Stopping Online Piracy Would be a Social and Economic Disaster

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Jan. 18 2012 2:17 PM

Why Should We Stop Online Piracy?

A little copyright infringement is good for the economy and society.

Online piracy.
There’s no evidence that the United States is currently suffering from an excessive amount of online piracy

iStockphoto/Thinkstock.

Congressional bill names are a reliable indicator of the state of conventional wisdom in America. That Congress is weighing bills called the Stop Online Piracy Act  and the Protect IP Act tells us that, at a minimum, the idea of stopping online piracy is popular.

It shouldn’t be. There’s no evidence that the United States is currently suffering from an excessive amount of online piracy, and there is ample reason to believe that a non-zero level of copyright infringement is socially beneficial. Online piracy is like fouling in basketball. You want to penalize it to prevent it from getting out of control, but any effort to actually eliminate it would be a cure much worse than the disease. 

Much of the debate about SOPA and PIPA has thus far centered around the entertainment industry’s absurdly inflated claims about the economic harm of copyright infringement. When making these calculations, intellectual property owners tend to assume that every unauthorized download represents a lost sale. This is clearly false. Often people copy a file illegally precisely because they’re unwilling to pay the market price. Were unauthorized copying not an option, they would simply not watch the movie or listen to the album.

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Critics of industry estimates have repeatedly made this point and argued against the inflated figures used by SOPA and Protect IP boosters. But an equally large problem is the failure to consider the benefits to illegal downloading. These benefits can be a simple reduction of what economists call “deadweight loss.” Deadweight loss exists any time the profit-maximizing price of a unit of something exceeds the cost of producing an extra unit. In a highly competitive market in which many sellers are offering largely undifferentiated goods, profit margins are low and deadweight loss is tiny. But the whole point of copyright is that the owner of the rights to, say, Breaking Bad has a monopoly on sales of new episodes of the show. At the same time, producing an extra copy of a Breaking Bad episode is nearly free. So when the powers that be decide that the profit-maximizing strategy is to charge more than $100 to download all four seasons of Breaking Bad from iTunes, they’re creating a situation in which lots of people who’d gain $15 or $85 worth of enjoyment from watching the show can’t watch it. This is “deadweight loss,” and to the extent that copyright infringement reduces it, infringement is a boon to society.

After all, things like public libraries, used bookstores, and the widespread practice of lending books to friends all cost publishers money. But nobody (I hope) is going to introduce the Stop Used Bookstores Now Act purely on these grounds. The public policy question is not whether the libraries are bad for publishers, but whether libraries are beneficial on balance.

By the same token, even when copyright infringement does lead to real loss of revenue to copyright owners , it’s not as if the money vanishes into a black hole. Suppose Joe Downloader uses BitTorrent to get a free copy of Beggars Banquet rather than forking over $7.99 to Amazon, and then goes out to eat some pizza. In this case, the Rolling Stones’ loss is the pizzeria’s  gain and Joe gets to listen to a classic album. It’s at least not obvious that we should regard this, on balance, as harmful.

Meanwhile, the benefits of forcing copyright holders to compete with free-but-illegal downloads are considerable. I am not, personally, in the habit of infringing on copyrights (though I will cop to some book lending and the fact that my fiancée and I, like any sensible couple, share Netflix and Hulu subscriptions) but recently have found myself firing up btjunkie.org again. Why? Because the BBC in its infinite wisdom decided to start airing Season 2 of its excellent program Sherlock in the United Kingdom without making it available at any price to Americans. That’s dumb, but until relatively recently it was a universal problem.  It used to be that studios and labels didn’t make their wares available to people willing to pay for them. That created an underground market for pirated TV shows and music. The pirated market, in turn, pressured the entertainment industry to create legal options such as iTunes and Hulu. The illegal competition is a valuable consumer pressure on the industry.

This is not to say that we should have no copyright law or that there should be no penalties for piracy. Used book stores may slightly depress sales of new books, but they don’t threaten to destroy the entire publishing industry. Large-scale, unimpeded, commercialized digital reproduction of other people’s works really could destroy America’s creative industries. But the question to ask about the state of intellectual property policy is whether there’s a problem from the consumer side. If infringement got out of hand, we might face a bleak scenario in which bands stop recording albums and no new TV shows are released.

But we’re clearly not living in that world. There are plenty of books to read, things to watch, and music to listen to. Indeed, the American consumer has never been better-entertained than she is today. The same digital frontier that’s created the piracy pseudo-problem has created whole new companies and made it infinitely easier for small operations to distribute their products. Digital technology has reduced the price we pay for new works and made them cheaper to create. I can watch a feature film on my telephone.

The American economy has plenty of problems, but lack of adequate entertainment options is not on the list. SOPA isn’t just an overly intrusive way to solve a problem, it’s a “solution” to a problem that’s not a problem.

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