The entertainment industry has been warning of its impending demise for years.

The entertainment industry has been warning of its impending demise for years. Photo: Flickr.com/Gary Denham

Is piracy really sending the entertainment industry broke or are the claimed hundreds of millions of dollars in annual losses and thousands of job cuts just a load of hogwash?

The industry is constantly warning of an impending piracy apocalypse but continues to notch up healthy revenues and record box office takings.

From bogus figures to highly exaggerated press releases, analysts and academics claim there is no limit to the hyperbole record labels and movie studios will use in their relentless lobbying campaign.

With the industry reeling after repeatedly failing to use the courts to force internet providers to penalise illegal downloaders, it is now trying to persuade the government to implement new legislation that would crack down on internet users.

But critics say the industry isn't playing fair and should refresh its business model for the digital age instead of stretching the truth in order to scare the government into implementing knee-jerk legislation.

Fudging the numbers

This month, a new lobbying group, the Australian Content Industry Group (ACIG), released new statistics to The Age, which claimed piracy was costing Australian content industries $900 million a year and 8000 jobs.

The report claims 4.7 million Australian internet users engaged in illegal downloading and this was set to increase to 8 million by 2016. By that time, the claimed losses to piracy would jump to $5.2 billion a year and 40,000 jobs.

But the report, which is just 12 pages long, is fundamentally flawed. It takes a model provided by an earlier European piracy study (which itself has been thoroughly debunked) and attempts to shoe-horn in extrapolated Australian figures that are at best highly questionable and at worst just made up.

What's more, the report attempts to provide a five-year forecast based on a single year of data and also attempts to calculate lost Commonwealth tax revenue. It suggests there is a direct correlation between internet traffic growth and lost jobs in the content industry - but includes no new research into jobs in the entertainment industry to back this up.

"The main objective is to lobby politicians with this and to scare the public into compliance," IBRS analyst Guy Cranswick said.

"The quality of data and analysis is very weak as its political objective is so clear.

"It does not use actual ABS data but data taken from Europe. It's an elemental statistical error, it's fudging with numbers to come out with a figure which is 'kinda sorta' plausible."

The report was compiled by Sphere Analysis on behalf of ACIG, which comprises the main industry bodies for the music, games, software and book industries.

The author of the Sphere report, Emilio Ferrrer, said he believed the European study was credible and thorough and stood by his estimates for Australia, which he believed were conservative. Ferrer said that, even if the numbers were not completely correct, there was no denying that piracy was a significant issue for the industry that was only expected to increase with the arrival of the National Broadband Network.

Graphs from the ACIG report showing estimated losses to piracy.

Graphs from the ACIG report showing estimated losses to piracy.

Twisting the government's arm

Despite the flaws in the data, ACIG appears to be getting through to the government, with the Attorney-General, Robert McClelland, using the report in a recent speech to highlight the threat of online piracy.

The tactic appears to be working overseas too with industry-generated reports succeeding in pushing governments in US, Britain, France and Ireland to act with onerous new laws.

ACIG's report is far from the first Australian research to be criticised. Virtually every industry-commissioned report on the effects of piracy has been ridiculed by analysts.

The Australian Federation Against Copyright Theft (AFACT), another local anti-piracy agency, released a report in February that claimed piracy had cost the economy $1.37 billion in lost revenue and 6100 jobs from July 2009 until July 2010.

The study, based on a survey of 3500 people, has also been heavily criticised by analysts, copyright lawyers and the online users' lobby group Electronic Frontiers Australia (EFA).

"The reports always headline 'jobs lost to piracy', but this has no basis in fact," EFA chairman Colin Jacobs said.

"Money not spent by downloaders on movie tickets is almost certainly spent elsewhere on other goods and services that may be more efficient at creating jobs in Australia."

Essentially, piracy is a reallocation of income, not a loss to the larger national economy. Jacobs also noted that the content industry was mostly based in the US so revenue was largely flowing offshore.

He pointed to a research report from Holland that found piracy was actually beneficial to the Dutch economy (a Canadian study has come to a similar conclusion). Other studios have found that illegal downloaders actually spent the most on music and that pirated copies served to market the legitimate versions.

'Self-serving hyperbole'

The Australian Institute of Criminology for one has been reluctant to take the industry at its word when it comes to piracy losses.

"Although these estimates provide a general indication of the scale of the problem, the validity of the data is open to some debate," the AIC wrote in its latest report on intellectual property crime in Australia.

The AIC has previously debunked claims that piracy was linked to organised crime and in a draft report leaked in 2006 said industry-provided piracy statistics were "self-serving hyperbole".

