Washington lobbyist Matt Schruers, who works for the Computer & Communications Industry Association, is floating a paper released by the Government Accountability Office (“Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods” (GAO-10-423)).
So you get the context, the Computer & Communications Industry Association is a very well funded lobby shop in Washington that is (was?) one of the big backers of the Internet Radio Fairness Act through its membership in the Internet Radio Fairness Coalition and is prominently mentioned in the Google Shill List. I fully expect them to be major opponents of Ranking Member Mel Watt’s performance rights legislation that could be introduced as soon as next week. The CCIA also funds a variety of studies that try to tell us things like stealing is good and the movie business is a “fair use industry” whatever that means.
The GAO “report” essentially takes the “stealing is good for you” position. Specifically, the Report states “some experts and literature point out that certain stakeholders may experience some positive effects from counterfeits and piracy, though there is little information available on potential positive effects.”
Even though there is “little information available on potential positive effects” of crime–a bizarre position–the Government Accountability Office then goes on to offer readers a table reference to the “positive effects” of criminal activity.
MTP readers will remember that I raised a number of questions about the GAO “report”, in particular, who did the GAO interview in developing the report. This is important, because the report offers no original study and is replete with references to “experts” who are not clearly identified. It relies on controversial studies without considering opposing views, “experts” such as Oberholzer-Gee and Strumpf who produced a music study that contains this Butz-ism, so condescending only a professor could utter it:
“A…decline in industry profitability might not hurt artistic production [or] artist motivations. The remuneration of artistic talent differs from other types of labor….[Artists]might continue being creative even when the monetary incentives to do so become weaker [because] many of them enjoy fame, admiration, social status, and free beer in bars – suggesting a reduction in monetary incentives might possibly have a reduced impact on the quantity and quality of artistic production.”
Musicians will work for “free beer”? And of course, “admiration”, get it? The “admiration” often follows the “free beer,” I guess. Strangely reminiscent of Amanda Palmer’s “beer, high fives and hugs”, right? And that worked out so well.
So who are these “experts” that the report keeps referring to? There is an index that has a list of names but also has this statement:
“We also met with representatives from other industry associations and other organizations outside of the structured interview process in order to gain more in-depth information and additional perspectives on both of our objectives.”
This could literally be anyone in the world.
As MTP readers will recall, we sent the GAO a Freedom of Information Act request and asked for an explanation of who these unnamed “experts” were. This was the GAO’s reply:
“This letter responds to your April 10, 2011, follow-up request pertaining to my March 1,2011 (PRI-ll-043), response letter to you. Specifically, you are asserting that my response to question 2 of your December 30,2010, request was non-responsive [because the response did not disclose the identity of the unnamed experts]. Upon receipt of your follow-up request, I consulted with our International Affairs and Trade team that issued GAO-1O-423 entitled INTELLECTUAL PROPERTY: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods. They advised me that on page 30 of the report at Appendix I, we provided the criteria for selecting experts and on page 31, we list our 12 experts, of which 8 were the names of individuals and 4 were the names of organizations and federal agencies.
Consistent with GAO’s practice, we did not provide the names of the officials who were speaking as representatives from the 4 organizations in our report. In addition, the Prioritizing Resources and Organization for Intellectual Property Act of 2008 (PRO-IP Act) mandated that GAO conduct this work GAO addressed this report to the Chairman and Ranking Member, U.S. Senate, Committee on the Judiciary, and the Chairman and Ranking Member, House of Representatives, Committee on the Judiciary. GAO’s policies and procedures related to the public availability of GAO records require that we must first obtain authorization from the congressional committees that requested GAO to do the work before we review records for release. See 4 C.F.R. § 81.6(a). We consulted with the congressional committees of jurisdiction regarding your December 30,2010, request [but not the second request regarding nonresponsiveness] and received limited authorization to address the questions raised in your letter about the experts referred to in the report. The committees did not authorize release of any additional identifying information about experts we interviewed, other than what we have already noted in the report. Therefore, we decline to release the names and/or any affiliation of the experts referred to in the report pursuant to 4 C.F.R. § 81.6(a).”
In other words, GAO refused to disclose who the unnamed experts were. And they are–with characteristic bureaucratic spin–trying to blame it on the Congress. And–stay with me here–at the same time implying that the GAO was responsive to my assertion they were nonresponsive due to their failure to disclose the names of the experts because they responded to the assertion that they would not disclose the names. Pretty slick, eh? If you look up “mandarin” in the dictionary….
So you will imagine my surprise to see a lobbyist picking up the ball on the primary theory of the GAO study–that any study of piracy must take into account the positive effects of crime–particularly a lobbyist working for the CCIA, the consistent opponent of artist rights in my view. (Show me one instance where CCIA or its members wanted to enforce the rights of professional artists or treat professional artists fairly?)
Mr. Schruers, Vice President of Law & Policy for CCIA, dredges up the GAO report in a post on the CCIA’s “Project Disco” blog (aww, Project Disco, ain’t that cute? Music lovers!) He says:
So what is The Issue of Which One May Not Speak? The fact that money not spent on pirated content is, in many cases, still spent. [Genius! Alert the Nobel Committee!}
The U.S. Government Accountability Office pointed this out in a widely discussed report in 2010, observing that “effects of piracy within the United States are mainly redistributions within the economy for other purposes and that they should not be considered as a loss to the overall economy.” Money does not “just vanish.” A Swiss Government commission made a similar observation the following year.
