The Effect Of Internet Piracy

Both the music and gaming industry claim to suffer from major financial losses due to internet piracy. In 2002, Software publishers claimed that, “the worldwide piracy rate for PC business software was 39%, which translated into a $13.08 billion loss in revenue”.

The music industry also recorded losses of up to $4.6 billion as a result of 1.8 billion illegal downloads. (International Planning and Research Corporation 2003).

All these figures indicate significant losses to the relevant copyright owners. (Hui, Kai-Lung, and I.P.L. Png (2003))

Many analysts believe it is due to peer-to-peer (P2P) technologies which lead to the illegal downloading. This type of piracy is known as End-user piracy, which differs greatly from For-profit piracy. End-user piracy seems to be a lot more difficult to control. The music/game industry and policy makers address this issue by reinforcing copyright laws and implementing technological protection and also targeting the developers and users of P2P networks. The ongoing “Eircom vs. The Pirate Bay” debate is an example of this preventative action. But many believe downloading is a form of sampling and also leads to the exposure effect, leading people to find and try new music in order to make more informed purchases which in turn can lead to an increase in CD sales around the world. (Peitz and Waelbroeck (2003))

The harm caused by piracy also depends on publishers’ pricing strategies. When it seems more beneficial for potential shoppers to resort to private copying, publishers could raise the price of the legitimate item to extract the increased consumer surplus. If this happens, directly treating all pirated copies as lost sales would overstate the harm caused by piracy. However, similarly, if publishers deliberately set low prices to discourage copying, then the number of copies would understate the lost revenue (Kai-Lung et al (2003))

There are two ways of copying non-authorized digital products; by obtaining original material from family or friends, or by downloading it directly from the internet. The process of copying music, film or software is very easy, all someone needs is the product and a storage device like a hard-drive or cd-recorder. Digital goods also copy across perfectly when coming direct from the source. On the other hand, downloading from P2P file-sharing websites has a number of considerable disadvantages. Lower quality copies are generally produced and users can spend hours looking for the right download file. Also, frequently, due to the lack of install guides for software and lack of song lyrics, this effort can lead to wasted time. Lastly, files such as music and video files can be badly compressed or incomplete. (Martin Peitz et al (2003))

Literature Review

To illegally copy or distribute unauthorized or counterfeit music, video or software of any type is known as internet piracy. Software is now one of the most heavily distributed products on the internet (Microsoft.com, 2010). This, now a criminal offence, includes the illegal reproduction and duplication of copyrighted computer software, music and films (Hohn, Muftic, & Wolf, (2006)). However the biggest problem in this digital time we live in, as stated by Lysonski & Durvasula, (2008), is the undoubtable fact that the process of downloading music over the internet is reasonably easy. With just a few clicks of a button you can download an artists entire discography, and with the speed of internet access these days it is on your computer in a matter of minutes.

Piracy is most rampant in young people. As seen in the survey conducted by Gallup Poll (2003), 83% of the young people said that downloading of music for free was totally acceptable. In another survey conducted by Freestone and Mitchell (2004) evidence was found to suggest that downloading music was seen as “least wrong” of other criminal internet acts, because they felt no harm was being done to others. It was also found the majority of college students said that downloading music and films was neither an offence or illegal.

(T. Ramayah, Noor Hazlina Ahmad, Lau Guek Chin, May-Chiun, Lo (2009))

This is mostly because of the creation of these P2P networks like Bit-comet & the Pirate Bay and the total digitalisation of music, video and software. It is my belief that because of this process of digitalisation the sale of CD’s around the world has declined. Most reports seem to suggest that P2P networks have a direct negative impact on the digital industry, be it music or games.

Essentially, there are four communication channels that can be used for Internet piracy:

The World Wide Web, a normalised set of standards for storing, getting and displaying information in a client/server environment.

FTP (File Transport Protocol) a protocol for getting and sending files from a remote computer.

Peer to Peer computing (P2P), a form of distributed processing that links computers via the Internet or pirate networks so that they can share processing tasks.

Electronic Mail (e-mail), used for the computer-to-computer exchange of messages and usually the pirated files are sent as attachments, limited to 25mb using Google’s Gmail.

(T. Ramayah et al (2009))

Such huge losses dilute the incentive for development of information product. However, the losses claimed by the computer software and recorded music industries may be excessive. If piracy could be prevented, many of those who used pirated products might not switch to buying the legitimate item. Instead, they might simply not use the product. With no reduction in price, it is not likely for all the illegal users to switch to the legitimate item. (Kai-Lung et al (2003)

Here in Table 1 which was conducted by Kai-Lung et al (2003), reports a very descriptive set of statistics. Consumption of music CDs per capita were a little more than one unit per year, while around 12% owned CD players. The standard deviation of personal disposable income and CD player ownership were large (Table 1) this indicted that the countries in question had different demographic characteristics and income. Worldwide MTV subscription was low per capita, but over the years has started to grow steadily.

This leads us into Table 2 which reports the music CD average price and per capita consumption of pirated and legitimate CDs over a range of countries around the world. As seen in (table 2) the demand for both legitimate and pirated CDs varied across the countries with India having the lowest per capita purchase of legitimate music CDs and the United States having the highest. The consumption of pirated CDs was this time, highest in both Singapore and Hong Kong with the United Stated being the lowest. With a few exceptions (e.g., India and Japan), the average price of music CDs varied moderately across the countries. Kai-Lung et al (2003)

Hui, Kai-Lung, and I.P.L. Png (2003) Piracy and the Legitimate Demand for Recorded Music,

Contributions to Economic Analysis & Policy.

Peitz and Waelbroeck 2003 The Effect of Internet Piracy on Music Sales:

Cross-Section Evidence,

Review of Economic Research on Copyright Issues, 2004

Hohn, D. A., Muftic,L. R., & Wolf, K. 2006. Swashbuckling Students: An Exploratory Study of Internet Piracy.

Lysonski, S., & Durvasula, S. 2008. Digital piracy of MP3: Consumer and ethical

predispositions.

Journal of Consumer Marketing.

T. Ramayah, Noor Hazlina Ahmad, Lau Guek Chin, May-Chiun, Lo 2009 Testing a Causal Model of Internet Piracy Behavior Among University Students

Gallup Poll. 2003. Moral Acceptability of Downloading Music for Free. Gallup Youth Survey.

Freestone, O., & Mitchell, W. 2004. Generation Y Attitudes towards E-ethics and Internetrelated Misbehaviours.

Journal of Business Ethics