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Implications of Piracy on Business Profitability: Analytical Essay

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Abstract

Piracy is one of the biggest threats that is currently faced by the business in this digital era where everything is available online. It is not very hard for anyone to get almost anything as everything is very easily accessible. In this time of digital world, businesses are losing billions of dollars due to piracy only and with each year passing, losses are increasing with increase in piracy. Due to piracy, not only businesses are facing huge losses but end consumers too as forging and counterfeiting any product is very easy, most consumers are getting fake and substandard products even after paying for the original product as it is very hard for a normal to figure out the difference between real and fake. If someone uses a pirated software, that person can face several legal issues along with high risks of exposing their system to multiple malwares and viruses. Piracy is a major threat to software, music, book, and film industry. The significance of this research report is to contribute in assessing how piracy effects business profitability and to what extent.

Keywords: piracy, business profitability, substandard, counterfeiting, forgery

Implications of Piracy on Business Profitability

Piracy has been a serious threat to businesses since many years. In old days, pirates used to loot and steal from ships while they were delivering the products via sea because it was and still is one among the most effective ways to move their products. But during this era of digitalization, piracy via sea is greatly reduced due to strict national and international laws but businesses are losing millions and billions of dollars to digital piracy in modern world. during this time, people are making and using illegal, fake, substandard and non-licensed products. Piracy is specifically an enormous threat to software and entertainment industry. most the softwares are available on the net, some are free to use and a few are paid there are many websites that gives people with the pirated version of these paid softwares and people think it is their right to use those softwares without paying for them simply because they will find a pirated version of that software online. What those people fail to grasp is that irrespective of how good that pirated software is, it is still illegal to use someone else’s property without their consent. this is not very different from stealing someone’s car because like those things, this too belong to somebody else. According to Business Software Alliance (BSA), it had been reported that in 2009, over four out of 10 software programs installed on personal computers around the world were pirated. Most of this unauthorized software use occurs in otherwise legal businesses which will, for instance, buy licenses to put in a program on 10 PCs on the other hand install it on 100 or 1,000. In other cases, software piracy involves more overt criminal enterprises selling counterfeit copies of software programs at cut-rate prices, online or offline. In entertainment industry, piracy is greatly reducing revenue and profits of individuals and companies who are part of industry. According to a report in 2017, in US alone, piracy reduced almost 11% – 24% of the overall revenue of this industry. ‘Digital video piracy leads to significant losses to the US economy, harming businesses ranging from content production firms to the innovative technology companies that are driving the digital distribution revolution,’ David Hirschmann, CEO of GIPC, said in the study. ‘While there is no single solution, global collaboration among industries and governments to educate consumers of the dangers of piracy, coupled with the expansion of legal options in cases of infringement, is necessary to curb these negative effects.’ The idea that piracy may benefit producers in certain situations has been explored extensively within the theoretical literature. But the alternate concept that piracy may harm consumers, does not seem to receive much public attention. for instance, in a study of the public’s attitude toward piracy, Simone Aliprandi surveyed 1,300 Italian Internet users. A majority agreed that the phenomenon of online piracy damages the publishers of media content, though they were more divided over whether it harms the creators of the content.4 But in the best translation of the Italian study that could be found, the respondents overwhelmingly failed to agree that piracy causes damage to the “socioeconomic fabric.” Because of piracy, sales of DVD’s and CD’s was reduced greatly as people preferred to watch movies and listen to music illegally as opposed to paying for them to support their creator. Piracy does not only effects business but also the economy of the countries where those businesses and companies are located. Companies pay their taxes as per their revenues generated through their sales, if they are losing money to piracy, they are getting less sales which means they are paying less taxes. Companies use their revenues to create and innovate different products. If they are getting less revenue, they are forced to create less and innovate less. Piracy also effects the pricing of the products as companies are losing revenue to pirates, they need to increase the price of their product to match their expenses and get profit. The significance of this research report is to contribute in assessing how piracy effects business profitability and to what extent.