"The AIC's frustration was largely based on the fact that none of these groups will expose their reports to genuine peer review or analysis," said Kimberlee Weatherall, a senior law lecturer at the University of Queensland, who specialises in copyright law and is highly critical of the industry's piracy reports.

"When the US Government Accountability Office (GAO) looked into it at the request of US Congress, it expressed doubt about most of the industry-produced figures."

Piracy figures derived by the entertainment industry have also been heavily criticised in the US and Europe. In some instances, the industry has admitted to grossly inflating its numbers.

Australia's biggest pirate? Fat chance

In February last year, the anti-piracy arm of the music industry, Music Industry Piracy Investigations (MIPI), put out a thunderous press release claiming it had helped police "shut down one of Australia's largest illegal music burning operations" in Melbourne.

Acting on information from MIPI, police seized "close to 100 CD burners and approximately 25,000 discs containing pirate music housed in a suburban CD store".

MIPI's general manager, Sabiene Heindl, said at the time: "This is one of the largest and most blatant illegal music burning labs that we have seen for some time."

It was only this year that the case finally ground its way through the courts and further details were released.

Of the 25,000 "pirate" CDs that MIPI claimed it seized, 14,600 were blanks, while the remaining discs were mostly of Asian artists which the store, Lucky Bubble, had a licence to reproduce.

Less than 100 of the discs were proven to be pirated copies and the charges were dropped to the lowest possible level. The manager of the store, who claims the handful of pirated discs were placed in his shop by staff, in the end was let go with a $1500 fine.

It's a far cry from the hundreds of thousands of dollars in penalties and years in jail that MIPI warned about in its press release.

The police have recently returned the man's burners and almost all of the seized discs.

"This whole operation from the start has just been a monumental stuff-up by MIPI," said barrister Doug Potter, who represented the defence in this matter but has 18 years' experience with Victoria Police and has previously helped MIPI with its prosecutions.

"This bloke's got a legitimate licence to be selling material and they've tried to characterise him as the greatest pirate in Australia. If their assessment is right they don't have a piracy problem, it's as simple as that."

Mr Potter said he believed that MIPI was trying to "justify their existence" by pursuing minor pirates and raiding the occasional market stall. He said most piracy was occurring on the internet and much of this MIPI was powerless to stop.

"Everyone's sitting on their computers anonymously pirating stuff and they're going after someone with just 96 discs and proclaiming a great victory - the reality is that hard copies of these things are going the way of the dinosaur," he said.

The Lucky Bubble case is reminiscent of the case of 24-year-old Queensland man James Burt, who was forced to pay $1.5 million to Nintendo in a piracy case last year for uploading a copy of a new game to the internet after he managed to buy it before the official release date.

Nintendo claimed he was a major pirate who had caused it significant losses, but Burt's father said he was simply acting under peer pressure from his friends. As for the losses, the game, New Super Mario Bros, went on to earn $20 million in revenue in just seven weeks, making it one of the fastest-selling games of all time.

Studios still raking it in

But despite the presence of internet piracy, is the local industry actually suffering? The results are mixed.

The Australian box office set its third consecutive record in 2010, reporting revenues of $1.128 billion – a 4 per cent increase on the previous result.

Figures released by the Australian Recording Industry Association show that, between 2009 and 2010, although the quantity of music sold rose almost 10 per cent, the dollar value of these sales dropped from $446 million to $384 million.

Sales of DVDs, Blu-ray discs and other packaged media are holding strong, with 2010 revenues at $1.29 billion – just 6 per cent lower than in 2009.

Mr Cranswick believes shifting the blame for lost sales on to piracy betrays a deficit of "imagination and insight" by the entertainment industry.

There were legions of other reasons that could account for changing fortunes including technology, demography, usage patterns and price models.

The music industry appears to be the worst affected by falling revenue but there are signs it will soon turn the corner thanks to new subscription-based online music services. A recent Ovum research report estimated the digital music industry would grow by 60 per cent to $US20 billion by 2015.

Mr Jacobs points out that despite its profits continuing to grow on an overall basis, the industry for a long time has made a lot of noise about the end of days. It has continuously protested against new technologies and lobbied governments to impose restrictions.

"The marketers of entertainment should ask themselves - if a quarter of Australian internet users are engaging in unauthorised downloads as they claim, is it because Australians are a bunch of immoral criminals? Or could there be another explanation?" he asked.

"Rather than treating the impending roll-out of the NBN as an apocalypse of piracy, the industry should be embracing the technology to provide a more compelling offering to their Australian customers. Sadly, it seems that innovation is harder than putting lawyers in charge."