Contribution of piracy to the purchase of copyrighted contents

Piracy is a political term used to label to every unauthorized use of copyrighted content as “illegal looting,” and to justify strengthened copyright enforcement . The copyright industries, including MPAA, BSA and IFPI, have estimated huge economic harms caused by piracy. Yet some literature show piracy having a positive effect on legal purchases of cultural products. Here is one example, which comes from a Korean public agency.

The Korea Copyright Protection Agency (KCoPA), a governmental body besides the Korea Copyright Commission (KCC), has conducted a nationwide survey on copyright and published a periodic report – the Annual Report of Copyright Protection. Previous editions of the report had been written and published by the Copyright Protection Center of the Korea Federation of Copyright Organizations, a private umbrella body of domestic copyright holders’ associations, for 11 years, beginning in 2006. [1] In 2016, the Copyright Protection Center was merged into the KCoPA the amendment of Copyright Act of 2015, and became a public body. [2]

The 2020 Annual Report of Copyright Commission, published by the KCoPA in April 2020 (only in Korean and without English summary), contains an interesting survey result not found in the previous reports: the conversion rate from piracy to lawful content. The term is defined as “the proportion of the quantity of lawful content that users purchased or used after piracy to the quantity of identical pirated content” (footnote 62 of page 105 of the 2020 Annual Report).

Among 20,000 respondents, 48.2% of the respondents replied that they purchased or lawfully used the same content after using identical pirated content. The quantity of lawful content they purchased or used was 28,491 works. Given that the total quantity of pirated content that the sample of 20,000 respondents reported to use was 1,466,942 works, the conversion rate from piracy to lawful content was 1.9% (p. 105 of the 2020 Annual Report).

The degree of conversion or displacement varies depending on type of content. The number of respondents who reported purchasing or using lawful content after using infringing content were highest in the publishing sector (56.3%), followed by broadcasting (49.8%), games (48.7%), music (47.5%), and film (42.3%). In contrast, the conversion rate from piracy to lawful content is highest for games (15.9%) followed by publishing (15.3%), film (8.0%), broadcasting (2.0%), and music (1.1%).

 

Total Music Film Broadcasting Publishing Game
Conversion Experienced 48.2% 47.5% 42.3% 49.8% 56.3% 48.7%
Quantity of Conversed Content 28,491 10.251 4,324 9,051 3,356 1,503
Conversion Rate 1.9% 1.1% 8.0% 2.0% 15.3% 15.9%

 

Survey Statistics (p.49 of the 2020 Annual Report)

Standard Error: ±0.69% at 95% confidence level

Survey Period: August 2019 to October 2019

Sample Selection: 13-year to 69-year-old general public, nationwide

Total Number of Respondents: 20,000 people (4,000 people per content)

Number of Valid Respondents (content users): 2,530 (music), 2,599 (film), 2,126 (broadcasting), 1,993 (publishing) and 1,860 (games).

 

Implications

It is insufficient to discuss the implications of the seemingly positive correlation of piracy and copyright market. Main reason is that the 2020 Annual Report does not provide any further information of the survey result on the conversion rate. Further, the survey does not seem to seek motivation of the use of infringing content to the use of non-infringing content.

However, the survey does report on respondents’ motivation for the use of unauthorized channels, and this may provide indirect answers. 25.8% of users of unauthorized content replied that their first motivation was “free of charge or very cheap”. Then, “convenient to use” (16.0%), “easy to obtain desired content” (13.1%) and “kept using and familiar to it” (12.8%). [3] Another indirect indication is the effect of blocking measures. 32.2% of the unauthorized users reported having been blocked from the unauthorized channels.[4] Their reactions to being blocked were: looking for alternative free channels (43.0%); giving up using the free channels (31.4%); and using channels providing legal (paid) content. (17.6%) [5] KCoPA used these figures of 31.4% and 17.6% (summed 49.0%) [6] indicate that one of two piracy users stops piracy due to blocking measures, showing an effectiveness of strong copyright enforcement.

In the meantime, when the results are expanded to the whole Korean population aged from 13 to 69, which is 40,908,321 people [7], around 30 billion (3,000,506,711) quantity of cultural products were purchased or legally used when such products were available to unauthorized users in 2019.

Comparison with Other Surveys

The conversion rates of the 2020 Annual Report are much higher than those estimated in another surveys. The KCoPA reports the conversion rate of 15.9% (game), 15.3% (publishing), 8.0% (film), 2.0% (film) and 1.1% (music). In contrast, the Global Online Piracy Study of 2018, estimates the displacement rate by content type to be 0.42 (music), 0.52 (audio-visual), 0.97 (books), 0.57 (games). This is estimated using Ordinary Least Squares (OLS) regressions showing the relationship “between illegal and legal content consumption.” Specifically, the relationship is “illustrated by regressing total consumption from legal channels per content type on total consumption from illegal channels.” (pp. 71-72). Table 6.1 below is summary of the results of the OLS regressions.

