Felix Salmon and Mike Masnick have both offered their takes on a fascinating report from the Social Science Research Council on “Media Piracy in Emerging Economies.” Here’s a brief snippet from the introduction:
Media businesses, in our view, will either learn to compete downmarket or continue to settle for the very unequal splits between low-priced pirated goods and high-priced legal sales. This status quo, it is worth noting, appears viable for most sectors of the multinational-driven media business. Software, DVD, and box office revenues in most middle-income countries have risen in the past decade—in some cases dramatically. Sales of CDs have fallen, but the overall music business, including performance, has grown.
High prices for media goods create what the report’s authors call “the consumer’s dilemma”: you can pay the high legal price, you can find a pirated copy, or you can skip consuming the good in question. Technology has been diffusing faster than incomes have been converging. That is, there are now millions of people living around the world who have the devices and the broadband they need to consume media goods produced in the rich world, but without the incomes they’d need to pay the prices to which people in the rich world have grown accustomed. One solution is to create a tiered pricing structure, with lower legal prices in the developing world. But this undermines the ability of multinational firms to impose those high prices in the rich world. (“Wait a second. Why do we have to pay $20 when guys in Dakar are paying $1?”)
What’s interesting, as Felix notes, is that piracy can actually be good for rich world multinationals that sell media goods:
I’m particularly partial to analysis which shows a strong correlation between the profitability of a movie and the degree to which it’s pirated. I’ve long had this theory with regard to counterfeit handbags: the existence of the fakes only serves to increase demand for the real thing. The connection is less intuitive with movies: if you’ve seen a high-quality pirated copy, you’re not going to want to pay full price for the licit version. But Hollywood revenues are very healthy indeed, and there’s no evidence at all that they’re being harmed by increased piracy.
Piracy builds a market for the culture produced in rich countries. As poor consumers in poor countries grow richer, they will pay for convenience, or for concert tickets, merchandise, and other goods associated with popular brands. The case against panicking over media piracy seems pretty strong.