Filesharing Costs: Dubious Figures Making the Rounds Again

MAY 29, 2009

The BBC ran a story yesterday headlined “Seven million ‘use illegal files’". Its bolded first paragraph stated:

Around seven million people in the UK are involved in illegal downloads, costing the economy tens of billions of pounds, government advisers say. [emphasis added]

7 million people involved in unauthorised file-sharing is possible, but costs of tens of billions of pounds? It’s not unusual to see such figures bandied around by the rightsholders derived from wild guesstimates of download figures and ludicrously unsound assumptions such as equating every download with a lost sale.

Here, however, it is according to “government advisers” – surely a much more reliable source! A quick read and we discover this isn’t the case at all and these figures are directly recycled from rightsholder sources – with an additional uplift from the BBC: a possible £10 billion or more a year has becomes tens (notice that extra “s”) of billions a year.

First off, the story is based on a report entitled “Copycats? Digital Consumers in an Online Age” commissioned by the Strategic Advisory Board in Intellectual Property (SABIP) from UCL’s Centre for Information Behaviour and the Evaluation of Research. So this is CIBER’s report not SABIP’s – SABIP need not even have endorsed the report. That said, one can see how the BBC’s confusion came about, and this is a minor point (after all CIBER is part of a university).

More important is a check of the actual evidence underlying these very large claimed costs to the economy. Let’s take a look at the report. Page 6, at the start of the Exec Summary states (this is where I guess the BBC got its material from):

Industry reports [3] suggest that at least seven million British citizens have downloaded unauthorised content, many on a regular basis, and many also without ethical consideration. Estimates as to the overall lost revenues [4] if we include all creative industries whose products can be copied digitally, or counterfeited, reach £10 billion (IP Rights, 2004), conservatively, as our figure is from 2004, and a loss of 4,000 jobs. This is in the context of the “Creative Industries” providing around 8% of British GDP. And the situation is not solely a British problem, but a global one. …

But wait a moment: their only source here seems to be (IP Rights, 2004) and that turns out to be a single page press release from an IP (law) firm which simply states:

“Rights owners have estimated that last year alone counterfeiting and piracy cost the UK economy £10 billion and 4,000 jobs.”

So these are just the standard (and utterly unreliable) rightsholders-claimed figures (and not even first-hand!). To be fair in footnote 4 the authors acknowledge that the phrase “lost revenues” is complex and that not all downloaded content would have been purchased. However, they then seem to backtrack on this by saying (rightsholders provided figures again!):

Nevertheless, industries such as music and film do frequently publish estimated lost revenues, or “value gaps’. The BPI recently claimed that between 2008 and 2012 the music industry was looking at a ‘value gap’ of £1.2 billion. (Music Ally, 2008)

Furthermore, that claim that things are “complex” worries me, as things are, in fact, pretty simple: lost revenues mean lost revenues, i.e. the revenues the industry would have got if no unauthorised downloading had occurred. This will clearly be much, much lower than a figure based on assuming every unauthorised download is a lost sale.

Furthermore, looking at revenues in a single industry is dangerous here: we’ve got to look at the overall impact on the economy (and that’s still ignoring the welfare/income distinction). For example, if someone makes an unauthorised download rather than buying a CD they spend the money they would have spent on the CD on something else, be that a haircut, a meal, or going to a concert. If we want to count that as a loss to the music industry we need to count the gain it generates elsewhere.

Good evidence doesn’t get any thicker on the ground later on either as far as I can tell. For example, in the first key finding section (entitled “The scale of the ‘problem’ is huge and growing”):

  • The only empirical study they cite on the impact of filesharing is that Zentner with no mention of some other major studies such as that of Oberholzer and Strumpf.
  • The only figure on the film industry they quote is a claim of a $6 billion annual loss put forward by the UK film industry in interview and “some research (Henning-Thurau et al., 2007) [which] appears to demonstrate evidence that consumers’ intention to pirate movies “cause them to forego theatre visits and legal DVD rentals and/or purchases.". Looking up that citation one finds (seems there was a typo in the date!): Henning-Thurau, T, Gwinner, K, Walsh, G, Gremler, D (2004) Electronic Word of Mouth via Consumer-Opinion Platforms: What Motivates Consumers to Articulate Themselves on the Internet? Journal of Interactive Marketing. 18 (1) pp.38-52. While I haven’t actually read this article, the title (and journal) don’t suggest this as the most reliable source as to the actual effect of unauthorised downloads on film industry income.

To sum up: it turns out the BBC’s line that illegal downloads are “costing the economy tens of billions of pounds” is based on nothing more than the usual, and completely unreliable, rightsholders claims, recycled via CIBER’s report. This is a worrying example of how industry PR, via repetition in other, more “respected” and supposedly independent sources, can gain legitimacy.