 

 

 

Concerning the factors that piracy affects the purchase of legal content, Global Online Piracy Study of 2018 by IViR presents a list of positive and negative ways that online piracy affects the purchase of legal content.

Positive ++ It introduces consumers to music, films, books and games (and to artists, authors and genres), thus creating new demand. This is known as the sampling effect.
++ It allows consumers to pool their demand, resulting in increased demand.
++ It enhances willingness to pay and demand for concerts and related merchandise (complementary demand).
++ It enhances the popularity of products, boosting demand for legal supply (network effect).

Neutral • It meets the demand of consumers who are not, or not sufficiently, willing to pay and subsequently are not served by legal supply.
– It meets a demand for products that are not offered legally.

Negative — It substitutes for the purchase of content or cinema visits (substitution effect).
— It results in the deferred purchase of content at a lower price than the price at launch.
— Sampling results in sales displacement as a result of fewer bad purchases.
— It substitutes legal consumption via consumers’ time budget.

 

According to the 2015 European Commission report “Estimating displacement rates of copyrighted content in the EU”, a majority of the academic literature finds that illegal consumption has a negative net effect on legal sales, [8] but some say differently:

“Zentner (2006) estimate … that of the people who regularly download MP3 files in seven EU countries in 2001, 32 to 50 per cent would have purchased at least one music CD in the month prior to they survey.”;

“Bastard et al. (2012, French survey data of 2008) ran OLS regressions and probit models and found insignificant (at the 5 per cent level) or positive effects of piracy on legal transactions for each of the same four types of content as in this study.”; and

“Leenheer and Poort (2014, Dutch survey data of January 2014) estimated quadratic models for the effects of illegal film downloads on numbers of legal transactions and found displacement rates between 15 and 20 per cent for small numbers of illegal downloads and diminishing replacement rates for larger numbers, except for cinema visits for which they did not find significant effects.”

Limitation of the 2020 Annual Report

Over-counting of the illegal channels: When content is available on UCC sites or shared by SNSs without explicit consents from the copyright holders, it is regarded as pirated. Meanwhile, the 2020 Annual Report does not mention clearly, but KCoPA told me that Youtube was regarded as an illegal channel only for film.

Demand of authorized content: A willingness to purchase authorized content varies depending on diverse factors such as nature of content (recent or old, popular or niche), income of users, and individual preferences. However, the 2020 Annual Report provides no further information on these.

No questionaries: Also, the 2020 Annual Report does not contain questionnaires the KCoPA used for survey.

Why No Estimation of Economic Harm of Piracy?

The 2020 Annual Report omitted the estimation on economic harm of piracy to legal market. Curiously enough, the estimation of the economic harm has never been reduced since 2006 despite of sudden, large reduction of total piracy in Korea around 2007. When the Annual Report was first published by the private Copyright Protection Center, the economic harm was estimated to be as large as  KRW 2.0 trillion, and total quantity of pirated content was estimated 29.98 billion works. However, even when the pirated content were dwindled to 3.45 billion in 2008, the estimated economic harm by piracy was increased to KRW 2.4 trillion. This estimation remains unchanged for more than ten years (KRW 2.5 in the 2019 Annual Report). Refer to graph below (red line shows the economic harm, blue line is for piracy market, and yellow line is for the quantity of pirated content).

Why? Copyright industries and copyright enforcement authorities strategically used these two conflicting figures. Every year, they have argued that the economic harm is still huge and thus stronger enforcement is inevitable. At the same time, they argue that the scale of piracy is continuously shrinking because their successful enforcement measures are working, so the public should continuing to support these measures.

 


 

* I thank Michel Palmedo for useful comments and proofreading on my first draft.

  1. The Copyright Protection Center was established in 2005 and existed as a branch of copyright holders association except from November 2005 to February 2007 when it belonged to the former KCC.
  2. This amendment was pursued by the Minister of Culture, Sports and Tourism for the purposes of avoiding congressional attack to its baseless tax supporting the Copyright Protection Center for several years.
  3. p.89 of the 2020 Annual Report.
  4. p.95 of the 2020 Annual Report.
  5. p.96 of the 2020 Annual Report.
  6. p.153 of the 2020 Annual Report.
  7. The report refers to the 2019 estimated population statistics of the National Statistics Office (at page 45)
  8. p. 71 of the report