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Mar 18, 2011

The copyright lobby’s loose facts

As Crikey has revealed, the data advanced by the copyright lobby on piracy is full of holes. Even the public report into the issue can't be believed, muddying the debate for industry and creators.

This week, my colleagues at Crikey have been looking into the data advanced by the copyright lobby about piracy.

In recent months, the content industry has shouted about piracy using two reports supposedly showing the vast economic impact of illegal downloading in terms of lost income for media industries and fewer Australian jobs. One of them, entitled  The Impact of Internet Piracy on the Australian Economy, was not even released to the general public (Crikey managed to find a copy on Wednesday). Bernard Keane analysed it yesterday, finding it “calculated piracy cost figures with virtually no reference to what is happening in Australia” and  “uses projected growth rates to expand the cost figures massively”.

Today, I’m going to have a look at the other report commissioned by the Australian Federation Against Copyright Theft, entitled Economic Consequences of Movie Piracy: Australia. This one was released to the general public, and purports to be more rigorous than previous studies of this nature.

“The approach taken in building up these estimates offers a conservative view of piracy and does not treat every pirate view as a lost sale,” the report claims. “As such, readers should consider these as indicators that piracy is at the very least causing this level of harm.”

Unfortunately, this report’s methodology is also — at the very least — questionable. Electronic Frontiers Australia has already made some pretty valid criticisms of the research, but today I’m going to concentrate on the economic methodology used by the report’s author’s, Ipsos and Oxford Economics.

To start with, let’s examine their laughable “Annex 1” in the full report. This purports to explain how Australian Bureau of Statistics input-output tables are used to generate a final figure for total piracy impact in terms of lost sales and job losses. That’s important because it is these figures that AFACT has been using to argue that movie downloading represents a “$1.37 billion loss to [the] Australian economy”.

I’d like to say I carefully checked the report’s methodology for its econometric accuracy. Unfortunately, I can’t — because the authors at Oxford Economics and Ipsos don’t publish their equations; nor do they publish their raw data.

Just as an exercise, I downloaded the ABS input-output tables and attempted to match the ABS data to the AFACT report. It’s impossible. The data tables in the AFACT report which might allow that kind of scrutiny are missing.

What Annex 1 does tell us is that Oxford Economics and Ipsos have made all sorts of behind-the-scenes calculations to do with the exact value of the multipliers they use and the precise allocation of various ABS industry data to various categories of their assumptions. But they don’t tell us how these figures were arrived at.

To get a flavour of the opacity of the modelling, here’s their full explanation of two of the the multipliers they use:

“Type II multipliers of 2.5 (Gross Output) and 1.1 (GDP) were estimated. This covers activity in the Australian motion picture exhibition, production and distribution industries as well as TV VOD, internet VOD, downloads of motion pictures and the retailing of these motion pictures.”

There is no further explanation of how the numbers of “2.5” and “1.1” were “estimated” and no equation that shows us what they multiply. Hence, it is literally impossible to verify, cross-check or otherwise scrutinise these figures. Indeed, the full report contains no true methods section.

You couldn’t get this stuff published in a peer-reviewed economics journal, and it’s time journalists were smart enough to check this sort of data before they unquestioningly trumpet its findings to their readers. So, while the Ipsos/Oxford report is a slightly better effort than that produced by Sphere Analysis, it’s still opaque, unverifiable and unreliable.

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14 comments

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14 thoughts on “The copyright lobby’s loose facts

  1. Socratease

    Lies, damned lies and Type II multipliers.

  2. Peter Bayley

    The whole copyright thing and the “risking the future of Australian Film!!” ads on DVDs assume any pirated content would have been purchased legally, if sufficiently dire controls were in place. This is not the case as the “cheapness” of the pirated product encourages a much greater level of downloads than would often happen if the full price was being sought. The prevalence of pirating says more about the fact that Big Media has sought to corner the market and control the price and profit – and that people have just voted with their feet. Eventually (probably too late), the monopolists will realise they could make more profit by drastically reducing the price – to the point that the incentive to pirate falls away and people buy 2 or 3 albums from a newly-discovered artist rather than a single track.

