University of Delaware

Confronting piracy

Experts discuss digital content management during workshop


1:23 p.m., June 18, 2013--An increase in Internet-based piracy has led to an extensive debate about how to enforce copyright law, with experts questioning whether the six-strike alert system in the United States is too lenient to discourage pirates and whether shutting down one cyberlocker simply directs pirates to another.

Digitization, or converting analog content into digital information, is something “we might like, but do we want to do something about file sharing itself?” asked Brett Danaher, assistant professor of economics at Wellesley College during a presentation last week at the University of Delaware. “There seems to be some agreement among academics that piracy does play sales. As a whole, it seems the [movie] industry would prefer piracy not exist.”

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Two schools of thought were addressed Wednesday, June 12, during the first of two “Economics of Digital Content Management: Distribution, Piracy and Legal Protections” workshops co-organized by the Department of Economics in the Alfred Lerner College of Business and Economics and the University of Rennes 1.

Demand-side policy discourages pirates by imposing penalties or incentives while supply-side policy aims to shut down Internet channels used to pirate primarily music and video files. 

Michael A. Arnold, associate professor of economics and director of UD’s Honors Program, opened the workshop and noted that in addition to the doctoral candidates and UD faculty on hand, many of those in attendance had traveled a distance -- everywhere from along America’s East Coast to Marsouin, France -- to collaborate and present.

Here today, gone tomorrow

Danaher led the first workshop with the presentation of his paper, “Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales.”

“We both share an undying love for Nicholas Cage movies and wanted to make this title work,” said Danaher of his work, co-authored with Michael D. Smith, professor of information technology and marketing at Carnegie Mellon University.

The paper addresses supply-side policy, specifically the Jan. 19, 2012, shutdown of the website service Megaupload by the U.S. government, and aims to show how the intervention affected digital sales for two unnamed movie studios. 

Megaupload, a now-defunct cyberlocker, allowed users to upload files from their hard drives to the site. It had different arms to host different services and all were shut down.

The paper focuses on the Megavideo arm, which hosted video files.

“Two months before Megaupload was canceled it collected four percent of the world’s Internet traffic and was the 13th most visited site, ahead of and,” Danaher said. 

The question concerning the authors about the cancellation of such a popular and frequently visited site was simple -- where did all of the traffic go? Did users switch to legitimate channels, such as iTunes and Amazon, asked the authors, or did they simply change the cyberlocker they used?

Smith and Danaher found that just 18 weeks after Megaupload was shut down, digital revenue for both movie studios was six to 10 percent higher than it would have been if the site were still live. This led the authors to infer that Megaupload users started purchasing digital content via legitimate channels after January. Following, evidence showed that online piracy replaced sales to some degree for the time Megaupload was around.

After reading feedback on his paper on various blogs, Danaher was praised a hero against piracy by some and as something less by others.

Digital piracy behavior 

Switching gears toward demand-side policy, Arnold and Thierry Penard, professor of economics at the University of Rennes 1 (Marsouin), presented their paper, “How Does a Graduated Response Policy Influence the Behavior of Digital Pirates? Some Evidence from the French Three-Strike (Hadopi) Law,” which was co-authored by Eric Harmon and Sylvain Dejean.

“We’re going to be looking at individual behavior more than sales,” Arnold began. “Digital piracy is a major concern for the music and movie industries, as two-thirds of music changes hands without payment.”

In demand-side policy, consumers are targeted to prevent them from downloading or sharing content. More specifically, Arnold and Thierry looked at the French three-strike, or Hadopi, law in which copyright violators are given a first and second warning before legal action is taken upon a third.

Since the law’s enactment in 2009, 1.7 million French users have been warned once, 160,000 warned twice and only 600 warned a third time and hence confronted with legal action. 

The first person punished under this law was fined 150 euros for having two Rihanna songs. 

“This is bad publicity around a law that may make a lot of sense,” Arnold said.

The remainder of Arnold and Thierry’s presentation revolved around econometric models derived to determine if the law is, in fact, effective. Danaher and Hammond interjected with insightful questions and suggestions to help solidify the equations and their variables.

The U.S. introduced a six-strike copyright alert system in March, and Arnold said that many of his undergraduate students had no idea the system even exists. 

Danaher agreed. “For the sake of research, I am doing everything in my power to get a warning and I can’t seem to get one,” he said of the alert system.

After a break for lunch, the workshop resumed with presentations by Robert Hammond, professor of economics at North Carolina State University, and Eric Darmon, professor of economics at Rennes 1.

Hammond’s paper, “Profit Leak? Pre-Release File Sharing and the Music Industry,” addresses how, contrary to popular belief, the elasticity of album sales in response to illegal downloading of those albums is, for all intents a purposes, zero. 

According to Hammond’s research, where file sharing is damaging to the music industry in general, individual artists are more apt to consent to file sharing as they receive a larger percentage of the shrinking music industry revenue. 

Hammond’s research also shows that file sharing becomes more beneficial the more popular and established an artist is. 

Darmon’s paper, “Who Should Enforce What? Digital Piracy and Illegal Behaviors with an ‘Outside’ Option,” co-authored with Thomas Le Texier, focuses on what impact an antipiracy agency has on Internet users acquiring video and music content by exploring the tradeoff between an increased fine and an increased probability of detection. 

It assumes users obtain content both legally and illegally and the agency cannot monitor all illegal channels. 

The co-authors’ research considers optimal search tactics, an antipiracy agency’s detection effort, the extent of the fine paid when caught and the value of non-monitored sites.

Rennes workshop Oct. 24

The second workshop will be held Oct. 24 at Rennes 1, where more European participants will offer perspectives on how to minimize digital piracy.

Article by Christopher W. Pinti

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