Hudson Institute

What the Online Piracy Data Tells Us About Copyright Policymaking

J. Erik Jonsson Professor of Information Technology and Marketing
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I. Introduction

The question of whether piracy harms creators and consumers—and whether anything can be done about it—has been discussed in policy circles for centuries. These debates have heated up in recent years as Congress considers how to address the continued reality of online piracy.

Some organizations, including those aligned with technology companies that benefit from the proliferation of pirated content, take the position that piracy is essentially harmless to creators and consumers alike. Other groups strongly disagree, arguing that the harm from piracy reverberates throughout the creative ecosystem to the detriment of society. Such conflicting views can obscure the truth about online piracy from the view of policymakers, especially when they are presented with the veneer of plausibility.

While some advocates may favor ideology over evidence in assessing the impact of online piracy, policymakers who rely on unproven claims risk causing unnecessary harm to the marketplace for copyrighted works as well as to society. The problem for policymakers is exacerbated by the fact that both sides of the debate can offer perfectly reasonable theoretical arguments to support their positions.

Thankfully, policymakers do not need to rely on theories about piracy that are inconclusive and unhelpful; they can instead look at the empirical data. Economists and other academic researchers have been seriously studying the impact of online piracy for over two decades—since the early days of peer-to-peer filesharing with Napster. We now have plenty of high-quality, empirical studies from which to draw reliable conclusions for evidence-based policymaking.

This policy memo summarizes the peer-reviewed empirical research into the impact of online piracy on the marketplace for creative works, drawing heavily on similar reviews of the literature my colleagues and I have produced in papers, testimony, and book chapters.1 As I will demonstrate in greater detail below, this academic literature leads to three broad conclusions that are particularly relevant to copyright policymakers today:

  1. First, digital piracy harms creators by reducing their ability to make money from their creative efforts.
  2. Second, digital piracy harms society by reducing the economic incentives for investment in creative output.
  3. Third, legislative interventions implemented worldwide have been effective in reversing these harms.

In short, with near unanimity, the peer-reviewed empirical literature confirms what many advocates for the creative ecosystem have been claiming for years, namely, that online piracy harms both creators and consumers. Moreover, this same literature demonstrates that policymakers can actually do something about it. By enacting legislative anti-piracy efforts that are appropriate in scope, policymakers can effectively reverse some of the harms caused by online piracy.

II. The Peer-Reviewed Academic Literature on Online Piracy

Policymakers seeking to understand and address online piracy can learn a great deal from empirical research published in peer-reviewed academic journals. Peer-reviewed publications are important because the peer-review process represents the gold standard in academic research. Peer review requires authors to convince journal editors and anonymous referees trained in the discipline that the article’s claims are accurate and trustworthy. This typically involves multiple rounds of revisions, with the most selective “A” journals accepting only a small fraction of submitted articles.

There are three main conclusions one can draw from the peer-reviewed academic literature on the impact of online piracy—conclusions that are broadly accepted among scholars doing research in this area. The first two takeaways from this empirical analysis match what for many is intuitively self-evident: online piracy harms creators because they make less money, and it likewise harms society at large because, with lower economic incentives to create, creators make and distribute fewer works for the public to enjoy. The good news for policymakers, and the third takeaway from the literature, is that the empirical evidence also shows that legislative directives aimed at protecting copyrighted works from online piracy can reduce these harms, benefiting the creative ecosystem and society as a whole.

A. Digital piracy harms creators by reducing their ability to make money from their creative efforts.

The U.S. Constitution grants Congress the power “to promote the progress of science . . . by securing for limited time to authors . . . the exclusive right to their respective writings.”2 The theory behind this constitutional provision is that copyright protections provide creators and rights owners with economic incentives to invest in making and disseminating new creative content. Copyright owners are given exclusive rights with which they can profit in the marketplace while preventing others from usurping those profits without permission. The Constitution thus predicts that the absence of legally enforceable rights will negatively affect the ability of creators to profit from their investments in creative output.

These legal protections are particularly important today where digitized works like films, books, music, television shows, and software can be reproduced and distributed online at near-zero cost. A straightforward application of economic theory predicts that digital piracy will significantly diminish the profitability of legal markets for these creative works. Again, this theory makes intuitive sense. After all, it is generally more difficult to convince someone to pay for something when it is available for free.

And, not only do these theories make intuitive sense, they are also consistent with the empirical evidence in the peer-reviewed academic literature. Specifically, as my colleagues and I documented in a 2020 piracy landscape study for the U.S. Patent and Trademark Office,3 there are 33 articles published in peer-reviewed academic journals that study whether piracy reduces legal sales (see Tables 1 and 2 below for a summary of these papers). Notably, 29 of these 33 studies find that piracy causes statistically and economically significant harm to sales in legal channels. These papers span music, television, books, and films; address both domestic and international markets; and have considered the sale of CDs, DVDs, Blu-Ray discs, legal digital downloads, paid video streaming services, and theatrical box office revenue. These articles were written by 51 different professors at 36 different universities and include 10 articles published in the most prestigious “A” academic journals.

