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Glyn Moody's look at all levels of the enterprise open source stack. The blog will look at the organisations that are embracing open source, old and new alike (start-ups welcome), and the communities of users and developers that have formed around them (or not, as the case may be).

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Down the EU Piracy Rabbit-hole

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Last week I wrote about a report from the US Government Accountability Office (GAO) that examined the reliability of recorded music industry research papers seeking to estimate the loss from “piracy” in the digital field, and found all of them seriously wanting.

As far as I know, no similar analysis has been carried out for European reports. So I thought it might be interesting to look at one particular European report on the subject - not least because I've heard that its findings influenced some of the MPs voting on the Digital Economy Act.

The report is called “Building a Digital Economy”, and it comes from the International Chamber of Commerce (ICC):

A new study entitled “Building a Digital Economy: The Importance of Saving Jobs in the EU's Creative Industries” released today predicts losses due to piracy to reach as much as 1.2 million jobs and €240 billion in retail revenue by 2015 in the creative industries most impacted, based on current trends and assuming no significant policy changes.

The study shows that this sector is already experiencing substantial losses. In 2008 the creative industries most impacted by piracy (film, TV series, recorded music and software) experienced retail revenue losses of €10 billion and losses of more than 185,000 jobs due to piracy.

These are big, frightening figures, and it's easy to understand why politicians might be impressed by them. But of course, anyone can bandy numbers around: the question is, do they have any basis in objective fact?

At 68 pages, the report [.pdf] is quite long, and very professionally produced. It is stuffed full of tables designed to bolster its case. In calculating the claimed loss from piracy, a fairly simple approach is adopted. The number of copyright infringements are multiplied by the substitution rate (the percentage of people who would have bought stuff if they had not downloaded it for free) times the unit retail price. This is calculated for the top 5 economies in Europe, and scaled up proportionally to include all the other EU economies. The claimed job losses caused by that revenue lost is obtained by dividing the latter by an average sales revenue per employee.

Now, you could criticise this for being overly simplistic, but as a first-order estimation, I think it's fair enough. The authors of the report adopt quite reasonable substitution rates, depending on the medium. So, ultimately, the credibility of those big numbers comes down to one factor: the number of copyright infringements that are input into the basic formula. The report is well aware of this, and much of its total length is given over to presenting the background to the figures it uses. But in the main body of the report itself, the figures are simply stated without explanation, and their provenance explained by the footnote “National assumptions for copyright infringement are detailed in Appendix 1.”

Appendix 1 therefore contains the real meat of this research. Naturally, I turned first to the UK market, since it's the one I know best. We find the relevant figures in App. 1.13 – “Assumptions for revenue losses due to pirated music in the UK”. The number of copyright infringements per year, in millions, is given as 1177 (I'll concentrate on digital music downloads for the purpose of this discussion, since it's the one most people focus on in arguments about the scale of piracy.)

Again, the crucial issue is: where does this very exact figure of 1,177 million copyright infringements come from? And this time we finally discover the source: it's the BPI:

the representative voice of the UK recorded music business. We are a trade organisation funded by our members - which include the UK's four major record labels and hundreds of independent music companies.

So, the figure is not from independent research, it's not even from an independent organisation, but from the very industry group that pushed so hard for the Digital Economy Act among other things – and probably did so drawing on this report, whose figures it had supplied. But wait, maybe the BPI obtained those figures from some independent outfit. After a search on the BPI's site, this is all I could find:

Online copyright infringement will cost the UK music sector an estimated £200m in 2009, with some 7.3 million people engaged in unlawful filesharing.

Between the years 2007 and 2012 – according to research conducted by Jupiter Research – the cumulative cost to music companies will be £1.2bn. Losses of this order are clearly unsustainable, but the music community cannot tackle the issue alone. We need the support of internet service providers and the government.

