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BSA’s Latest Study on Piracy and Economic Benefits “Shockingly Misleading”

This week the Business Software Alliance published a new study which purports to estimate the economic gain from a ten percent reduction in piracy of business software.  For Canada, the BSA claims that the reduction would create over 6,000 new jobs and generate billions in GDP and tax revenue.  Given such impressive claims, it is not surprising that some media reported on the study and the BSA’s emphasis on new laws and tougher enforcement.

When IT Business’s Brian Jackson asked me for a comment, I noted that such estimates were notoriously speculative (see Glyn Moody on this) and that the BSA would do far better to tell us how much Canada has gained from its recent significant reductions in piracy.  Last year, the BSA said the Canadian rate dropped by three percent to 29%, the biggest drop among developed countries and – the BSA noted – an all-time low.  In fact, since 2006 the BSA says that there has been a five percent drop in Canada.  Has that created thousands of new jobs and generated billions in new revenues and taxes?

The BSA did not have answer to this question, but it did reveal how it arrived at the initial estimate.  It turns out that it is actually based on the economic gains from a ten percent increase in proprietary software spending. Notes a BSA spokesperson: “what the study is looking at here is really if you’re reducing the piracy rate and increasing the legal software market by 10 points, this is what you’d see in terms of economic return.”  The BSA admits its estimate is based on the presumption that every dollar “saved” by using unlicenced software would now be spent on proprietary software. I termed this approach “shockingly misleading” given that I don’t think anyone can credibly claim that there is a direct dollar for dollar correlation between piracy and proprietary software spending.  As the IT Business article points out, many shift to open source alternatives when confronted with the issue.  Others may cut back on spending altogether given the new costs. In fact, as a commentator notes below, the BSA estimate is actually a shift of economic spending, not new spending at all.  The BSA’s claims are so speculative as to be worthless and ultimately undermine the credibility of those trying to better understand the marketplace impact of addressing copyright infringement.

42 Comments

  1. Sigh
    Classic “every copy pirated is a lost sale” fallacy…

    Lovely that they try and package it up in a nice “comprehensive study” for the media to gorge themselves on…

    Makes you wonder whether we need some kind of legislation to protect against these kind of misleading self-promoting “studies”. (but then again, politics as a whole would go down the drain wouldn’t it :P)

  2. Like dreams, statistics are a form of wish fulfillment.

  3. Where does this ‘new’ money come from?
    Even if every dollar “saved” was spend on s/w licences, then that means it’s not being spent on something else – surely the net economic gain is the same? Unless of course the BSA are claiming that pirates are currently copying s/w and then burning the amount of money the licence would have cost.

  4. Simon, don’t confuse them with logic.

  5. Un-Trusted Computing says:

    Open Source not factored in
    What if folks who currently use pirated payware just all went open source?

    Most businesses who use pirated software, or violated shareware licenese are doing so for cost reasons. So these businesses would greatly benefit from using an open source alternative.

    What would the BSA do then?

  6. May it be because….
    … on the small business front now there’s less need for Windows Server (which once was amongst the most “pirated” pieces of software)? Displaced by inexpensive NAS/printer server boxes?

    … and the availability of open source, GNU licensed apps for the individuals? Displacing mainstays like Office and Photoshop (which also were in the top ten most “pirated” apps)?

    Nap.

  7. Open source
    It is years that I use only open source software (linux, openoffice, jboss and so on). Don’t count on me on bying a software application I can get as open source and that sometimes works better or the same as the costly one.

  8. Thank your Michael for another wonderful article.

    The BSA is so wrong here on so many points – and in fact, they are completely worthless as an organization, except where it comes to making enough busy work that their executives can continue to line their pockets.

    BSA has been such a bully to small businesses that some have simply stopped proprietary software at all.

    A great example here is the Ernie Ball guitar string company. Several years ago, EB was found by a BSA-bully-audit to be out of compliance on some of their proprietary software. They weren’t even profiting from this situation, it was merely a case where unused software was not uninstalled from old machines when they were passed down from the designers to the secretaries.

    The BSA would not permit a reasonable resolution (like erasing the unused software); rather they brought the full force of the law down on these hapless guitar string makes, costing Ernie Ball hundreds of thousands of dollars.

