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Saturday, May 21, 2005

Business Software Alliance - The Poor Can Pay Like Everyone Else

Via Ars Technica comes this link to a Business Software Alliance press release proclaiming 2004 software piracy losses in excess of $30 billion.

STOP THE INSANITY!!

The Ars Technica article, thankfully, notes the silliness of  BSA’s 1–to-1 ratio of pirate copies to lost sales:

  However, some of the BSA's claims deserve closer scrutiny. Does US$33 billion in pirated software automatically equate to US$33 billion in lost sales? Actually, it's not even close. Despite the BSA's arguments, each sale of a pirated title does not correspond to a lost sale of a legitimate copy.

They also note that the top piracy offenders - Asia, Africa, Eastern Europe - also have the lowest per-capita GDP and pull a great quote from BSA Regional Director Jeffrey Hardee via an AP story:

If you can afford the hardware, you can afford the software.

This attitude, and the absurd insistence that every pirate copy is a sale forgone, serve to completely undermine the honesty, believability, and effectiveness of Hardee’s position and show him in a harsh light. Let's examine Hardee's World for a moment and see just how this adds up. According the BSA press release:

 

• Although piracy rates decreased in 37 countries, they increased in 34 countries. They remained consistent in 16 countries.
• In more than half the 87 countries studied, the piracy rate exceeded 60 percent. In 24 countries, the piracy rate exceeded 75 percent.
• The countries with the highest piracy rates were Vietnam (92 percent), Ukraine (91 percent), China (90 percent), Zimbabwe (90 percent) and Indonesia (87 percent).
• The countries with the lowest piracy rates were the United States (21 percent), New Zealand (23 percent), Austria (25 percent), Sweden (26 percent), and United Kingdom (27 percent).
• The emerging markets in Asia Pacific, Latin America, Eastern Europe and the Middle East and Africa account for over one-third of PC shipments today, but only a tenth of spending on PC software.

Using data from the CIA World Factbook, piracy leader Vietnam ranks 161 in per-capita GDP, with an average annual income equivalent to $2,700 USD and 29% of the population under the poverty level. Runner-up Ukraine ranks 115 at $6,300 USD. Third-place finisher China comes in at 121, with per-capita equivalent of $5,600 USD.

What a stunning development – these people have shown absolutely no interest in spending 5%-10% of an entire year’s wage for a bloated, crashing, overrated piece of software like WindowsXP. That’s like asking the average US Citizen to pay $4,000 – yes, $4,000 – for a copy of Windows. Hello?! Am I the only one that sees how absurd this is? Based on statistics published at ITFacts.biz, the Chinese are buying PCs at the rate of 10–12 million per year. But when you can buy a PC in China for well under $200USD and the OS costs almost 2x that what do you expect?

To their credit, BSA does note that total financial losses from the top pirates are substantially less than losses in the major software markets of North America and Europe. Even though the number of pirated copies as a percentage of total copies in circulation is much smaller in these markets, the overall market size is substantially larger. And, assuming that every pirate copy has cost them a sale is a convenient way to generate some big, scary, “We have to do something NOW!” numbers.

There is certainly a problem with Asian PC makers who bundle bootleg copies of software in order to sell PCs (many do) and therefore profit unfairly from the work of US companies. But there is simply no legitimate economic basis for any of the current “loss estimates.” So long as the RIAA/MPAA/BSA continue to ignore basic economic principles and engage in blatant fabrication to suit their PR and political goals it will be a tough battle to get any popular support for their cause. I do not believe businesses – Chinese or otherwise – should profit from pirated software, but organizations that blatantly lie to achieve their goals are just as bad..

If the piracy cops want honesty from software users maybe they should start with a little honesty in their business practices. I don’t appreciate being treated like an idiot – fed ridiculous numbers as if I don’t have sense enough to do basic math. Until these organizations start to put some legitimate piracy/sales ratios in place we have no reason to trust them, pity them, or help them.

Posted by:  Terry Frazier at 9:06 PM  | Permanent Link  | Trackback URL | 
Categories: Business & Finance, Copyright, Technology

Tuesday, May 17, 2005

IP Theft and the Trade Deficit

The Glittering Eye has collected some useful information on Chinese piracy and the scope of its impact on our economy. There’s a good collection of reference articles and press releases – “US May Bring WTO Case”, “Hollywood Loses $900 Million to Pirates”, and Forbes - and the author does a good job outlining the available options for correcting the problem.

