Tuesday, December 29, 2009

Inciting Anarchy in the UK?:: The Piracy Surcharge

Video::  Posted on Youtube by Spikedude44.  
The Sex Pistols, "Anarchy in the UK," Live in Sweden, 2 July 1977.

The UK Parliament is considering the Digital Economy Bill, which would effectively push the alleged costs of Internet piracy on the consumer by requiring Internet service providers {ISPs} to act as police.  So, here's an overview::
  • The UK music market brings in £3.6B [1]
  • 46% of 2008 music sales were physical CDs [2]
  • The estimated loss from piracy is £200M for 2009 [3]
  • The estimated costs for ISPs to police users is upwards of £500M per annum [4]
  • There's an expectation of £1.7B in extra sales for the film and music industries over the next ten years, along with £350M from extra VAT {sales tax}. [5, ibid]
  • Some estimate the added charge to subscribers' bills would be £25 annually {$40US, $41.93 CAN} [6, op. cit., 3]
  • Some estimate that this would result in 40,000 households giving up Internet access  [7, op. cit., 3]
The ISPs are, not surprisingly, against this, as I don't see it that likely that they will be able to pass off all of the costs to the consumer.  I can also see how the government can see this as an additional source of revenue.

In my mind, if Parliament turns this into policy, it won't work.  Those wanting to pirate intellectual property from the entertainment industry will find a way to do so.  The fundamental problem of "what really is our business model?" needs to be addressed::
  1. How to generate value-added for consumers, requiring a sound definition of what the "product" is.  For example, is selling the music secondary to selling concert tickets, ancillaries, and licensing for films, TV, and commercials?
  2. How to facilitate legitimate purchasing?  In my mind, this means better usability and lower prices.

I also feel this policy is effectively a huge tax, shifting what should be private costs on the public.  If you look at the UK music market as £3.8B, i.e., £200M pirated and £3.6B legit., the pirated lost sales represent 5.56% shrinkage.  While this is high compared to other retail "goods," typically, European retailers spend between 0.29 and 0.34% on loss prevention per annum [8].  Guess what?  At 0.34% of £3.6B, that's £12.24M that retailers would spend on loss prevention, which is a far cry from the £500M the entertainment industry wants the Internet infrastructure to spend on anti-piracy by fiat through Parliament.  If that doesn't incite web anarchy, I'm not sure what will.

In a future post, I'll examine Sweden's experience with tougher piracy policy, which has differential implications for popular versus. indie artists {i.e., along the long tail}.  While Canada has the reputation for being piracy central, Michael Geist does a good job of setting the record straight.

Twitterversion:: UK Parliament considering Internet piracy legislation that would shift loss prevention costs onto consumer.  Policy #fail @Prof_K

Song:: Sex Pistols-"Anarchy in the UK"

1 comment:

Anonymous said...

The fundamental problem of "what really is our business model?" needs to be addressed.

Really? Okay, let me spell the business model out for you:

a. We made £3.6B off of artists' work. No where near enough! We deserve better, we're the best and the brightest!
b. Hey! There's another £200M we didn't get! WTF?
c. I know! Let's get our pet lapdogs in Parliament to make SOMEBODY pay up!
d. Who cares if it costs ISPs £500M to get us our £200M? Let 'em do what WE do, fob the costs off onto the consumers.
e. WHAT? Will that mean fewer potential consumers with internet access? Nah! Everyone knows the internet is the future.
f. Besides, who cares if a few losers aren't online. It's the folks with cash to waste that are our customer-base.
g. Could it be that if the material weren't being pirated most of the people doing the pirating wouldn't have the means to buy it, so we wouldn't have made that £200M anyway? What are you, some kind of communist?

All clear now?
Good, then grab some Vaseline and bend over, 'cause here they come again.