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Are Hollywood’s Piracy Figures Reliable?

Government study raises doubts about the validity of a key cost number used by MPAA

A government study is raising doubts about the validity of a key cost number that the movie industry has been using to justify a push for stepped up anti-piracy enforcement — that studios lost $6.1 billion to video piracy in 2005.

The Government Accountability Office in a report for Congress released Monday suggested the lack of a systematic means for tracking piracy and questions about assumptions used by the Motion Picture Association of America in developing the estimate raise questions about the figure’s reliability.

The GAO report didn’t dispute that piracy and counterfeiting hurt industry. Instead, it suggested that it is the exact dollar impact that is difficult to assess.

“It is difficult, based on information provided in the study, to determine how the authors handled key assumptions such as substitution rates and extrapolation from the survey sample to the broader population," the report said.

Several consumer groups concerned with lawsuits against consumers for illegal file sharing have questioned the figure.

The GAO report says that impact of piracy is “sizable,” but determining its exact impact on the economy is next to impossible — and the questions aren’t just about movie industry data.

The report raises the same doubts about measures of piracy in other industries, suggesting that oft-mentioned government figures about piracy either don’t really exist or aren't fully supported by studies.

“Widely cited U.S. government estimates of economic losses resulting from counterfeiting cannot be substantiated due to the absence of underlying studies,” said the report.

It also cited problems with private industry estimates of piracy and counterfeiting.

GAO said the problem is that so little data is systematically collected on piracy, major assumptions about the number of counterfeit items ends up being based on fragmentary data. Then another set of assumptions have to be made in determining the dollar value of the same non-pirated products at retail pricing. Finally any study has to estimate how many buyers of pirated goods would have bought the same products at normal retail pricing.

“Generally, the illicit nature of counterfeiting and piracy makes estimating the economic impact of [intellectual property] infringements, extremely difficult,” said the report. “Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on resulting estimates.”

“Most experts observed, it is difficult, if not impossible, to quantify the economy wide impacts,” said the report, which was sent to the House and Senate Judiciary committees.