Why AFACT’s piracy statistics are junk

Yesterday, the Australian Federation Against Copyright Theft (let’s call them AFACT or perhaps ‘Big Content’ for short) lost their appeal in the long-running and important copyright infringement suit against Australian ISP iiNet. As usual, some of the best commentary can be found by Stilgherrian (who really does need a second name, don’t you think?):

If you came in after intermission, you’ll pick up the plot quick enough. AFACT said iiNet’s customers were illegally copying movies, which they were, but iiNet hadn’t acted on AFACT’s infringement notices to stop them. AFACT reckoned that made iiNet guilty of “authorising” the copyright infringement, as the legal jargon goes. iiNet disagreed, refusing to act on what they saw as mere allegations. AFACT sued.

In the Federal Court a year ago, Justice Dennis Cowdroy found comprehensively in favour of iiNet. It was a slapdown for AFACT. AFACT appealed, and yesterday lost. Headlines with inevitable sporting metaphors described it as  two-nil win for iiNet.

But read the full decision and things aren’t so clear-cut.

One of the three appeals judges was in favour of AFACT’s appeal being dismissed. Another was also in favour of dismissal, but reasoned things differently from Justice Cowdroy’s original ruling. But the third judge, Justice Jayne Jagot, supported the appeal, disagreeing with Justice Cowdroy’s reasoning on the two core elements — whether iiNet authorised the infringements and whether, even if they had so authorised them, they were then protected by the safe harbour provisions of the Copyright Act.

There’s plenty of meat for an appeal to the High Court, and that’s exactly where this will end up going. Wake me when we get there.

As I argued today, also in Crikey, it’s ironic that Big Content seems to be about the only business lobby group in the country arguing for more regulation and red tape.

But the copyright case also comes in the wake of an interesting little micro-controversy about piracy statistics, released by AFACT late last week. Aided by an economics consultancy and a market research firm, AFACT released an impressive-seeming report that claimed that movie piracy was costing Australia $1.4 billion and 6,100 jobs a year.

Electronic Frontiers Australia made some pretty valid criticisms of the research, including the following:

1. The assumption that 45% of downloads equal lost sales is unproven and insufficient evidence is provided to support it. The survey method cited is better than assuming 100% of downloads are lost sales, but there is better analysis in other studies – for example this piece by Lawrence Lessig. If the study was correct, sales of DVDs and attendance at cinemas would be much more reduced than the reported industry figures. In fact, the movie industry is making record profits.

2. It can’t be ignored that downloads have an advertising effect both on the product downloaded and future releases. To the extent sales may be lost, these must be offset against other gains from advertising.

3. Gross revenue is not the relevant metric, due to variables such as investment in capital, distribution and costs of sales. Many of the movies downloaded may not have been available to view or buy in Australia. Profit is the metric of importance, but this is never studied.

4. Flow-on effects to other industries are wholly speculative, and lost tax on profits assumes the entities pay Australian company tax on sales pro-rata to revenue, which is not intuitive or evidenced. It also assumes that money not spent on movies is lost to the economy, instead of helping to create jobs in other sectors.

5. Peer to peer file sharing is merely the latest in a sequence of technologies since the 19th century which have been claimed to be the ruin of the creative arts. See chapter 15 “Piracy” by Adrian Johns (University of Chicago Press 2009) – the copyright owners said the same thing about copies of sheet music, tape recorders, every iteration of personal recording system and indeed public radio. However, “home piracy” acts not only as a loss to industry but also as a boon to distribution, bypassing censorship and limitations on sales by official outlets.

6. The report suffers, as have other industry-funded studies, from “GIGO”. With an assumption that “downloads = losses” unproven, all conclusions estimating the size of the loss are equally unproven. What if a vibrant sharing culture increases total sales for media respected as quality by consumers, but reduces sales of hyped media? (Research has shown that the biggest downloaders in fact spend more on entertainment than non-downloaders.)

7. The call-to-action of this report is obviously to “crack down on piracy”, shifting the cost of file-sharing from the industry to the taxpayer via increased law-enforcement. No industry, let alone the foreign-dominated entertainment industry, deserves a free ride for its business model. If instead, the industry noted that the report says 55% of downloads created a market for sales, much of which is unsatisfied due to current restrictive trade practices, then its future profitability would be in its own hands.

