Illegal downloads – the economy

At least 7 million people in Britain use illegal downloads, costing the economy billions of pounds and thousands of jobs, according to a report. Shared content on one network was worth about £12bn a year according to the research commissioned by the Strategic Advisory Board for Intellectual Property. (Guardian 29 May 2009)

At least this research is done by a government body and not funded by the entertainment industry, so it’s likely to be a bit less biased. To be fair, I’d say that the ‘7 million’ figure is probably much too low. But, my argument is about the second part of their argument (the one the govt, and especially the Treasury is most interested in) and that is the billions of pounds and thousands of jobs this costs.

As the research is done within strict bounds, as most research is, it doesn’t have the reach to see where these jobs and money would come from, and what are the secondary effects. It just makes the assumption that if people weren’t downloading illegally, they’d be paying, and paying the current rate, for their music and video.

Now it is true that the record industry (from production to sale) has been losing jobs. However, this may well have happened without illegal downloads. Amazon has had a huge impact on record shop sales: I’d bet that this has had the most impact on the problems of HMV and Virgin Megastore. People can buy CDs and DVDs cheaper and easier, with greater choice, online. And these can be delivered with fewer jobs. Consolidation in the big record companies, and copycat artist development (as opposed to the lone A&R man) also requires fewer jobs.

Most importantly, though, is the question of whether total sales would have fallen anyway. CDs and DVDs are in no way a necessity: we buy them out of our spare cash or pocket money, when we’ve bought everything else. Given that there is now a larger choice of entertainment objects to spend this spare cash on, it would make sense for music and video (and other downloadable stuff) to lose market share. If people are spending £25 per month on a mobile phone and £20 per month on Sky, then this is £45 they can’t spend on CDs. The Guardian article’s argument rests on the assumption that if people couldn’t download for free, they’d spend enough money in the shops to get this music and video.

Indeed, many of the downloaders will be kids with no money: so they won’t be increasing GDP and jobs if they stop downloading. Unless the people with money are putting their CD spending money into savings, people who end up buying more CDs and DVDs will have to cut back on some other luxury. Using the Guardian’s figures, 7 million people are sharing content worth £12billion pounds a year, so they’d end up spending an average £1700 per year more on CDs and DVD. I find this unlikely. Even if they could afford it, they’d be switching the money from other purchases. So GDP wouldn’t be affected, and jobs gained in the entertainment industry would be lost in the restaurant or clothing sector.

More importantly for the economy, the stuff that can be downloaded costs next to nothing to distribute. Once a film or album has been made, digital distribution pushes the additional unit cost to zero. Apple doesn’t need to hire more people to sell more music through iTunes. Any sales that come over from illegal downloads can be almost all profit. And amusingly, none of this would add to the wealth of the UK. Even if GDP increased by £12bn (which I feel is unlikely), most of this money would be heading westwards and not providing wealth to the UK.

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