Illegal Downloads – Simon Does the Math

Simon van Meygaarden, a friend and correspondent based in the Netherlands, holds some views about illegal downloading that diverge from our own (including the term “illegal downloading”). In particular he believes that financial losses due to such downloads are an infinitesimal fraction of the potential legitimate revenues.  He has actually demonstrated mathematically that for every $1000 of potential to be made by an authorized content provider, only $1.40 ends up in the pocket of an unauthorized user.

Read Simon’s calculations.  Then I’ll have a few of my own.

Richard Curtis

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Illegal Downloads – What are we talking about?

Let’s start with a term that is misused more than “piracy” and “crisis” together, the illustrious and infamous – turning on my hollow voice – “Illegal Downloads”.

A download is the transfer of data from a server or host computer to one’s own computer or device. Let’s define my number of downloads as “N”.

Now, not every download gets transmitted error-free, and if one bit goes wrong the download is unusable, so let’s define the Corruption Factor “CF” as an error-percentage. If 10% of my downloads is corrupt and unusable, CF = .1

My number of error-free download now is N * ( 1 – CF )

Some error-free downloads are password-protected, and they usually contain viruses or point to infected websites, so let’s define the Viral Factor “VF” also as an error-percentage. If 10% of the downloads is password protected, VF = .1

My number of safe downloads now is N * ( 1 – CF ) * ( 1 – VF )

Some of my safe downloads are never played (or watched or read), so here we have the Play Factor “PF”.

My number of played downloads is N * ( 1 – CF ) * ( 1 – VF ) * PF

Now I have played the download and I am finally aware of the product itself. Clearly, some products are copyright free or public domain. So here is the Infringement Factor “IF”, the percentage which is actually illegal, by American law.

My number of illegal downloads is N * ( 1 – CF ) * ( 1 – VF ) * PF * IF

Some of my illegal downloads are crap, and I would never have bought them anyway. The rest are good, I might have actually bought them, and that’s the Buy Factor “BF”.

The number of product I might have actually bought is N * ( 1 – CF ) * ( 1 – VF ) * PF * IF * BF

So let’s put some numbers to this formula, from my own experience.

50% of my downloads are corrupt, so CF = .5
25% is password-protected, VF = .25

The Play Factor is more difficult, as it varies with the type of product. I have downloaded about 2.000 movies, and I have actually tried to watch about half of them, so PF_movie = .5. Being a D.J., I have downloaded perhaps 20,000 albums, but honestly, I have only tried to listen to about 5% of those, so PF_album = .05. I also like books, my entire house is filled with them, I can’t actually store anymore, but, I shamefully admit I have about 250.000 ebooks, and I only tried to read a fraction of them. Let’s say one in a thousand, so PF-ebook = .001.

For the sake of simplicity, let’s say 75% is illegal (IF = .75), and 50% is crap (BF = .5).

Now imagine a publisher, who sells a million ebooks a year, and fears that for every ebook he sells, ten others are downloaded, so N = 10 million. His loss in revenue, in terms of numbers of books, would be:

10,000,000 * ( 1 – .5 ) * ( 1 – .25 ) * .001 * .75 * .5 ==
10,000,000 * .5 * .75 * .001 * .75 * .5 ==
1,406.25 ebooks == about 0.14% of his turnover

Here’s a question: how much money would it cost (advertisement, improving product quality, reducing production costs) to raise one’s turnover with 0.2%?

I admit, my actual numbers are personal, and they are most certainly wrong as a reliable average. But my analysis, I think, is right. Morally, and emotionally, I completely understand and support the fight against piracy, however, rationally, and economically, it is a whole different ball game, and it all boils down to how much money (energy, time and resources) one is currently spending on fighting piracy, and how much it would take to estimate the right numbers and raise one’s turnover accordingly.

Simon van Meygaarden

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Richard here again.

Let’s concede the correctness of every one of Simon’s calculations and grant his conclusion: that illegal downloading is siphoning off a mere $1.40 out of every $1000. My question for him is simple: Suppose you keep $1000 on your night table and a dozen burglars enter your home, but they remove only $1.40 of it, will you feel as benignly about your loss as you do about mine?

Richard Curtis

For a complete archive of articles about piracy, visit Pirate Central.

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12 Responses to Illegal Downloads – Simon Does the Math

  1. Toke Riis Ebbesen says:

    Richard, I can’t answer for Simon, but I think your metaphor is incorrect. The equivalent would be that you had placed 1$ in a thousand different houses, spread all over your town. Knowing the risk of burglary is pretty high in some areas of town, would you be satisfied with only losing 1.4 dollars?

    That said, I think most users never obsessively download and stockpile 250000 ebooks. Most would download very few, and they would probably then read a higher percentage, maybe 10-50%. This skews the result quite a bit, as the PF-ebook then becomes 0,1-0,5, or around 14-70%, or 140-700$.