There's no reference for that 7.3 million figure, but the fact that Jupiter Research is mentioned in the following paragraph suggests it might be from them. That's backed up by the following article, which tried to find out where that particular figure came from:

The number actually comes from a separate piece of research called the Jupiter Industry Losses Project, which attempted to quantify losses for the recording industry due to things like P2P usage. And who paid for the Industry Losses Project? The British recording industry, of course.


The 7m figure had actually been rounded up from an actual figure of 6.7m. That 6.7m was gleaned from a 2008 survey of 1,176 net-connected households, 11.6% of which admitted to having used file-sharing software - in other words, only 136 people.

It gets worse. That 11.6% of respondents who admitted to file sharing was adjusted upwards to 16.3% "to reflect the assumption that fewer people admit to file sharing than actually do it." The report's author told the BBC that the adjustment "wasn't just pulled out of thin air" but based on unspecified evidence.

The 6.7m figure was then calculated based on the estimated number of people with internet access in the UK. However, Jupiter research was working on the assumption that there were 40m people online in the UK in 2008, whereas the Government's own Office of National Statistics claimed there were only 33.9m people online during that year.

If the BPI-commissioned Jupiter research had used the Government's online population figures, the total number of file sharers would be 5.6m. If the researchers hadn't adjusted their figures upwards, the total number of file sharers would be only 3.9m - or just over half the figure being bandied about by the Government.

So, the only figures that BPI gives turn out to have a very dubious basis. The ones used in the ICC report are not sourced at all, but seem likely to come from the same discredited work (assuming the BPI did not simply make them up.)

But perhaps the UK is an exception; maybe the other countries' figures are on firmer ground in terms of independent corroboration?

Let's look at the claimed figures for copyright infringement in France. These are found in Appendix 1.1, where the number of copyright infringements per year is given as 778 million. The source for that figure is “ SNEP. 2008 estimate.”

SNEP is “syndicat national de l’édition phonographique” - that is, the French equivalent of the BPI, the recording industry's own association, not an independent research body. Its 2008 report is available online [.pdf].

The relevant figures for piracy are found on page 16, under the splendid heading “La concurrence déloyale du téléchargement illégal”, where it is claimed that 700 million titles are downloaded illegally – presumably the source of the more exact 778 million cited above. But once again, no source is given for that 700 million figure: it is simply stated as if it were an uncontested fact – certainly not the case. However, judging by the paragraphs that follow in the SNEP document, which seek to place France in a global piracy context, it would seem that the figures come from the IFPI:

IFPI (International Federation of the Phonographic Industry) represents the recording industry worldwide with some 1400 members in 66 countries and affiliated industry associations in 45 countries.

In other words, the IFPI is the global equivalent of the British BPI and French SNEP: another industry organisation, whose job is to push its particular interests. Indeed, for some countries in the “Building a Digital Economy” report – such as Italy and Spain – the IFPI is cited directly as the source of the figures for the alleged number of copyright infringements. The only major country that seems to draw on an independent source is Germany, where “GfK” is cited. This is the market research company GfK Group, but I was unable to find anything on their website regarding piracy figures, so there was no way to examine their underlying assumptions or reliability.

So the net result of this 68-page report, with all of its tables and detailed methodology, is that four out of the top five markets used for calculating the overall piracy loss in Europe draw on figures supplied by the recording industry itself. Those apparently terrifying new figures detailing the supposed loss of money and jobs due to piracy in Europe turn out to be little more than a *re-statement* of the industry's previous claims in a slightly different form. As a result, as little credence can be placed in the the report as in those criticised by the US GAO.

We can hardly blame politicians for being fooled by such impressive-looking documents. It is only when you dig down through the Appendices at the back, and start hunting out the actual references given for the claimed figures in multiple national markets that it becomes clear the entirely spurious nature of those shocking headline claims. Given that the Digital Economy Bill passed in part because of this kind of misinformation, we can only hope that the politicians who were deceived by plausible-sounding industry lobbyists will reconsider their position in the new Parliament and repeal the most egregious clauses of this deeply-flawed Act.

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