Pirates robbed U.S. of $20.5 billion

New analysis on total economic effect shows retailers out $874 million

By Paul Sweeting -- Video Business, 9/29/2006

SEPT. 29 | WASHINGTON—The U.S. economy lost a total of $20.5 billion in 2005 as a result of movie and TV piracy, according to a new analysis released Friday.

The study, sponsored by the Institute for Policy Innovation, a property-rights-oriented think tank in Lewisville, Texas, is being billed as the first systematic effort to estimate the total economic effect of movie piracy, including the impact of studio losses on industries that support and supply Hollywood.

Among those related industries, total losses from piracy within the retail economy last year were $1.92 billion, including direct losses to DVD retailers and pay-per-view and video-on-demand providers of $874 million as well as wages lost and lost economic activity among industries that directly support video retailing.

“The true cost of motion picture piracy far exceeds its impact on the movie producers themselves,” the report states. “It harms not only the owners of the intellectual property but also all U.S. consumers and taxpayers.”

The study was conducted by Stephen E. Siweke, a principal with the economic consulting firm Economists, Inc. It was presented at the conclusion of a two-day conference here on piracy and counterfeiting sponsored by the U.S. Chamber of Commerce.

The new analysis took as its starting point a Motion Picture Assn. of America-sponsored study conducted by LEK Consulting and released in May. That research estimated that total studio losses from piracy last year were $6.1 billion, including sales and box-office grosses lost to DVD counterfeiting, illegal file-trading and what LEK defined as “illegal copying,” including “making illegal copies for self or receiving illegal copies from friends of a legitimate VHS/DVD/VCD.”

The IPI study then used standard mathematical models established by the federal government for estimating the “multiplier effect” of certain kinds of activities throughout the economy.

“The LEK figure of $6.1 billion in lost revenue does not provide a full picture of the effects of movie piracy,” the IPI study says. “In particular, it does not include losses sustained directly by ‘downstream’ industries like motion picture theatrical exhibitors or the video industry legitimately selling or renting U.S. films to consumers. In addition, the LEK figures do not include all of the secondary and tertiary losses sustained by the many U.S. industries that would have supplied inputs directly to the motion picture industry, the industry’s direct suppliers or to the suppliers of those direct suppliers.”

Estimating those additional losses using the standard economic models brings the total losses suffered in the overall Hollywood economy to $18.6 billion.

Similar calculations resulted in the $1.92 billion in estimated retail and retail-related losses.

At the time the LEK report was released, however, objections to its methodology were raised by some critics of the studios’ anti-piracy agenda, in particular, the research’s reliance on consumer surveys to estimate how many DVDs or theater tickets downloaders would have bought had they not been able to obtain the movies they watched from illegal file-trading sites.

Some critics also objected to including casual copying of DVDs for back-up purposes or to give to friends and family among purported losses from piracy.

The new IPI analysis does not address those objections and includes most of the major findings from the LEK study in an appendix.

The IPI study goes on to estimate piracy’s impact on jobs and wages throughout the economy.

Again using the LEK data as a starting point and applying standard mathematical models, the study estimates that piracy cost the economy 141,030 jobs last year, resulting in $5.4 billion in lost wages.

Those figures include 20,945 jobs lost within the retail and retail-related sector, resulting in $587 million in lost wages.