8. Repeated studies have demonstrated that the entertainment industry vies for money and commitment of time with all other forms of entertainment. The Internet, computer games and mobile telecommunication applications take “eyeballs and dollars” away from DVD and CD sales, but also sports arenas, sales of board games and printed works. Magazines are also suffering from a reduced value proposition with the Internet, and some forms of entertainment and some businesses in the industry will no doubt find it difficult to remain vibrant. Change is consumer-driven, and it’s futile for the industry to try to hold fast to a business model and methods of content distribution which are dying with or without fierce law enforcement of copyrights.

Unsurprisingly, AFACT  have responded, attacking EFA’s arguments.

Notably, AFACT replies that:

“The study does not assume that ‘downloads = losses’. As stated above, some 32 per cent of respondents said that they viewed an authorised version of a movie after watching the pirated version. As a result, 32 per cent of ‘all pirate views’ were removed from the ‘lost revenue’ calculations and were treated as ‘sampling’.”

This is a valid argument. AFACT has indeed removed these later viewings from their lost revenue calculations. But, as I’ll explore below, this doesn’t mean that AFACT’s methodology is sound.

AFACT’s other replies are far less persuasive. Take this line:

“It should be clearly noted that in almost all of these cases government or technology provided a barrier to prevent continued rampant infringement. In the case of public radio, legislation provided statutory copyright royalties. VHS and cassette tape may have been efficient technologies for recording, but in terms of cost and quality (analog degrades with time) they proved not to be efficient for distribution at that time. Laws were also designed to prevent mass distribution of pirated VHS tapes. Solutions, whether legislative, technological or otherwise are currently required to prevent or deter the unfettered digital distribution of pirated versions of copyrighted content.”

Not to put too fine a point on it, this is a rubbish argument. Statutory copyright royalties for broadcasters were not barriers to listeners – they were income streams to publishers. And, in fact, as EFA point out, radio proved to be such a powerful marketing tool for music labels that record companies regularly resorted to payola and other measures to get their songs on high-rating radio stations. This argument is a classic tautology: because AFACT believe that regulatory barriers are necessary to prevent infringement, they argue that the reason previous technologies didn’t lead to “rampant infrignement” was because they were strictly regulated. You don’t need a degree in logic to spot the flaw in this argument.

So who’s right?

On the whole, EFA has the better of the exchange. Indeed, there are plenty more holes you can pick in AFACT’s methodology if you wish. To start with, let’s examine their laughable “Annex 1” in the full report. This purports to explain how ABS input-output tables are used to generate a final figure for total piracy impact in terms of lost sales and job losses.

I’d like to say I carefully checked their methodology for its econometric accuracy. Unfortunately, I can’t – because the authors at Oxford Economics and Ipsos don’t publish their equations; nor do they publish their raw data.

Just as an exercise, I downloaded the ABS input-output tables and attempted to match the ABS data to the AFACT report. It’s impossible. The data tables in the AFACT report which might allow that kind of scrutiny are missing.

What Annex 1 does tell us is that Oxford Economics and Ipsos have made all sorts of behind-the-scenes calculations to do with the exact value of the multipliers they use and the precise allocation of various ABS industry data to various categories of their assumptions. But they don’t tell us how these figures were arrived at. To get a flavour of the opacity of the modelling, here’s their full explanation of two of the the multipliers they use:

Type II multipliers of 2.5 (Gross Output) and 1.1 (GDP) were estimated. This covers activity in the Australian motion picture exhibition, production and distribution industries as well as TV VOD, internet VOD, downloads of motion pictures and the retailing of these motion pictures

There is no further explanation of how the numbers of 2.5 and 1.1 were “estimated” and no equation which shows us what they multiply. Hence, it is literally impossible to verify, cross-check or otherwise scrutinise these figures. Indeed, the full report contains no true methods section. In other words, the academic credibility of these figures should be zero.

This rubbish is just another example of how lobby groups use consultants-for-hire to create vocal scare campaigns based on fictitious figures. It’s junk modelling, ordered up for the express purpose of industry rent-seeking.

