t yell and scream about how you’re losing business to piracy when your stuff isn’t even available in the box I have on top of my TV. A lot of us have figured out how to do this.

So if you can stand me sounding a little crazy, listen: where is the proof that piracy causes economic harm to anyone? Looking at the music business, yes profits have gone down ever since Napster, but has anyone effectively demonstrated the causal link between that and piracy? There are many alternate theories (people buying songs and not whole albums, music sucking more, niches and indie acts becoming more viable, etc.). The Swiss government did a study and determined that unauthorized downloading (which 1/3 of their citizens do) does not create any loss in revenue for the entertainment industry.

Elsewhere, the Cato Institute’s Julian Sanchez also questions whether the true economic cost of piracy warrants such an overbearing legislative response.

…I remain a bit amazed that it’s become an indisputable premise in Washington that there’s an enormous piracy problem, that it’s having a devastating impact on U.S. content industries, and that some kind of aggressive new legislation is needed tout suite to stanch the bleeding. Despite the fact that the Government Accountability Office recently concluded that it is “difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole,” our legislative class has somehow determined that—among all the dire challenges now facing the United States—this is an urgent priority. Obviously, there’s quite a lot of copyrighted material circulating on the Internet without authorization, and other things equal, one would like to see less of it. But does the best available evidence show that this is inflicting such catastrophic economic harm—that it is depressing so much output, and destroying so many jobs—that Congress has no option but to Do Something immediately? Bearing the GAO’s warning in mind, the data we do have doesn’t remotely seem to justify the DEFCON One rhetoric that now appears to be obligatory on the Hill.

No one is saying copyright and intellectual property shouldn’t be protected. However, a time out may be in order. The two bills designed to combat Internet piracy, Protect Intellectual Property Online Act (PIPA) and the Stop Online Piracy Act (SOPA) are sweeping and may constitute the use of a bazooka to kill if not a fly, maybe a very large cockroach.