Piracy really costs the economy nothing

Brad Plumer wrote an article yesterday trying to determine how much online piracy costs the economy. The Movie Picture Association of America claims it costs $20.5 billion per year. Other analyses of the cost — including one from the Government Accountability Office — call that figure absurd. But this debate is completely wrong from the beginning.

Online piracy necessarily costs the economy as a whole nothing. There are two kinds of people who pirate: those who would purchase the product if they could not pirate it and those who would not. For those who would purchase the product, the fact that they pirate it instead does not cost the economy as a whole anything. The firms that sell movies, music, and whatever else do not get as much revenue, but the economy as a whole does not suffer. That person eventually spends the money they would have spent on that song or that movie on something else.

For those who would not purchase the product if they could not pirate it, neither the media content firms nor the economy suffers from their pirating. If they could not pirate, the firms would still get absolutely nothing just as they do right now. Those kinds of pirates would not be spending any extra money in the alternative non-piracy world, meaning the net effect of their pirating on the economy is still zero.

Talking about the costs of piracy as if they are costs to the economy is just totally confused from the beginning. It is confused about the economics of file-copying and confused about the nature of copyright itself. Copyright protection does not exist to prevent costs to the economy. It exists to create a market distortion that makes content creation profitable when it otherwise would not be. Our concern with the costs of piracy should be about its impact on content creators. Is piracy so bad that content creators can not make enough money to fund content creation or not? The answer right now is unequivocally no. Big and small media companies are still making plenty of money despite piracy.