  2. Robert Nagle says:

    I once met a man during an airplane trip who told me — seriously! that he once downloaded a 30 gigabyte torrent of ebooks. I couldn’t believe it, but later hunted for this torrent on piratebay. I found the torrent, and its selection was laughable — lots of out-of-date programming books, car manuals, cliff notes, sexuality books, a few odd bestsellers, the Koran, D& D manuals, computer hacking books, movie reference guides, dictionaries, physics textbooks,cliff notes, lots of public domain titles and sci fi stuff. I can safely say that aside from the public domain titles, i had zero interest in the titles, and frankly I almost felt pity for the person who downloaded all that crap.

  3. Richard, brilliant response! I was working through all his calculations, realizing just how wrong he is, because as the publisher, I’m not considering what percentage of books he downloads I’m losing money on: I’m looking at what percentage of my books that he downloads I’m losing money on. The question is not “how many corrupted files is he getting, or how many spam illegals, or any of that other crap”, it’s “how many of my books would have been sold to readers who instead found illegal free copies of them”. Of course, my reasoned response is not one that would have any impact on him; yours just might.

  4. Simon says:

    Dear Richard;

    To answer your question: if, for only a few terrifying moments, I try to imagine what these twelve monkeys could have done to me, my wife, or my daughters, I’d probably go down to my knees and thank the dear Lord for taking such good care of us, and I couldn’t care less about the $1,40. -smile-

    But I do understand your point; morally and emotionally, theft is wrong and we totally agree on that. Irrational as we are, we’d probably also agree on spending $100 on new locks to prevent another future theft of $1,40. Individuals are allowed to behave irrationally. Yet if entire industries or even nations start behaving irrationally, someone ought to ring the alarm bells.

    From the moment we invented shops, shop-owners had to deal with shop-lifting. In that sense, there’s nothing new or special about digital piracy. What’s new and special about theft in the digiality (the digital reality) is this.

    (A) Zero collateral damage
    (B) Exaggerated profit loss
    (C) Disproportionate counter measures

    In the real world, the realiality, a burglary is a terrible thing. Broken locks, shattered glass, an incredible mess and traumatized loved-ones; the collateral damage is often worse than the loss of the loot. Yet in the digiality the burglar doesn’t leave a trace, in fact, even the stolen goods are still there. Your analogy is wrong, for in the digiality, the burglars would have copied two dollar bills, and no matter how they spend it, my $1000 would still be there, In any case, if you think about it, you don’t need to replace broken locks or windows, or worry about traumatized family or staff. Zero collateral damage. Big difference!

    Downloads can only be counted by websites and ISP’s, but what gets counted is the start of a download; whether or not the download is successfully completed is impossible to detect. As I showed in my calculation, the actual damage of a successfully completed download is even harder to calculate. Counting downloads is like counting burglary attempts, Estimating piracy damage based upon downloads is like multiplying all burglary attempts with the average damage of successful burglaries, which are always the bigger ones, for the small ones are not even registered. It’s not just misleading, it is wrong!

    Ironically, there is a perfectly reliable method to estimate profit loss by piracy, which, as far as I know, is almost never used. It’s called trend-analysis. As one who has been publishing books both printed and digital for over a decade, you can do trend-analysis on individual titles and very accurately determine the development of the paper/digital sales ratio. After corrections for bulk price changes, points of sale, and available formats and ereaders, one can estimate the influence of piracy and its financial damage. You only need the sales data and the right software, which would be a great bachelors program for a technical university.

    I’m not against the fight, but I worry about friendly fire, if everyone becomes the enemy.

    Take care,
    Simon

    PS. Disproportionate counter measures deserves its own story – will follow shortly.

    PSS. @commentators:

    To be sure, I have, for many years, assisted Mr. Curtis in finding and fighting “illegal downloads”. Also, one doesn’t need to be obsessive to download many files. One could just be making sure, one knows what one is talking about.

  5. Juan Pablo Kutianski says:

    Richard,
    The piracy problem on the publisher side is about money and not about moral or ethics. I agreed with Simon about that.

  6. Toke Riis Ebbesen says:

    @Simon Actually a study on the impact on illegal sharing of ebooks has been done, similar to what you suggest, see: http://www.magellanmediapartners.com/index.php/mmcp/article/the_impact_of_piracy

    The study showed that illegal seeding of ebooks had no immediate negative effect on sales of the selected titles. On the contrary, it tended to create a secondary bump in sales.

  7. Juan Pablo Kutianski says:

    Toke Riis Ebbesen,
    You’re right about the amount of books downloaded. I think 250.000 ebooks is too much for the average reader, looks more like a compulsive collector.
    On 2010 the book industry on USA sells 2.57 billons of books (including ebooks), and the population over 5 years old was estimated on 292.0548 millons. So, the average person on USA reads close to 9 books per year.