In short, there is a broad consensus in the peer-reviewed academic literature that online piracy does exactly what one would expect: it makes it harder for creators and rights owners to make a fair market return on their investments in content creation and dissemination.

B. Digital piracy harms society by reducing creators’ economic incentives to invest in creative output.

The flip side of the above question about the impact of online piracy on creators is the question of whether online piracy also harms consumers. The Constitution recognizes the logical connection between the two: Congress is empowered to grant exclusive rights to creators as an incentive for them to create and disseminate their works to the public because this in turn will “promote the progress of science” to the benefit of society by providing consumers with new creative works.4 The constitutional theory behind copyright law is that the public interest is promoted by empowering creators to pursue their own private interests. If creators lack the proper incentives to make and disseminate their creative works, society suffers as a result.

Creators and rights owners invest substantial resources in terms of time, money, talent, energy, and risk to create the copyrighted works that benefit us all. For example, music labels may devote millions of dollars to break a new artist, Hollywood films regularly have production budgets of several hundred million dollars, and authors can spend years working on a single book. When creators and rights owners have limited opportunities to recover their initial investments, economic theory predicts that they will similarly have reduced incentives to create future copyrighted works. Here again, the economic theory matches the constitutional theory. Reduced creative incentives can cause significant problems for both creators and the broader society that benefits from their talents.

Moreover, the available empirical evidence is consistent with these theoretical predictions. Despite its logical relation to the question of harm to creators, the question of harm to consumers is harder to answer because it requires separating the impact of online piracy from the impact of other simultaneous technological changes that may skew the results. Consequently, far fewer articles have studied this particular issue. In fact, I am aware of only two published studies that attempt to separate these distinct effects.

Specifically, my colleagues Rahul Telang and Joel Waldfogel studied this question in a peer-reviewed journal article by analyzing the rise of VCR-based piracy in India.5 Their article looks at the time periods before and after the introduction of the VCR led to VHS-based piracy throughout the country. They find that both Bollywood revenues and the number of Bollywood films increased before the VCR became widely available. Yet, after VHS-based piracy became commonplace in India, they find a corresponding drop in revenue, the number of movies produced by Bollywood studios, and the quality of the remaining movies as measured by IMDB ratings. These findings are consistent with the theory that by reducing creators’ economic incentives, piracy causes a sharp drop in both the number and quality of movies that otherwise would have been produced.

Brett Danaher and I took a different approach to analyze whether piracy impacts the supply of creative content in an article published in the George Mason University Law Review.6 We note that while all countries experienced a surge in video piracy after the development of the BitTorrent protocol for peer-to-peer filesharing, the effect was more prevalent in some countries than others. Recognizing that it is difficult to produce a foreign film unless it will perform well in its local market, we asked whether domestic output of Academy Award–winning (or –nominated) films decreased in high-piracy countries after the introduction of BitTorrent, as compared to the change in Academy Award quality output in lower-piracy countries.

The data shows that this was indeed the case. Countries whose domestic markets were most harmed by piracy suffered precipitous drops in the number of award-winning films produced for those domestic markets, relative to much smaller or no changes in countries whose domestic markets experienced less harm from piracy.

Thus, there is significant empirical evidence in the academic literature that online piracy decreases the revenues available to creators of copyrighted works, and that this reduction in revenues has harmed consumers by reducing both the quantity and quality of creative output that would have occurred absent piracy.

C. A variety of anti-piracy interventions implemented worldwide have been effective in reversing these harms.

While it is clear from the empirical data that online piracy harms creators and rights owners by reducing their revenues, and that this in turn harms consumers because it reduces the quantity and quality of creative output, the question remains whether there are proven strategies that policymakers can use to reverse these harms. The good news for policymakers is that the empirical evidence shows that legislative efforts can make a significant difference.

The peer-reviewed academic literature has studied the impact of anti-piracy interventions in a variety of contexts, including demand-side actions like graduated response efforts and laws enabling easier enforcement against known pirates, as well as supply-side actions like notice-and-takedown regimes on search engines, the shutdown of pirate sites, and site-blocking efforts. One might argue that such interventions will have very little impact on consumer behavior since consumers can easily bypass these and other anti-piracy interventions by using virtual private networks (VPNs) or by visiting the remaining pirate sources. However, the empirical evidence (summarized in Table 3 below) tells a very different story.