Or part of the problem. As with almost every single story on piracy, the articles listed above use wholly inappropriate, even ludicrous, numbers for the value of piracy. Whether the numbers come from former US Trade Rep Bob “Patent ‘til you drop” Zoellick or the self-serving lawyers over at MPAA/RIAA, they all share one common trait — they take a universal 1–to-1 ratio between pirate copies and lost sales. This act of starting from a false premise and proceeding logically leads to absurd conclusions like this – “ U.S. music, movie and software industry groups estimate they lose between $2.5 billion to $3.8 billion annually in China through sales of illegal copies of their products.”

$3.8 billion my lilly-white ass!! Have you ever been to China – where they still hand-carry their raw sewage in buckets? Have you seen Chinese peasants riding 20–year-old bicycles down modern, but empty, thoroughfares? Sure, there is lots of economic growth in China (I do some business there), but growth from a zero base has to go a long, long way before spending a month’s pay for a movie looks like a good idea. If you think for a minute that the typical Chinese wage supports paying $15 USD for a CD, $20 USD for a DVD, or $299 USD for a copy of Windows XP then I have some great business investments I’d like to show you.

If the vast majority of Chinese didn’t have pirated copies they wouldn’t have any. They don’t just hop in a Beemer, run down to Chairman MaoMart and buy one. No, they wouldn’t have a copy. None. Zero. Zilch. Nada. And that’s the real economic impact of the vast majority of pirated copies – zero.

I don’t know if the actual ratio is one lost sale for 100 copies or 1,000, but the bottom line is that, while there is clearly an economic impact to the theft of American soft products in China, it is nowhere near the dollar value the industries and flag-waving bureaucrats like to pretend. The premise that a pirate copy in Asia has a direct corollary to a lost sale (the music industry in Germany went so far as to assume a 1–to-1 ratio between the number of blank CDs sold and lost sales) is as realistic as assuming that every television viewer of a sports broadcast is a lost ticket sale (Oh, wait – the NFL makes exactly that assumption.) And the companies complaining the loudest *know* that. Why else would they be falling all over themselves to get their products into Chinese markets? If all those markets meant were losses you can be sure they would be running in the other direction.

Instead, US companies are dying to get into the Chinese market. And that – along with the knowledge that piracy is nowhere near the economic threat they like to proclaim – is why the US won’t do anything significant about China’s piracy problem.

BTW, the next time anyone starts talking about losses to piracy, China or otherwise, ask them a simple question – “What’s your estimated ratio of pirated copies to lost sales?” If they give you an answer that is anywhere close to 1–to-1 just laugh and walk away, because they’ve obviously taken you for an idiot. (Via EEJD)

Posted by:  Terry Frazier at 8:56 PM  | Permanent Link  | Trackback URL | 
Categories: Business & Finance, Copyright, Music, Policy & Regulation

Sunday, May 15, 2005

Another 'Broadcasting is Dead' Story

This article, Piracy is Good, over at Australian site Mindjack, is a good description of the effect technology is having on broadcast television. Author Mark Pesce discusses, in some detail, the use of p2p filesharing technology BitTorrent and, more importantly, proposes some interesting business models for how producers and advertisers can collaborate to create a viable business.

Mark uses a couple of good case studies, including recent download scenarios for Dr. Who and Battlestar Galactica, to make the case that downloading does not necessarily equate to lower viewership. He also offers good analysis of the economic situation broadcasters face – after 50 years of training viewers that TV is free, trying to suddenly convince them they should be paying for everything isn’t going to work.

This, of course, is not news to anyone who regularly reads weblogs, RSS feeds, or uploads pictures to Flickr. But Pesce’s is one of the first articles I’ve seen to dig into the figures around p2p distribution, broadcast viewership, and the relative impact for popular TV episodes.

I’m not ready to concede broadcast is dead – even the latest bittorrent clients are too geeky for mass use – but Pesce’s case for advertisers is compelling. And if one thing is certain, it’s that advertisers follow the market. A commericalized, ad-supported p2p distribution network with viewer tracking can’t be far away.

Posted by:  Terry Frazier at 1:14 AM  | Permanent Link  | Trackback URL | 
Categories: Business & Finance, Copyright, Strategy, Technology

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