    Another factor is, I think, that when people see 10% of the price going to the Artist and 90% to Big Media, the “connection” with the artist and wish to reward them properly is tempered by the fact that it is largely the Distributor they are paying.

    If there is to be an analysis, then please factor in the positive effect where people listening to a “possibly pirated” track are prompted go out and buy the content legally.

    Finally, I’ve often thought if there was a free web site where people could easily and quickly send money directly to an artist and guarantee that 100% of it got through to the artist (ads covering the overheads) it would be a popular way of the public to “connect” with their artists – an on-line “hat” if you like.

  3. PetrVDM

    Ben,

    I think critiquing is a powerful, and valuable part of research. I also think the same in journalism. It is hard to read articles when it would seem you have gone into this with one eye opened – possibly tainted by the first research analysed and critquied by Bernard – and justifiably criticised.

    I’ll refer first to this point:
    “Unfortunately, this report’s methodology is also — at the very least — questionable. Electronic Frontiers Australia has already made some pretty valid criticisms of the research, but today I’m going to concentrate on the economic methodology used by the report’s author’s, Ipsos and Oxford Economics.”

    AFACT put out a reply to each of the criticisms made by the EFA, located here: http://afact.org.au/pressreleases/2011/23-2-2011.html

    I’m not saying that they are right or wrong – but if you are going to perform a fair analysis, it is bias to refer to someones criticisms, without looking at the response, if any.

    Insofar as “behind the scenes calculations” go, can I suggest here for the formula:
    http://faculty.washington.edu/krumme/systems/multp.html

    There is also a lot of information on Type I/Type II multipliers only ever being estimates in any event.

    I don’t have a background in economic modelling – but then, I’d suggest nor do you. If you don’t understand how economic modelling works, yet proceed to criticise it – because you don’t know how it works – is it really a fair criticism?

    I agree criticism is valid and we should be sceptical of reports put out by industry (especially the entertainment industry) – but I also think we should critique (especially in mainstream journalism) in our area of expertise.

  4. terryj

    The bulk of Australian feature films, and high end television drama (miniseries and telemovies) and documentaries has – for the past forty years – been heavily subsidised by the Australian taxpayer, whether through 10BA, 10B, the 40/20 Producer Offset, or by present and past government bodies including but not limited to the AFC, the FFC, Screen Australia, Film Australia, the ABC, SBS, and all the state government funding bodies.

    Whenever the AFACT mob diligently explains how piracy is ruining the Australian industry, I immediately feel inclined to ring up my local MP and ask if the government is intending to reduce its subsidy, some of which now finds its way into the risk averse world of local distributors …

    By all means, rabbit on about the misuse of intellectual property rights, but the conflation of the Australian and United States industries regarding the implications for financing is just another unseemly distortion. Productions such as Candy will not go up in smoke because of ‘piracy’ but because the government decides film production is no longer a necessary or viable cultural or economic policy …

  5. green-orange

    As Australia is a net importer of films and software (by a long way), piracy is not a net cost but a net gain for the Australian economy.

  6. Ben Eltham

    PETRVDM –

    No, I’m not an economic modeller. I don’t think that necessarily invalidates my criticisms, however.

    In regards to AFACT’s reply to the EFA criticism, I have indeed carefully read it, and decided not to cite it in this article as I don’t believe it adequately rebuts the criticisms in any meaningful manner. If I had the space, I would have explained why. The debate between AFACT and EFA has also been mentioned and linked to by Bernard Keane in a previous article.