    This so incensed EB that they ditched ALL of their proprietary software, in favour of open-source alternatives running on the Linux system. Ernie Ball — who previously had never even hear of FOSS – has gone so far as to evangelize open source to his business peers and in business journals.

    It is very clear in that in the EB situation, only the BSA made a profit, which is pretty much par for the course. The BSA is an organization of hungry sharks, looking for government help to throw them more meat.

  9. If you believe that 3rd party ‘enforcement’ organizations are driven by the best interest of their clients than I have this bridge …

  10. Bill MacEachern says:

    More from the BS Alliance
    Sadly, the media will run with their study and not put a second of critical analysis into it.

  11. Funny
    Where did all the arguers from yesterday go? :o

  12. Friday is golf day at Sony HQ

  13. A 10% decline in pirated software does not yield 10% increase in legit software, even granting the rest of the BSA’s shaky reasoning. If 29% of software is pirated, then 71% is legitimate. Dropping to 26% pirated (10% improvement) means we move to 74% legitimate. This is a 4% rise in legit software.

  14. Jeff consumer_creator says:

    On a more positive note, now that the Encryption key for Blu-Ray has been leaked, I’m hoping they’ll make a device (which wouldn’t be illegal in Canada today I don’t think) that will sit between a blu-ray played and my non hdcp compliant lcd TV, I might then get a Blu-Ray player.
    NEVER BE AN EARLY ADOPTER!!!

  15. Un-Trusted Computing says:

    Calling all copy-trolls
    Wondering where the crowd of supporters for the “little people” are today. I don’t see the usual suspects coming out to defend small business.

  16. I would be more shocked if they had put out an honest report.

  17. slashdot
    And Michael is now being featured on slashdot:

    http://yro.slashdot.org/story/10/09/17/169228/BSAs-Latest-Piracy-Claims-Shockingly-Misleading-Says-Geist

    I hope his blog is hosted on some really strong server :-)

    Nap.


  18. Maybe if BSA member put more effort into making good quality products, instead of digital restriction management and software patent wars, they would actually see a profit.

    Really, it looks like the future of the “software industry” is going to be focused on creating and suing for software patents. So in fact, the BSA should call themselves the BSPA.

  19. can’t help but laugh
    Is this like a reverse psychology? Instead of claiming how billions are lost in money, and how 15.4 million jobs are lost due to piracy, they are now claiming that a 5% drop created thousands of jobs and billions in revenue?

    Back in 2005 http://www.p2pnet.net/story/4884 the
    BSA claimed actually claimed 1% decrease in pirated warez caused revenues loss to INCREASE from “$29 billion to $33 billion.”

    As stated over at Newtons site on this topic, http://www.p2pnet.net/story/43950

    “They craft statistics to suit the purpose, confident in the knowledge the lamescream media and government bureaucrats will repeat them verbatim without the slightest attempt at qualification.”

    I think he summed it up rather well.

    They want the world to believe everything they state, yet not be held accountable to qualify or even quantify any of their own puff pieces.

    What a joke.

  20. Piracy can actually INCREASE spending on commercial software!!!
    Case in point:

    When I was young I pirated audio sequencer software and taught myself how to record, mix, and produce music. Years later I have purchased this software as well as many other pieces of audio software, hardware, etc that I would NEVER had purchased if I didn’t have access to the original pirated software.

  21. ^
    Classic case of “try before you buy”. Big business rarely wants you to do this anymore !

    And another point I’m pulling out of that is the “I couldn’t afford it then, but I can now, so now I can shell out the cash. Woulda done it sooner, but wasn’t feasible”

    Not having the cash for big business’s retarded price tags is all too common these days. Want to crush piracy? Make things affordable to people that actually use it. Companies aren’t the only ones using licensed software out there. Not everyone has pockets as deep as those companies.

  22. This goes towards the unprovable actual damages in C-32 as well. All big business can come up with is estimates, not solid evidence of actual damages that have occurred.

    “In fact, as a commentator notes below, the BSA estimate is actually a shift of economic spending, not new spending at all.”

    In economic terms this is called “creative destruction” which can be proven in court with solid economic figures and facts to support it. There’s also reluctance that can be proven with respect to companies refusing to follow the market on where the new economic spending is taking place, further declining overall profits, which the BSA hasn’t taken into account either in their study.

