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September 29, 2006

The True Cost of Motion Picture Piracy to the U.S. Economy

IPI Policy Report #186
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Executive Summary:

It is obvious that copyright piracy and counterfeiting harm intellectual property owners, who lose the revenue that would have been gained had the legitimate product been purchased. But that is only part of the story. Piracy and counterfeiting also cause significant and measurable harm to the overall economy, directly affecting upstream suppliers and downstream purchasers, with a cascading effect that includes lost output, lost earnings, lost jobs, and lost tax revenues.

In order to inform policymakers of the true magnitude of piracy’s ripple effect, this paper estimates the impact of piracy in one industry – the motion picture industry - on the overall U.S. economy. Using the RIMS II mathematical model maintained by the U.S. Bureau of Economic Analysis (BEA), this analysis estimates the impact of motion picture piracy on economic output, jobs, personal income, and tax revenues. It is the first of a series of papers that will provide a comprehensive estimate of the overall impact of piracy and counterfeiting.

This study utilizes, as a starting point, the lost revenue figures from a recent and comprehensive worldwide consumer research study conducted by LEK Consulting and released in May 2006 by the Motion Picture Association of America (MPAA). According to the LEK study, MPAA studios lost $6.1 billion to piracy in 2005.

Applying the RIMS II tool to the LEK loss figures reveals that the true cost of movie piracy to the U.S. economy is far more than $6.1 billion. Instead, the comprehensive estimate of losses reveals that: 

  • Motion picture piracy now results in total lost output among all U.S. industries of $20.5 billion annually. Output includes revenue and related measures of economic performance.
  • Motion picture piracy costs U.S. workers $5.5 billion annually in lost earnings. Of this amount, $1.9 billion would have been earned by workers in the motion picture industries while $3.6 billion would have been earned by workers in other U.S. industries.  
  • Motion picture piracy costs jobs. Absent piracy, 141,030 new jobs would have been added to the U.S. economy. Of this total, 46,597 jobs would have been created in the motion picture industries while 94,433 jobs would have been added in other industries.  
  • Motion picture piracy costs governments at all levels $837 million in lost tax revenue. Absent piracy, an additional $147 million in corporate income taxes from motion picture corporations, $91 million in other taxes on motion picture production or sales, and $599 million in personal income taxes from employees would have been paid annually to federal, state and local governments.

The true cost of motion picture piracy far exceeds its impact on the movie producers themselves, and harms not only the owners of the intellectual property but also all U.S. consumers and taxpayers. As policymakers seek to maintain the health and vitality of the U.S. economy and preserve our global competitiveness, it is imperative that government and industry work together to combat this growing problem.


 

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