    In regards to the input-output equations – you provide a link to one possible methodology, but how do we know whether this one was used by Ipsos and Oxford? We can’t know, because they don’t tell us. Further, an equation is obviously only as valid as the information plugged into it, and because – as I wrote – the data tables are not published, this is not possible to verify. Further, Annex 1 makes clear that at least some massaging of the ABS input/output data has been performed *before* any estimates were calculated, but again, the report doesn’t specify exactly how this was done.

  7. Stevo the Working Twistie

    PETRVDM – as far as I can see, all Ben is saying is that the AFACT report is opaque, with reasoning that is unpublished and therefore impossible for even an educated lay-person to understand. And that’s the point, isn’t it? We’re not supposed to understand, just close our eyes, pinch our noses and swallow. You don’t have to be a scatologist to know that sh*t stinks.

  8. PetrVDM

    Ben,

    I appreciate your reply, but I believe some of it is somewhat disingenuous.

    Out of curiosity, did you email/phone AFACT or Oxford/ IPSOS to ask for further information and for clarity?

    To say that it doesn’t “invalidate your criticisms” would be true if you indeed enquired for further information. However, as you (nor I) have the requisite economic background, if we didn’t ask for the information, but felt like it was our duty to critique – we should have at least attempted to obtain all the information before doing so. To do otherwise would be insufficient.

    As for the AFACT reply (and your lack of citation), even a moderate mention of “AFACT’s lacklustre reply” would have sufficed. But to completely disregard it, and point to another article about an unrelated study (at least from a different industry group) where someone else has referenced it, is poor and I would suggest by not pointing to it, you are deliberately representing only one point of view. To reply and say “I don’t believe it adequately rebuts the criticisms in any meaningful manner” does not excuse it’s exclusion by way of reference if this was an impartial analysis.

  9. Ben Eltham

    PETRVDM

    We’ll have to agree to disagree on this one – I don’t believe it’s showing bias to not link to an organisation’s response to some criticisms that have been advanced about it. You may not agree with it, but I think it’s a valid call especially in the context of this discussion where, as I have remarked, that response has already been linked to by Crikey in a previous article.

    As for contacting Oxford Economics, that’s not the point, in my opinion. Oxford had an opportunity to detail a full methodology, and they didn’t. They didn’t publish data tables, they didn’t explain their estimates – they didn’t even provide an adequate methods section with references to scholarly books or journal articles that a reader might reasonably track down and follow through on. The very fact that you’re suggesting I should have chased down the report’s authors to get them to explain their methodologysimply shows that their methodology is indeed opaque and unverifiable.

    Finally, a further point on whether I have the economic expertise to critique this report: that’s beside the point, as I remarked earlier. In fact, even a modelling expert would not be able to verify the findings without sighting the raw data.

    If you want to get into the nitty-gritty I am happy to do that. There are a number of issues with the validity of input-output modelling itself, in particular the static nature of most models and the assumptions (like complete markets that always clear) built into them . You might want to have a look at Dominic Mitra-Kahn’s excellent
    2008 paper on computable general equilibrium modelling
    , of which input-output modelling is a close relative, to appraise yourself of these. As William Buiter wrote in 2009 ” in a decentralised market economy there is no mathematical programmer imposing the terminal boundary conditions to make sure everything will be all right”.

    My point here however is much simpler than the technical points raised by these and other authors. It is this: in a paper with no genuine methodology section, it is not good enough to argue that we need to ask the authors for further information in order to critique it.

  10. AuFozzy

    To me this whole IP debate misses a fundamental problem. Most of economics is about how to best optimise the allocation of a scarce resource. But the problem is that digital content is not scarce.

    I look forward to big media trying to expend effort in how to make money in an environment where there product isn’t scarce, rather than continuing to push governments to shoe horn it into a scarcity model.

    Aside: why don’t we hear more of the greatest hypocrisy of the big Hollywood movie studios? Why is Hollywood on the west cost of the USA when settlement started in the east? Because they stole Thomas Edison’s IP and setup shop as far away as possible from the reach of the law. So an industry built on IP theft would like protection from IP theft!