The True Cost of Copyright Industry Piracy to the U.S. Economy
by Stephen E. Siwek on 10/03/2007
22 Pages
It is well established that U.S. copyright-protected works are pirated in vast numbers in the U.S. and in international markets throughout the world. This wide-spread theft clearly harms intellectual property (IP) owners, who are denied the revenues they would have earned had their legitimate products been purchased. Such direct losses from copyright piracy damage not only large companies, but small firms too: for example, in 2004, approximately 84% of all firms in the motion picture and video industries and 60% of all software publishing firms employed fewer than ten workers.1
However, these direct losses to copyright owners represent only part of the story. Piracy also causes significant and measurable harm to both the upstream suppliers and downstream distributors who would also have benefited from the sale of legitimate copyright products. Indeed, the harms that flow from piracy produce a cascading effect throughout the economy as a whole.
In order to determine the magnitude of these ripple effects, this paper assesses the harmful impact of the piracy of U.S. produced copyright products on the overall U.S. economy. To accomplish this, data were gathered that reflected the piracy losses incurred in 2005 by four of the major U.S. copyright industries: motion pictures, sound recordings, business software and entertainment software/video games. In 2005, piracy conservatively cost these U.S. industries collectively at least $25.6 billion in lost revenue.
Beyond the cost to the copyright industries, this lost revenue translates into lost production of legitimate copyright products, which in turn means lost wages and lost purchases of upstream products and services throughout the U.S. economy. Using the RIMS II mathematical model maintained by the U.S. Bureau of Economic Analysis (BEA), this study measures the lost economic output, jobs and employee earnings that are the economic consequences of copyright piracy.
Applying the model to the combined copyright industry loss figures reveals the true magnitude of the impact of copyright piracy on the U.S. economy. Because of that piracy:
- The U.S. economy loses $58.0 billion in total output annually. Output includes revenue and related measures of gross economic performance.
- The U.S. economy loses 373,375 jobs. Of this amount, 123,814 jobs would have been added in the copyright industries or in downstream retail industries, while 249,561 jobs would have been added in other U.S. industries in support of the copyright industries.2
- American workers lose $16.3 billion in earnings annually. Of this total, $7.2 billion would have been earned by workers in the copyright industries or in their downstream retail industries while $9.1 billion would have been earned by workers in other U.S. industries.
- Federal, state and local governments lose at least $2.6 billion in tax revenues annually. Of this amount, $1.8 billion represents lost personal income taxes while $0.8 billion is lost corporate income and production taxes.
As these numbers show, the true cost of copyright piracy cannot properly be measured by its impact on the U.S. producers of copyright-protected works alone. Piracy harms not only the owners of intellectual property but also U.S. consumers, workers, and taxpayers. As policymakers turn their attention to the competitiveness of the U.S. economy in the global marketplace, it is clear that the problem of copyright piracy should be afforded a prominent place on the policy agenda.
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