Crikey: The inflated cost of illegally copied DVDs

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[This article was first published in Crikey on Monday. I’ve also added the comment and additional material which were published yesterday.]

Hurrah! The War on Terror is over! Well, at least it seems we’re no longer afraid of terrorists, because when Home Affairs Minister Bob Debus warned that illegally copying DVDs costs the industry $1.7 billion, for a change terrorism didn’t get a mention.

Major distributors have been trying to scare us off illegal copying for years. Australia’s laws were “harmonised” under the US Free Trade Agreement so copyright infringement became a crime. Gloomy doom-music-laden messages play before every movie. Serious people tell us that “piracy funds terrorism”.

“The Abu Sayyaf — blamed for the worst terrorist attacks in the South-East Asian country — are likely behind the illegal copying of movies onto DVDs,” reckons Edu Manzano, chairman of the Philippines’ Optical Media Board.

“The Yakuza are behind them in Japan and the Hezbollah are involved in the Middle East,” though he admits they lack “documentary evidence”.

Bob Debus’ weekend media release omits the “piracy funds terrorism” trope, saying instead that it funds “a range of criminal activity like drug trafficking and money laundering”. (Hang on, isn’t money laundering self-funding?) But by the time the story hit the ABC the government’s current bogeyman had been added to the list: child pornography. Ooh err.

Terrorism is insufficiently scary. Neither are the actual dollar costs.

$1.7 billion? Where’s that come from? We asked the minster’s office but they didn’t reply before deadline. US “estimates” on that scale have been thoroughly debunked.

Screen Australia says DVD sales boomed in 2007, up around 20% over the previous year. The entire net worth of the DVD sales industry is “only” $1.2 billion, which makes a “piracy cost” of $1.7 billion sound unlikely. They quote LEK Consulting’s estimate that 47 million illegal DVDs were in circulation, compared with 52 million legitimate sales — at a cost to the industry of $231 million, not $1.7 billion.

Of course “the industry” wants things to sound bad. But with record US box office receipts and booming DVD sales, could it be that there’s simply too many hangers-on between producer and consumer? After all, the $29 retail price of a music CD only delivers a dollar or two to the actual musicians. Apple’s iTunes and other online distributors take a far smaller cut, and the punters are starting to realise that.

If they’d rather slip a disc into their PC and burn Dark Knight for a mate rather than pay full retail, it means they don’t think the price is right.

The Industry Response

[This “industry response” was published in Crikey yesterday, as was my additional comment about the source of the statistics which follows it.]

Simon Bush, CEO of The Australian Visual Software Distributors Association, writes: Re. “The inflated cost of illegally copied DVDs“. The Australian Visual Software Distributors Association (AVSDA), representing the home entertainment film distributors, is certainly impacted by lost sales due to film piracy. I would not suggest it is the $1.7 billion as quoted but is large enough for the industry to put their hand in their pockets to fund million dollar consumer education initiatives. We would not do this if we did not think it important.

In terms of the links between DVD film piracy and organised crime, I believe the AFP and Interpol have confirmed this. As for this comment by Stilgherrian: “If they’d rather slip a disc into their PC and burn Dark Knight for a mate rather than pay full retail, it means they don’t think the price is right” this is irresponsible at worst and ignorant at best. If you don’t like the cinema ticket price for a film do you sneak in for free? If you don’t like the cost of a product do you steal it? If you wanted to watch the $185 million cost to produce Dark Knight on DVD and you thought buying it for $25 too steep then rent it for $5.

Don’t promote stealing and why is intellectual property seemingly worthless — or is it only Hollywood that is fair game?

Where the numbers came from

Stilgherrian writes: Minister Bob Debus’ office has told us the $1.77 billion cost to the industry quoted in the media release about illegal DVD copying came from Australian Institute of Criminology report “Intellectual property crime and enforcement in Australia“. The report’s Executive Summary says:

The negative impact of IP [intellectual property] crime includes adverse effects on business, the national economy, and consumer health and safety. For example, the software industry has argued that a 10-point drop in piracy globally could create 2.4 million jobs, $400b in economic growth and $67b in additional taxes.

Estimates of the loss to various sectors in Australia include the following:

  • $233m per year due to the piracy and counterfeiting of films (LEK 2006);
  • $677m of lost sales, in 2002, in the Australian toy, software and video games industry. This includes $445.7m lost sales in the business software industry (Allen 2003);
  • $515m in absolute losses in software piracy in 2006 (BSA & IDC 2006);
  • $45m per year as the cost to Australian subscription television industry (ASTRA 2006a);
  • $300m per year in breaches of trade mark as losses to the textile, clothing and footwear industry (ACAG 2000).