    Besides all of this, why would the BSA be so concerned on software piracy, and not moving ahead with lightening speed to cloud computing? Why are they still focusing on software “copies”? The BSA didn’t take that into account either with respect to these number I would think.

    The BSA should be careful what it asks for, it might actually get it, and end up having to defend themselves financially in the public domain and in court by a highly educated public on copyright related manners. I can’t see many Canadians conceding to even a $100 min fine for downloading. I think many Canadians will be fighting any user penalties even if the min was $1. I think the general public is quite fed up with this group and side of the copyright debate.

  23. Financial Post reporting: Counterfeiting, piracy a growing problem in Canada: RCMP

    http://business.financialpost.com/2010/09/17/counterfeiting-piracy-and-ip-crime-a-growing-problem-in-canada/

  24. The rhetoric is heating up from the foreign influences.

  25. bsa is a criminal protection racket. always has been. someone should look into its activities in india, as well, looking for bribes to government agencies, for one thing.

  26. RE:Jason K
    “…
    Financial Post reporting: Counterfeiting, piracy a growing problem in Canada: RCMP

    http://business.financialpost.com/2010/09/17/counterfeiting-piracy-and-ip-crime-a-growing-problem-in-canada/

    Thanks for sharing that. Nice to see the mainstream media being so gullible.

    I love how ‘ole Barry Snookass just can’t get enough millage out of the term piracy.

    Considering that all other credible reports up to now have been saying the complete opposite, I take the RCMP’s latest report with a grain of salt.

  27. Oh My, people are format shifting. Raise the Alarm!
    @RCMP – “The report acknowledges Canada as a source of pirated DVD and CD media, primarily for domestic consumption. So at first glance the problem doesn’t appear incredibly widespread; Canadians are pirating material for their own use.”

    The RCMP says IP cases of infringement has dramatically increased in Canada 2005-2008, well yeah, so has it in the rest of the World as well. As a matter of record the USA is a BIGGER haven of infringement than Canada and ranked LOWER on business friendly IP laws.

    I won’t even go into the real reasons for the increase in infringement [*Ahem* .. *DRahem*], it’s all been said before.

    But I will say to that black kettle to the south … Get your own house in order, ol’ land of the free, before you start ‘calling out’ others.

    Sheesh!

  28. “Thanks for sharing that. Nice to see the mainstream media being so gullible.”

    Well completely bias reporting, and journalism on the financial post article. Not an independent view by a long shot. Those with a financial stake in this debate should not be crowned “experts” especially lawyers from either side. Lawyers should not be opening their mouths on this period! I don’t care who they are. I think the Canadian Bar Assoc a while back refrained from commenting on C-32 from what I remember.

    The black market should not be at all tied to downloading. 2 separate issues, with 2 different solutions. We have laws that already can be enforced on the black market. The RCMP isn’t doing it’s job well enough. Flea markets and copy trucks are well known to carry illegal sales of downloaded media. These are easy to find and shut down. We need stronger laws to keep the black market sellers out of business, and kick the RCMP in the ass when they seem to overlook the obvious places where the black market is, and instead come out with a stick on the general public, because they can’t get off their lazy butts, and do their jobs properly!

    Most of the cops I know get pirated films from the black market off duty. They all know where these places are set up.

  29. If you want to see what true piracy looks like outside of downloaded media, it’s not online, but in almost every “dollar” store in the country which is not monitored or regulated by the Government with respect to product. That’s more a safety concern. Lead in paint used on cheap children’s toys, even food is imported. Nothing regulated.

  30. Ah yes…
    The old go-to topic of the so-called ‘IT Business Journalist, is that even a real job?’ Software piracy. Much like the Airline companies and their traveling circus of shenanigans. This article doesn’t even make for interesting reading, nothing new or relevant. That’s because it’s a dead topic. I ask the question, at the risk of coming across as flippant, who cares? Besides paying people’s salaries and wasting ink and pixels, who cares which country is number one or the worst offender or what OS is being pirated?

    As one commenter pointed out, people in law enforcement stop off at the corner store on the way home, pick up a bag of milk and the burned copy of SALT on the counter. I reported a store selling Used Mac’s with burned copies of Snow Leopard. The process was so ridiculous, partially given to the fact that no one at Apple had any real idea of who I was supposed to talk with, I just hung up and moved on.