Crikey’s Bernard Keane explained it helpfully for us in relation to climate lobbying in 2010:

This what you do:

  1. Commission a report from one of the many of economics consultancies that have broken out like a plague of boils in the past decade.  This should feature modelling demonstrating the near-apocalyptic consequences of even minor reform.  Even if your industry is growing strongly, you should refer to any lower rates of future growth as costing X thousands of jobs, without letting on that those jobs don’t actually exist yet, and might never exist due to a variety of other factors.
  2. Dress up the report as “independent”, slap a media-friendly press release on the top and circulate it to journalists before release, with the offer of an interview of the relevant industry or company head.
  3. Hire a well-connected lobbyist to press your case in Canberra.  When the stakes are high, commission some polling to demonstrate that a crucial number of voters in crucial marginal seats are ready to change their vote on this very issue.
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Jock Given

It’s time for a bit of fan post about Jock Given, Swinburne’s Professor of Media and Communications.

Why a fan post? Maybe it’s his recent in-depth dissection of the Australian Government’s implementation plan for the National Broadband Network. Maybe it’s his long review essay, also in Inside Story, about the future of books and print. Maybe it’s his fine monograph of 2003, Turning Off the Television, about the history and future of Australian broadcasting and communications policy.

In fact, any way you slice it, Given’s work has become central to this field. He’s got that rare combination of incisive analysis and clear, witty prose.

Take, for example, his discussion of the National Broadband Network, one of the best short introductions to this bewilderingly complex topic you’re likely to find:

WHAT McKinsey and KPMG have delivered is the most substantial public analysis of an Australian communications infrastructure project since the domestic satellite system in the 1980s. This is a major benefit, though not necessarily a good omen. AUSSAT racked up $800 million in debt within a few years. Voluminous public documentation doesn’t always lead to great decisions.

Indeed, in Australian communications, the size of the study is generally indirectly proportional to its influence. The bulky Davidson Inquiry recommending competition in telecommunications and the multi-volume Broadcasting Tribunal inquiry recommending the introduction of cable TV, both in the early 1980s, achieved close to zero. The Productivity Commission’s year-long inquiry into broadcasting in 2000 was largely ignored. But Kim Beazley’s few-page statement about telecommunications competition in 1990 blew the industry apart. By this standard, the two-and-a-half-page media release announcing the NBN in April 2009 was bound to change the world.

The McKinsey/KPMG study is testimony to the sea-change in telecommunications policy in the last two and a half years. For twenty years, both sides of politics have been getting the government out of the telecommunications business, first by allowing private competitors to take on the state-owned monopoly that ran the country’s telecoms for ninety years, then selling down the state’s ownership of it. When new mobile and fixed-line networks were built in the 1990s and 2000s, communications ministers didn’t pour over technology choices, costs, revenues, capital allocation and geographic priorities the way Postmasters-General used to do. Parliament had decided that governments made lousy decisions about those kinds of things.

At least, they weren’t supposed to be pouring over these things the way Postmasters-General used to do. The truth was they still did quite a lot of it. The Coalition government crawled all over Telstra’s timetable for shutting down its analogue mobile phone network and applied immense pressure on its plans to build and later close a CDMA network. In his bookWired Brown Land?, Paul Fletcher, chief of staff to long-term Howard government communications minister Richard Alston and now the Liberal member for Bradfield on Sydney’s north shore, says Ziggy Switkowski was not even on the shortlist of candidates for CEO until Alston insisted he be there. This was at a time when Howard and Alston were pushing their reluctant backbench to support privatisation. The government, they said, had no business controlling a telecommunications company.

But out in the new marketplace, the cable TV and eventually broadband network built in the mid 1990s by the new wholly private telco, Optus, didn’t work very well. The still-public Telstra proved more nimble and ruthless than some expected, building a similar network down many of the same streets. Both companies had to write off billions of dollars. It seemed telcos in commercial markets, even privately owned ones, could make lousy decisions too. Optus’s subsequent caution about investment in fixed-line networks and the curiously widespread, renewed enthusiasm for monopoly is the deep legacy of that time.