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Literature Review

In the 6th Century AD when St Columba made an illegal copy of St. Jerome’s Psalter, by hand, he was caught and a judgement was passed against him by King Diarmait of Ireland. ‘To every cow her calf,’ reasoned the king during this early copyright case, ‘and to every book its son-book. Therefore, the copy you made, O Colum Cille [Columba], belongs to Finnian.’ it has been 1,500 years since but even today piracy is flourishing. Readers have moved from manuscripts to e-books but the pirates have kept up, they now make pirated e-books as well, despite various piracy laws in place. In 2008, the Motion Picture Association of America (MPAA) reported that its six major member companies lost US$6.1 billion to piracy. A 2009 Los Angeles Daily newspaper article then cited a loss figure of ‘roughly $20 billion a year’ for Hollywood studios. As per a 2013 Wall Street Journal article, industry estimates within the United States range between $6.1B to $18.5B per annum. In an early May 2014 Guardian article, an annual loss figure of US$20.5 billion was cited for the film industry. Psion Software claimed in 1983 that software piracy cost it £2.9 million a year, 30% of its revenue. U.S. government was also reported to suffer from music piracy, losing $422 million in revenue. Piracy leads to major losses of revenue to the industry which (for business applications) the SIIA has estimated at around $12.2 billion worldwide (1999 Data). With regard to the gaming industry ‘up to 109,000 jobs, $4.5 billion in wages and $1 billion in tax revenues’ were estimated to be lost during 1999. Global digital piracy costs the US film and television industry a minimum of an estimated $29.2 billion and the maximum as $71 billion annually, As per a new study from the US Chamber of Commerce’s Global Innovation Policy Centre on Tuesday. That represents a revenue reduction of 11% to 24%. The study also says 230,000 to 560,000 jobs were lost due to piracy, which in turn resulted within the US GDP taking a hit of $47.5 billion to the maximum as $115.3 billion in 2017. On July 26, 2014, a DVD quality copy of The Expendables 3 was leaked online, three weeks before its scheduled release. the best estimates are that it had been downloaded over 2.1 million times, which threatened to take a hefty bite out of the profits of the film. This left Lionsgate scrambling to induce a preliminary injunction against various BitTorrent sites. With the advent of Napster in June of 1999, the fortunes of the music industry have plummeted. In 1995 and 1996, global music sales were near to 40 billion dollars annually. Last year, global music sales limped in at 15 billion, an overall decrease of 62%. The obvious reason would be that this is all because of piracy. Certainly, that’s what the Recording Industry Association of America will tell you, and points study from the Institute for Policy Innovation. As per this somewhat dated study (2007), as a consequence of worldwide and U.S.-based piracy of sound recordings, the U.S. economy loses $12.5 billion in total output annually. Output includes revenue and related measures of economic performance. As a results of sound recording piracy, the U.S. economy loses 71,060 jobs. Of this amount, 26,860 jobs would have been added within the audio recording industry or in downstream retail industries, while 44,200 jobs would have been added in other U.S. industries. As a result of sound recording piracy, U.S. workers lose $2.7 billion in earnings annually. Of this total, $1.1 billion would have been earned by workers within the sound recording industry or in downstream retail industries, while $1.6 billion would have been earned by workers in other U.S. industries. In Pakistan, Oil and lubricants industry leads to losses worth Rs1600 million for the government, cigarette companies were estimated at approximately Rs500 million, books and publishing industry at Rs40 million. 60 per cent of the consumer goods are sub-standard and Pakistan stands amongst the top 13 countries which sell counterfeit medicines. Every year, companies and businesses are losing a great deal of their profit as a result of piracy but piracy does not only effect the companies but end consumers too. Pirated softwares, movies and music also are an enormous threat to consumers as those products comes without any kind of warranty and guarantees. These pirated versions expose their systems to malwares and viruses. It is also a significant security risk to people as most of these softwares gather user’s personal data. A company that made that product is accountable for their data on condition that the user is using that software legally and is not accountable for pirated versions. The data that has been gathered by those pirated softwares can be used by those people that made that pirated versions and therefore the company would not be answerable for misuse of that data. This exposes people to multiple threats beside legal threats that comes from using pirated softwares.

Methodology

The research done to complete this article is the secondary research which mainly includes newspapers, surveys, magazines, research papers, articles, news reports and academic journals. The main source of data related to software piracy are the BSA reports, which is an international organization that represents several of the major software companies worldwide. To estimate the impact of piracy on entertainment industry data on sales of individual products, movies, music and measures of piracy levels for those movies and music.

Analysis.

