The Agenda

Joe Karaganis on Piracy and Pricing

I was blown away by the clarity of Joe Karaganis’s excellent piece on the sources of media piracy:

 

The image of foreigners stealing American creative products is, of course, political catnip. What US politician wouldn’t get behind measures to stop such behavior? Unfortunately, it is also an unproductive way of understanding, much less addressing, the problem of global media piracy. In the SSRC’s three-year, comparative study of piracy in the developing world, our teams came to some different conclusions about piracy’s causes and potential solutions. Our explanation, at its core, is very simple: high prices for media goods, low incomes, and cheap digital technologies are the main ingredients of global media piracy. If piracy is ubiquitous in most parts of the world, it is because these conditions are ubiquitous.

This may seem like an obvious conclusion but it is strikingly absent from policy conversations about intellectual property, which focus almost exclusively on strengthening enforcement. Nowhere in the industry literature or in major policy statements like the US Trade Representative’s annual Special 301 reports will you find an acknowledgement of piracy’s underlying causes: the fact that, in most parts of the world, digital media technologies have become much much cheaper without any corresponding increase in access to legal, affordable media goods. DVDs, CDs, and software in Brazil, Russia, Mexico, or South Africa, for example, are still priced at US and European levels, resulting in tiny legal markets accessible to only fractions of the population. Would you pay $136 for a Tron Legacy DVD (the relative price in Mexico, adjusted for local incomes)? How about a $7300 copy of Adobe’s Creative Suite? I didn’t think so.

Karaganis goes on to explain that big media conglomerates have no incentive to price their products more aggressively:

Isn’t there a win-win scenario in which prices fall, markets grow, and profits increase? To judge solely by the behavior of the big multinational companies in this sector, the answer is no. They’re fine with high prices and the resulting tiny markets. Why is this so? We drew two conclusions in our study: (1) they want to protect the pricing structure in the high-income countries that generate most of their profits; and (2) they want to maintain dominant positions in developing markets as local incomes slowly rise. In most countries, there is no serious domestic competition to provide an alternative. And that, too, is a problem.

Meanwhile, developing world governments have no compelling reason to enforce IP laws. We’re at an impasse.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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