Demand-side anti-piracy actions target the consumers of pirated content, usually with potential penalties or education efforts meant to dissuade them from illegal consumption. On this front, Brett Danaher and I found that the HADOPI graduated response law in France, which empowered rights owners to monitor internet traffic from French citizens for instances of copyright infringement, caused iTunes music sales to increase by 22-25 percent, even though consumers could use VPNs to avoid detection.7 Similarly, Adrien Adermon and Che-Yuan Liang found that the IPRED law in Sweden, which made it easier for rights owners to pursue cases against pirates, “increased music sales by 36 percent during the first six months” after its passage, even though it too could be easily bypassed with VPN services.8

Supply-side anti-piracy enforcement actions, by contrast, focus on websites that facilitate online piracy. In the context of notice-and-takedown efforts on search engines, Imke Reimers found that removing some, but not all, links to pirated ebooks from search results caused ebook sales to increase by “more than 14 percent.”9 Similarly, Liron Sivan, Rahul Telang, and I found that eliminating links to pirated movies from the first page of search results “causes users who otherwise would have consumed infringing content to switch their consumption to paid legal content,” even though pirate links were readily available in search results beyond the first page.10

In the context of site shutdowns, Brett Danaher and I found that shutting down Megaupload, the largest piracy cyberlocker in the world at the time, “caused digital revenues for three major motion picture studios to increase by 6.5-8.5 percent,” even though pirated copies for these same movies were readily available on a number of other remaining cyberlockers.11 Likewise, Christian Peukert, Jörg Claussen, and Tobias Kretschmer found that shutting down Megaupload caused “an average increase of 47 percent” in box office revenues for the top ten percent of movies shown in theaters.12

Finally, in the context of internet service provider–level site blocking, Brett Danaher, Jonathan Hersh, Rahul Telang, and I studied separate—and increasingly broad—instances of website blocks in the United Kingdom to determine whether obstructing more than one dominant channel of piracy increases the effectiveness of such efforts.X We found that it does. We first looked at blocking access to a single site, The Pirate Bay, and found that blocking access to just this site did not cause legal consumption to increase. Instead, consumers simply shifted to other, more readily available, piracy sites. However, when UK policymakers simultaneously blocked access to 19 pirate sites in 2013 and then an additional 53 sites in 2014, we found that those actions caused consumers to increase their usage of legal subscription services by 7-12 percent.

In short, our study found that consumer behavior changed only after a sufficiently large number of pirate sites were blocked, making it sufficiently inconvenient for erstwhile pirates to find new sources for illicit creative content.

Some may argue that government anti-piracy efforts are no longer necessary now that content is readily available in legal digital sales channels. This is not supported by the empirical evidence. The peer-reviewed literature has found that the availability of content in legal channels causes a relatively small decrease in piracy of that content. For example, my colleagues and I have found that iTunes availability resulted in only a 12 percent change in piracy of television content,14 and we have likewise found that the addition of 1,520 catalog films to the iTunes store from 2011 to 2012 caused a similar 12 percent decrease in piracy of these movies.15

Perhaps the strongest evidence that rights owners are limited in their ability to combat online piracy by making legal content more available comes from my study with Miguel Godinho de Matos and Pedro Ferreira.16 We worked with a major multinational telecommunications provider to run an experiment in which a randomly selected subset of pirating households was given free access to a large subscription video on demand (SVOD) service containing a plethora of popular television shows and films.

We found that, in the presence of readily available illicit alternatives, consumers were unwilling to pay for the legal streaming service when their free trial expired. Our results show that, as a standalone strategy, using legal SVOD services to curb online piracy requires offering “copyrighted content much earlier and at a much lower price than those currently offered in the marketplace.” Such changes are likely to reduce industry revenues, which will in turn damage overall incentives to produce and distribute new creative content while curbing only a small share of piracy.

The main takeaway from the peer-reviewed academic literature on the impact of online piracy for policymakers is that the right legislative interventions can have a significant impact—one that lessens the harms of piracy to creators and consumers alike. This is true whether the interventions address the demand side of piracy by targeting consumers or the supply side of piracy by targeting providers. Moreover, the data shows that policymakers should not be deterred by the claims from some advocates that the availability of legal alternatives alone will solve these problems.

III. Conclusion

The peer-reviewed academic literature makes clear that online piracy harms creators and rights owners by reducing revenues for their creative works that are available in legal channels. It also shows that online piracy harms consumers and society at large because creators have less economic incentive to create the very works that benefit us all. The empirical data further shows that online piracy negatively impacts both the quantity and quality of the creative works that are available in the marketplace. This empirical evidence reflects the economic theory embedded in the Constitution—the best way to promote the public good with copyrighted works is to grant creators meaningful protections against unauthorized copying and distribution of their creations.

Likewise, and more important for policymakers, the peer-reviewed academic literature is clear that both demand-side and supply-side anti-piracy efforts implemented worldwide have been effective at reversing these harms by increasing the search and transaction costs necessary for erstwhile consumers to locate and access pirated content. While online piracy has a demonstrable negative impact on our creative economy and our culture since it disincentivizes creativity, the empirical evidence shows that concrete legislative steps can be taken to avoid some of this damage. The good news for policymakers is that they can confidently use government regulation to reverse these harms.