    Seriously, this is such a ‘none’ story now. Simply used by those wishing to stir the pot and collect their paycheck.

  31. Business models
    See open source vs. closed proprietary DRM infested:

    http://www.theregister.co.uk/2010/09/17/open_source_good_when_bad/

    They’re both valid, with the difference that one of them needs special laws and tax payer money to be spent on enforcement.

    Nap.

  32. The funny thing is, that major money could be made if business models were built around file sharing:

    Unfortunately this has less to do with money being lost on actual piracy, and more to do with trying to control the market by a few players. I distinctly remember in 2008 how much of a bad idea that was for our financial system. Lessons from the 2008 market crash have YET to be learned.

    I seriously hope our dumb cattle in Ottawa who are supposed to be representing and protecting Canadian society know full well what the lessons of the 2008 crash were on industry, and make sure that we don’t have a repeat of this again due to copyright reform.

  33. Intimidation and illegal extortion should not be playing on our shores by these companies. Those are not Canadian values, and companies and lobby groups that insist on using these tactics create bad karma.

  34. The invincible
    BSA is full of BSE. They ate BSE cows and now they have MadCow disease!!!!

  35. Simon’s point can be extended…
    Simon is exactly right that increased spending on proprietary software is just shifting money around. However, you can take that thinking one step further. It is piracy that actually creates new value in the economy rather than shifting it around. The new copies of software are an obvious “value for nothing” example, but the important stuff is in economic efficiency.

    Piracy can shift waste and excess profits to other sectors and into salaries for others. The best example is Microsoft who had (has?) monopoly profits and likely the highest software piracy rate in the world. Piracy helped reduce the economic disaster of the monopoly. If piracy helps put the worst developers out of business faster and increases access to the software made by profitable businesses then it adds a great deal of value to the economy.

    As mentioned by other posters, the value of having access to software is considerable, both to those with access and those that create it. Again, increased piracy will increase this value.

    For many levels of piracy the total economic gain far outweighs the losses, and at some levels the software industry sees more gain than loss. It’s the BSA’s job to argue for the latter, but the former is more important. You can have both.

    The truth that the BSA can’t admit is that the best economic situation is when access (through free copying and distribution) is 100% AND good developers making desired products are financially successful. Those aren’t incompatible goals, as free software has proved.

  36. Looking at the figures from another angle…
    A ten percent decrease in spending on proprietary software over the next two years would *save* businesses $193 billion dollars per year.

    Shouldn’t the government therefore be investing in a massive programme to encourage, and provide support for, all businesses to switch to free software?

    You could rename the study: “The Economic Benefits of Switching to Free Software”


  37. @Martin: “A ten percent decrease in spending on proprietary software over the next two years would *save* businesses $193 billion dollars per year.”

    Maybe not that much. While I am on the side of open source software, I have to give some credit to Microsoft when they say that there are costs associated to free software too. It’s all about support, and either you hire some in-house support staff (creates Canadian jobs…) or you get a support contract with someone (i.e. like with Red Hat or other companies specializing in open source).

    What it really saves without any doubt is the lengthy hours of downtime because of “activation issues”, with the final solution of “buy another serial number and reinstall from scratch”. Which in my humble opinion is a scam. Where are the consumer protection laws when you need them?

    Nap.

  38. Next up, the BSA will launch an attack on FOSS because it is costing proprietary software vendors billions. All they need to do is swap a few words, since they have already proven the argument sound.

    Notes a BSA spokesperson: “what the study is looking at here is really if you’re reducing the use of open source and increasing the legal software market by 10 points, this is what you’d see in terms of economic return.” The BSA admits its estimate is based on the presumption that every dollar “saved” by using open source software would now be spent on proprietary software.

  39. @Owen
    “if you’re reducing the use of open source and increasing the legal software market by 10 points”. Presuming the quote is direct (and I have no reason to doubt that), the BSA spokesman is also implying that open source software is of, at least, dubious legality.

  40. …and guess who’s using illegal software for illegal purposes
    “Pirates”? naah…. it’s a government agency:

    http://www.theregister.co.uk/2010/09/24/cia_netezza/

    Nap. :-)

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