Nevertheless, critics excoriated the GAO report and others like it for simply observing that intra-economy transfers are often redistributive, instead of destructive. Polite people just don’t say things like that.
And then he says this:
Normatively bad isn’t the same as an economically bad, however. Not all normative transgressions necessarily have macroeconomic consequences. And yet those two items are invariably linked when studies consider infringement. Infringement is bad, therefore we must assign an economic cost to its badness. Hence, study after study makes the repeatedly discredited assumption that every infringement is a lost sale, usually calculated at the highest retail price for which the good was offered, and every lost sale represents a commensurate economic loss.
Let’s take a closer look at this one. Mr. Schruers raises the issue of whether “every” infringement is a lost sale. By “lost sale”, I assume he means a sale lost to the rightful owner through a retail transaction with a consumer. However, there is another way to look at “lost sales”–did anyone make money from what could otherwise have been a retail transaction with the consumer (at least a potential sale). Was there an intervening actor who did make money from the transaction? An intervening actor who interfered with a potential economic benefit between a buyer and a seller for goods the seller had for sale?
Just because the rightful seller lost the sale does not mean the sale was lost. Which is kind of the GAO’s point, right? We must take into account the positive effects of crime, or at least the positive effects on the real buyer and seller while fencing the unauthorized goods.
Enter brand sponsored piracy. In a world of brand sponsored piracy, unauthorized sites monetize movies, music, lyrics, television shows, television broadcasts, books, games, software and other intellectual property. These unauthorized sites monetize every transaction with the consumer by selling advertising inventory on the pirate site. So for these sites–the overwhelming majority of pirate sites–there are no lost sales because every transaction is monetized. (Former Adsense client Megavideo perfected this model.)
And the GAO will be glad to hear that the gold is being spread around–the ads don’t appear by magic. Ads are served to unauthorized sites by ad networks–such as those who are members of the Internet Advertising Bureau. And good news for Mr. Schruers–he needn’t look far to find these beneficiaries of redistribution, many are his members.
Of course the unauthorized sites can sell advertising inventory for less money because they have no content costs–because they are stealing. As long as the IAB members keep signing up new ad publishers from whatever source derived, they make money as long as the rate of increase in new publishers offsets the decline in CPMs or CPCs, which is the kind of mandatory full line forcing that I suspect Google’s “enhanced campaigns” is all about. (Hello Mr. Madoff.)
From the GAO’s perspective, it sounds like this is a win-win for everyone because there is no proof that any of these users would have purchased the content or software from a legitimate source before their buying decision was interfered with by the brand sponsored pirate sites. (Difficult to model given the ubiquitous availability of brand sponsored piracy.)
The consumer just didn’t have to make that choice because the unauthorized site offered the exact same content as the legitimate site, and nominally for free to the consumer. Of course, the content wasn’t free–the advertiser paid for it. And this is how you take into account the positive effects of crime.
Mr. Schruers disclaims support for piracy (he kind of has to, right?). His position seems quite at odds with the goals of CCIA member Grooveshark, so we wonder what the point of his post is if it is not to somehow defend something, or at least cloud the waters:
[S]ome degree of infringement is not wealth destruction but rather wealth redistribution.
The fact that infringement may be redistributive instead of destructive does not make it acceptable, of course. A violation of a government-granted right is normatively undesirable, because it flouts an entitlement that – at least in theory – reflects the will of the public. This is bad. Even if infringement is “only” redistributive, we still make strong normative societal judgments against involuntary wealth redistribution. This happens regardless of whether it results from law (e.g., by tax policy), or contrary to law (e.g., infringement).
So two questions come to mind–will Mr. Schruers also condemn the brand sponsored piracy that appears to be making some of his CCIA members rich? One member in particular comes to mind. Or is that the “redistribution” that he has in mind.
Because on the “redistribution” score, I agree with him–we are witnessing one of the biggest income transfers of all time. And surely it’s not too much of a reach to see that when an authorized site (say Spotify or Hulu) is trying to sell advertising to the same brands who buy ads on competing sites that are unauthorized and are not constrained to reflect content costs in their advertising pricing, this immediately results in creators getting less money from legitimate sites.
Then it is only a matter of time until you see something like the Internet Radio Fairness Act–backed by CCIA–when “disruptive” companies like Pandora ask artists to take less. So the artists get hit twice: First from the unauthorized site making money from infringement, not to mention the ad networks, ad agencies and everyone else in that chain. But second when the struggling legitimate companies try to compete for the same ad dollars and ask the artists to take a lower royalty.
If you are seeking a machine that will extract value from other people s property and redistribute it to CCIA members…the 1%? You probably could not find a better machine than brand sponsored piracy.
But the real question is this: Was Mr. Schruers one of the unnamed experts in the GAO report when the GAO did what might be called the “disco duck“? (Since Project Disco are such music lovers.)
We’ll never know unless the Judiciary Committee wants to take another look at what in the world the GAO was up to.