The government’s response has been to get back to controlling a telecommunications company. It is not the vertically integrated Telstra, it’s the wholesale-only NBN Co. McKinsey/KPMG’s Implementation Studycontains a set of recommendations that are not yet government policy, but it tells us a great deal about this new, old world.

We have a good idea – the best yet – about how much it might cost. We have lots of data and discussion about what it might earn in revenue. We have an argument about “viability,” but this is really an argument about whether the now fairly well-articulated financial returns that can be expected from the project are justified by the economic and social benefits that might not be captured by the financial modelling.

This is where faith and politics take over.

Illegal downloading in Australia

A snapshot of illegal downloading in Australia. Source: CoreData/news.com.au

CoreData and news.com.au have teamed up to survey more than 7,000 Australian consumers about their illegal downloading habits.

While we don’t know the full methodology, the survey is one of the largest and certainly the most current snapshot of consumer behaviour in this field.

And, for those of us who have been following the technology-related troubles of the cultural industries since Shawn Fanning invented Napster, the results should not surprise:

Most people who illegally download movies, music and TV shows would pay for them if there was a cheap and legal service as convenient as file-sharing tools like BitTorrent.

[…]

The survey canvassed the attitudes of more than 7000 people who admitted to streaming or downloading media from illegitimate sources in the past 12 months.

It found accessibility was as much or more of a motivator than money for those who illegally download media using services like BitTorrent.

More respondents said they turned to illegal downloads because they were convenient than because they were free, when it came to all three types of media covered by the survey — TV shows, movies and music.

And more than two-thirds said they would pay for downloads from a legitimate service that was just as convenient if it existed.

The hypothetical legitimate service was described as giving users access to TV shows, movies and music they wanted, when they wanted them, without ads or copy protection.

This survey is more evidence, if any more were needed, that the key barrier to a paid content future remains industrial competition and the strategic errors of big cultural businesses, rather than the rampant illegality of ordinary consumers.

Of course, some will protest that consumers are simply lying in such a survey.  But a more convincing explanation is that the cultural industries are yet to give consumers exactly what they want, and that this explains the slow uptake in digital content payments. It’s also another example of the problem of rivalry and excludability in the content industries: compare the prices Australian consumers say they are prepared to pay for downloaded movies (approximately $2 dollars) to the average admission price of a cinema ticket here (as high has $17 for a first-release movie). You don’t need an MBA to see the revenue gap there.

Can studios and record labels make money on prices like these? Of course they can, especially if new business models are created. But that’s not what Big Content will tell you. They’ll use data like this to lobby for more stringent industry protections, in the form of draconian copyright legislation and other anti-competitive regulations.

A bunch of links: casualised higher education labour, Hollywood movie betting, collapsing business models in TV, whingeing arts administrators, Siva Vaidhyanathan lecture, and more

From around the blogosphere and the web – some links:

1. In the Chronicle of Higher Education, Peter Conn argues we need to acknowledge that “full-time tenured and tenure-track jobs in the humanities are endangered by half a dozen trends, most of them long-term.” Heading the list is casualisation, followed by older faculty who refuse to retire, the rise of for-profit higher education and a university system that continues to pump out PhDs.

2. Clay Shirky calls on the guru of complex systems theory, Joseph Tainter, to explain the current predicament of television production as a business model. Bottom-line:

The most watched minute of video made in the last five years shows baby Charlie biting his brother’s finger. (Twice!) That minute has been watched by more people than the viewership of American Idol, Dancing With The Stars, and the Superbowl combined. (174 million views and counting.)

Some video still has to be complex to be valuable, but the logic of the old media ecoystem, where video had to be complex simply to be video, is broken.

3. The high arts lobby starts to get shirty with the lack of hand-outs from Peter Garrett, as a number of arts administrators whinge to Michaela Boland in The Australian. Notice the parade of usual suspects, including a festival director, a couple of theatre company managers and the CEO of the Australian Council. Because that’s what “the arts” is for journalists like Michaela Boland.

4. Siva Vaidhyanathan is giving a lecture at Vanderbilt University, which be podcast on Thursday. I’ll post something about that this week.