So, only $233 million was about copying films, which matches Screen Australia’s analysis. The remaining $1.5 billion has nothing to do with DVDs. I reckon that’s a tad misleading. The numbers are also sourced from “industry estimates” without any sign of critical analysis, but being requoted by the AIC gives them the air of officialdom. Screen Australia provides some lovely graphs which show a DVD industry that’s positively booming.

8 Replies to “Crikey: The inflated cost of illegally copied DVDs”

  1. Statistics are tricky things. We forget that there’s now more than 6.7 billion people on the planet, almost 21.5 million in Australia. Some of the “millions of dollars” in costs we see quoted as frighteners really aren’t that much.

    Screen Australia and the AVSDA agree: illegally copying DVDs costs the industry $233 million, give or take. But that’s only $11 for each Australian, or call it $20 per adult. That’s about one DVD a year. Out of an individual’s total annual spend on communications and entertainment, that’s minuscule.

    Dark Knight cost $185 million to produce. But it’s already grossed more than $500 million in US cinemas, let alone the rest of the world. And that’s before DVD sales, broadcast rights, merchandising and other spin-offs.

    As with music CDs, only a small proportion of the retail cost of a DVD is for the content. The rest is distribution and distributors’ margins. But Internet bandwidth and local storage get cheaper all the time, and the consumer pays for all this. There’s not much time left for an industry based on charging the punters $25 for a plastic disc when the consumer has a far cheaper distribution channel in place via the all-purpose data pipes of the Internet.

  2. I agree that the issue is not really crime lords or piracy but the current distribution model from producer to consumer.

    The problem is no different to that facing record companies back in the 1970’s when we all routinely borrowed each other’s LPs and copied them to cassette. The issue is only escalated because the internet and PC burners allow copying to a greater quality and quantity than before.

    Fighting the ease of use of technology is always going to fail. You can no more stamp out internet downloading and burned DVDs than you can change the way people use wrist watches or drive their cars.

    What the internet offers is a completely different model for distribution – one that would require different monetisation than the current retail system. Mark Pesce’s fantastic lecture on this certainly opened my eyes to the true nature of this problem. “Piracy is Good” –

    Also, I wrote a piece on the debate for Nett Magazine – “Is the internet killing copyright?”

  3. @Kimota: I’m halfway through watching that lecture by Mr. Pesce and it’s been an absolute watershed. How anyone can remain engaging and relevant for a whole hour is beyond me … but he succeeds. Thank you.

  4. I know – it’s a revelation. The arguments are so pervasive and convincing and I walked away feeling that little bit better about downloading Doctor Who.

  5. The following comment appeared in today’s Crikey:

    Mark Heydon writes: Using the data link provided by Stilgherrian, you can produce the average unit selling price for DVDs as per the chart below.

    The increasing DVD revenue has corresponded to a significant reduction in average selling price. This would tend to support Stilgherrian’s assertion that the price of DVDs was not right. At the high prices prevalent in the past, the IP owners were doing themselves a disservice, foregoing significant revenue, which when you consider that the marginal cost is pretty close to zero, means they were foregoing significant profits.

    @Kimota: Thanks for the additional linkage, and the reminder about yet another of Mr Pesce’s remarkable little movies.

  6. I have read nothing except topic title. ecxept Criky i dont know if they hate me or not,

    me s*ite Opinion is this:

    it is considered ‘kind of’ OK to FOR ONLY PERSONAL NO SHARING SINGLE USE HOME VIEWING after d/l an overseas thingo like tv show to see if you are going to want to buy, and if not buy, propose to the Companys to release it into Australia (basically only with PRIOR COPYWRITE OWNERS APPROVAL)

    no one will like my typing, Not even me in the Future or past 🙁 .

  7. In Crikey on Friday someone made the obvious point which I’d originally left out to fit within Crikey‘s preferred story length:

    Andy Cole writes: Re. Tim Villa (yesterday, comments). All the figures for lost sales which are being bandied about appear to be making a fundamental assumption which no one has tested, and for which in my opinion there is little justification. This assumption is that every DVD copied represents a lost sale. Any private individual who indulges in this practice will tell you that they would never buy most of the disks they copy, not least because they couldn’t afford to.

    Therefore if it was possible to prevent copying entirely it would not result in the companies takings appreciating by anything remotely approaching the figures they quote as losses. They are surely well aware of this, and their protestations should be taken with a pinch of salt, and recognised for the cynical hype they are.


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