From this research, it has been analyzed that;

  • Impact of piracy on IT industry: As per the research conducted and after careful review of stats from IT industry, companies are losing billions of dollars because of piracy. Loss because of piracy is not only monetary but it harms the end consumers too. It exposes people to risk of getting their personal data leaked and getting their systems infected by multiple malwares. Although no direct relation between piracy and innovation/creativity is found but it is safe to say that due to huge losses faced by businesses, it lowers the morale and creativity of those companies. They will lack incentive as they have less money to invest in new projects. Piracy also causes companies to increase their prices for those consumers who are buying the product legally to compensate the losses they have to face because of piracy.
  • Impact of piracy on music industry: By this research, it has been analyzed that piracy is also a major threat to music industry. Music producing companies have to post all their new releases and projects online in order to earn from it. Due to piracy, artists and producers lose a lot of revenue. This directly effects them as their main source of revenue is the main target of pirates.
  • Impact of piracy on Motion Pictures: From the research that was conducted it is found that every year, millions of dollars are lost to piracy in illegal downloads of movies. This directly effects the creativity in movies and quality of them as the producers are not getting the profit that they expect to get. Due to this, movies that are produced by small production companies are of very low quality and lack innovation.

Conclusion.

As it is discussed in this report, piracy is a huge threat to the businesses and to everyone who uses that product. Due to piracy, consumers are getting substandard products and the businesses are losing millions and billions of dollars. Piracy is also a huge cause behind lack of innovation in products due to the losses they have to face because of it. Piracy also makes businesses to increase their prices to cater to their losses. Because of this reasons, most artists get their careers ended before they even start as they lose a lot of revenue due to illegal download of their movies and music. If this was not the case, they would be getting more profits which can help them grow and work on new projects.

Recommendations.

  1. Piracy in entertainment industry, in my opinion, can be reduced to a minimum if not end it completely if international law making community makes laws that helps ban all the torrent websites and spread awareness on the consequences of piracy on businesses and economy.
  2. Laws that are currently in place should be made stricter and should be implemented so that people will think twice before doing piracy.
  3. Software companies should make keys that can be used only once to activate that product and should be unique for everyone.
  4. Piracy in music and film industry can only be stopped by educating people the risks of piracy from a very young age so when they grow up, they know this is something that is harmful to them and to those who makes those products.
  5. Educational institutes should only use either genuine product or better yet, a software that is free and should encourage their students to do the same. By doing this, students will know the importance of this.

References

  1. NaBai, J., and J. Waldfogel. 2012. “Movie Piracy and Sales Displacement in Two Samples of Chinese Consumers.” Information Economics and Policy
  2. Erchart, Tae Angela, 2019. The Impact of Piracy on Business Profitability
  3. Danaher, B., S. Dhanasobhon, M. D. Smith, and R. Telang. 2010. “Converting Pirates without Cannibalizing Purchasers: The Impact of Digital Distribution on Physical Sales and Internet Piracy.” Marketing Science
  4. Danaher, B., M. D. Smith, R. Telang, and S. Chen. Forthcoming. “The Effect of Graduated Response Anti- Piracy Laws on Music Sales: Evidence from an Event Study in France.” Journal of Industrial Economics.
  5. Smith, M. D., and E. Brynjolfsson. 2001. “Customer Decision Making at an Internet Shopbot: Brand Still Matters.” Journal of Industrial Economics
  6. Brett, D., M. D. Smith and R. Telang. 2014. “Piracy and Copyright Enforcement Mechanisms” Journal of Industrial Economics
  7. De Vany AS, Walls W. D., 2007. Estimating the effects of movie piracy on box-office revenue. Rev. Indust. Organ.
  8. Ma, Liye., Alan L. M., P. V. Singh. and M. D. Smith. 2014. “An Empirical Analysis of the Impact of Pre-Release Movie Piracy on Box Office Revenue”
  9. Abdurab, A. 2018. “Pakistan is a piracy heavy country, is that so bad?”
  10. https://www.bsa.org/files/reports/piracyimpactstudy2010.pdf
  11. https://www.bsa.org/reports/software-piracy-on-the-internet-a-threat-to-your-security
  12. https://www.bsa.org/files/reports/Global_Piracy_Study_2002.pdf
  13. Fernandez, R. N., F. G. Ribeiro and Jean M. D. Ponte Duarte., 2018. “Effects of Software Piracy on Economic Growth”
  14. https://www.cnet.com/news/digital-video-piracy-costs-the-movie-and-tv-industry-at-least-29-billion-study-says/
  15. https://economictimes.indiatimes.com/definition/piracy
  16. http://copyright.nova.edu/copyright-piracy-entertainment-industries/
  17. Ali. Ammad. 2018. “The pirates of Pakistan”

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Implications of Piracy on Business Profitability: Analytical Essay [Internet]. Edubirdie. 2022 Jul 14 [cited 2022 Dec 8]. Available from: https://edubirdie.com/examples/implications-of-piracy-on-business-profitability-analytical-essay/
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