  8. Juan Pablo Kutianski says:

    Richard,
    “Suppose you keep $1000 on your night table and a dozen burglars enter your home, but they remove only $1.40 of it, will you feel as benignly about your loss as you do about mine?”

    To be exact this will be

    Suppose you put a $1.4 fee to enter to your home and you keep $998.60 on your night table, and a dozen burglars enter your home and don’t touch your $998.60 but don’t deposit the $1.4 fee, will you feel as benignly about your loss as you do about mine?

  9. Simon says:

    As promised: Disproportionate counter measures.

    I love whiskey. At my age, almost nothing compares to sharing a great malt with friends or loved-ones. I like writing about whiskey too.

    If I buy a bottle of whiskey, at first glance, I can do with it whatever I want; drink it, throw it away, share it among friends, give it away, or pour it into my hip flask. The joy of ownership is in the freedom of usage. However, legally, the situation is more complex. While the container, the bottle, is unprotected; the content, the liquid itself, is protected by law. For example, living in the Netherlands, I am not allowed to distil my own whiskey and sell it as Scotch Whisky. Naturally, whiskey manufacturers fight piracy like illegal moonshining and bootlegging.

    Now, suppose whiskey manufacturers would calculate their profit loss due to piracy by counting the number of sold whiskey glasses, which, obviously, are only used to drink whiskey, and based upon those immense losses, they unite and implement a protection scheme called LRM, Liquid Rights Management, basically a specially constructed cork, molten into the bottle, which only allows the whiskey to pass, if the lips of the buyer touch the cork. Suddenly, you can’t drink your whiskey from a glass, can’t share it with friends, can’t even use your own hip flask, and whiskey prices are raised, but, on the bright side, bootlegging disappears and moonshining become very difficult.

    Alas, after a few month, people all over the world discover an easy way to circumvent the LRM cork; you simply drill a hole in the bottle just below the cork. The Whiskey empire strikes back with the LMCA, the Liquid Millennium Copyright Act, which criminalizes production and dissemination of technology, devices, or services intended to circumvent measures (commonly known as liquid rights management or LRM) that control access to copyrighted whiskies. It also criminalizes the act of circumventing an access control, whether or not there is actual infringement of copyright itself. In other words, by publishing this imaginative story, the owner of this website has become a criminal.

    If you drill a hole in an empty whiskey bottle, you are a criminal, too.

    Weird or even insane? I do believe so. But nevertheless, this is what’s happening right now.

    If I backup my own DVD’s, I am a criminal. If I recode a DVD into an AVI to watch it on my tablet, I am a criminal. If I recode a protected PDF into an EPUB, to read it on my cheap ereader, I am a criminal. I could go on for hours.

    Depending on the country, copyright is extended to 70 to 80 years after the death of the author. But if I die, all my legally obtained software and ebooks die with me. I’m not even sure if my children can legally inherit my CD’s and DVD’s. Luckily, I still own hundreds of long-playing microgroove records, Some of them I inherited from my father. Am I a criminal for owning them? I have no idea!

    If ordinary people are criminalized for doing ordinary things, something has gone terribly wrong. The Internet is the first free and fully transparent market ever. The current outburst of so-called piracy might be nothing than an invisible hand, an internal, self-correcting mechanism, aimed at balancing the interests of both producers and consumers. Pre-internet foggy-market business models were founded on short term, high risk, high profit activities. Full transparent markets favor long term, low risk, low profit enterprises.

    Should not Americans, the inventors of the open-market economy, be the first to embrace these new opportunities?

    Take care,
    Simon

  10. @ Simon
    If you don’t fight piracy, you’ll have Spain, where many people assume and demand everything MUST be free in the Internet (some are very aggressive). I don’t know how these people think creators will make a living giving their work for free.

  11. Nate Abele says:

    To say that someone making a print of a painting is equivalent to someone walking off with the original is, whether intentionally or not, intellectually dishonest. So it is with piracy and theft.

    “[C]onsider […] the phrase “losses from piracy”. It presupposes that there was a ton of potential revenue out there that [the publisher] would have taken home, but for the pirates.” (http://www.tbray.org/ongoing/When/201x/2011/07/18/Piracy)

    This is where you all get it wrong. Yes, piracy is immoral, and yes, people who didn’t pay to read your books or listen to your music have no right to do so. However, this isn’t a *piracy* problem, it’s a *market* problem.

    Apple has proven (repeatedly!) that people are willing to pay for things if you:
    (1) Provide them something of value
    (2) On their terms
    (3) Without taking them for granted or treating them like criminals

    If anything, piracy proves #1, it’s #2 & 3 that the publishing/media/content industry fails miserably at. Stop whining and fix your business model. Technologists have given you all the tools with which to do so: http://radar.oreilly.com/2012/01/the-presidents-challenge.html

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