5. Lyn Gardner in the Guardian profiles artist-led communities.

6. By way of Tyler Cowen, a New York Times article about Hollywood’s quest to prevent betting markets. Both the Cantor futures exchange and Veriana Networks would allow investors to buy or sell — or “short” — contracts based on a movie’s box-office receipts, in essence betting on how well a film will do when released in theaters.

Trouble in SBS-land

Dateline's Sophie McNeill won a Walkley for Young Australian Journalist of the Year in 2008. Above: McNeill with Asher Moses, Michael Atkin and Andrew Quilty. Source: Walkley Foundation.

Life is getting bleaker for the staff of Australian public broadcaster SBS, according to a confidential poll of staff.

As New Matilda’s David Ingram reports, the confidential survey reveals widespread staff dissatisfaction:

The survey measuring employee engagement found fewer than half the 614 staff polled thought SBS performed well in managing performance, promotion, innovation and communication. In some work areas, satisfaction was less than a quarter on individual issues.

As Ien Ang, Gay Hawkins and Lamia Daboussy noted in their 2009 book on the broadcaster, The SBS Story, the network’s mandate for multicultural and foreign language programming has also spurred diversity in programming and quality journalism through shows such as Dateline. But since current boss Shaun Brown was recruited to the broadcaster from a commercial TV background in New Zealand in 2003, there have been many who believe the network has lost its way.

My cultural policy discussion on Radio National

Radio National has now posted the podcast of my discussion with Amanda Smith, Hilary Glow and Lydon Terracini at Radio National’s Artworks page.

It’s a wide-ranging discussion on the basics of cultural policy in this country and I try to get a few good points in! Hilary Glow, whom I met for the first time at the studio, has done some fine work in the field of performing arts audience research and points out some of the implications of her research, while Lyndon is uncharacteristically restrained, especially compared to his normal ebullience 😉

UPDATE: I got a call from Cathy Hunt this morning saying she’s working on a new piece of research related to Australia’s cultural funding priorities, so that’s something to look forward to in the new year.

Australian cultural funding, by artform category

As promsied, this week I’m looking at the fine print of Australian cultural funding.

Today I’m looking at funding by artform category. As you can see from the graph below, the big ticket items are parks and environment funding, public broadcasters, libraries and art galleries.

CulturalFundingCategories_0

Australian cultural funding by artform category, 2007-08, all levels of Australian government, operational figures only (excludes capital funding). Source: Australian Bureau of Statistics data, collated by myself.

You can get a bigger jpeg of the graph above by clicking through on the image (it’s a link to a bigger file). Continue reading

Why Triple J matters: an essay for Meanjin Quarterly

In this September’s issue of Meanjin Quarterly I have a long essay on the role and curious significance of the ABC’s national youth network, triple j.

The full essay can be found on the Meanjin website, and you can also listen to a MP3 interview I recorded in May with triple j’s music director, Richard Kingsmill and his deputy, Nick Findlay. It’s a long and interesting discussion that is well worth the download.

Hesmondhalgh and Baker on what it’s like to work on a UK reality/talent TV show

For a long time BBC and ITV ‘in-house’ departments monopolized the
entertainment genre on British television. But one of the great transformations
of European television since the 1980s has been the rise of independent
production companies and, in the talent show genre no less than
in others such as drama and documentary, indies have become increasingly
important.6 In parallel, a considerable commissioning apparatus has
developed in British television, one which often involves a tug-of-war

From a couple of my favourite researchers, the UK’s David Hesmondhalgh and Griffith Uni’s Sarah Baker, comes a study examining the theory around, and the conditions of, the creative industries labour market.

The shape and nature of work in the creative, cultural and media industries has become a topic of quite considerable interest  in recent times, driven in part by the kind of industry boosterism championed by the UK’s Department of Media, Culture and Sport, but also by a realisation, spurred by certain researchers like NYU’s Andrew Ross, that the “no-collar” workplace of the cultural and media sectors may just describe the shape of the broader workplace of the future.

This paper, “Creative Work and Emotional Labour in the Television Industry”, published in 2008 by Theory, Culture & Society [Vol. 25(7–8): 97–118], takes a hard look at the conditions of labour in the reality TV industry. Continue reading