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.

More commentary on the iiNet case

In New Matilda, Raena Lea-Shannon has an excellent summary of the arguments and judgement in the movie studios vs. iiNet case over internet piracy:

In order to prove the studios’ case, it was necessary to show firstly that there had been infringement by users, and secondly that iiNet’s failure to do anything about the notices amounted to authorising the illegal conduct of the users. While the Court was satisfied that the detailed forensic evidence showed that a number of users of iiNet’s service had infringed copyright regarding a number of the studio’s films, it found that the notices were by no means conclusive in all circumstances or easy to decipher:
“Regardless of the actual quality of the evidence gathering of DtecNet, copyright infringement is not a straight ‘yes’ or ‘no’ question. The Court has had to examine a very significant quantity of technical and legal detail over dozens of pages in this judgement in order to determine whether iiNet users, and how often iiNet users, infringe copyright by use of the BitTorrent system.”
The Court also remarked that these notices were not verified as an affidavit or a statutory declaration would be.[…]
In making this argument, one of the main cases upon which the studios relied was the Kazaa case, in which it was found that the operators of the Kazaa file sharing software had a vested interest in illegal downloading, and further, that despite the fact that not all activity using Kazaa was illegal, it was predominantly illegal file sharing.
In that case, the Court also took into consideration the exhortations made by Sharman Networks, the operators of Kazaa, to its users to join the “revolution”, that is, the illegal file sharing revolution. The studios argued that iiNet was no better than Sharman Networks, and that the entire internet was as much a hotbed of piracy as was Kazaa’s file sharing network; iiNet was letting its users get away with daylight robbery.
Justice Cowdroy considered the key cases governing this idea of “authorisation”, and while acknowledging some differences in their reasoning he drew from them what he considered to be the underlying principle of authorisation of infringement. Authorisation, he concluded, requires the authoriser to provide the means of infringement.
In another key precedent, the 1975 Moorhouse case,  the University of NSW Library was found to have authorised an infringement by providing the photocopiers used to do the infringing; in the Kazaa case Sharman Networks provided the file sharing software.
However, Justice Cowdroy found that in this case the means of infringement was the BitTorrent system of file sharing — not the entire internet — and while iiNet made access to the internet possible, it had no control over how its users obtained and used BitTorrent and shared the studios’ copyright. “iiNet,” he concluded “has no control over the BitTorrent system and is not responsible for the operation of the BitTorrent system.” To press home the point and to conclusively distinguish these circumstances from the Kazaa case, he said:

“While the Court expressly does not characterise access to the internet as akin to a ‘human right’ as the Constitutional Council of France has recently, one does not need to consider access to the internet to be a ‘human right’ to appreciate its central role in almost all aspects of modern life, and, consequently, to appreciate that its mere provision could not possibly justify a finding that it was the ‘means’ of copyright infringement.”

Two important Australian copyright cases: BitTorrent all you like, but don’t borrow a flute riff

It’s been a big week for Australian copyright law with two important cases decided.

First up we had the case of iiNet versus Roadshow Films. This case   saw mid-sized Australian ISP iiNet sued for by a federation of Hollywood movie studios and local broadcasters for copyright contraventions by its users, chiefly on BitTorrent. The case was always expected to have wide ramifications, as it called into question whether ISP’s would be responsible for the rampant illegal downloading of their users. The movie studios hired private detectives to track user downloads and then informed iiNet about the activity.

When iiNet refused to disconnect users, they sued, arguing thata iiNet had a legal obligation to stop users from illegal activity.  iiNet argued that it had no legal right under privacy law to snoop on what its users were doing,, and that in any case BitTorrent can be used for many legitimate activities.

iiNet won. In his judgment, Justice Cowdrey comprehensively demolished the Big Media case. “I find that iiNet did not authorise the infringements of copyright of the iiNet users,” he wrote, going on to point out that even if iiNet had done so, it would still “have been entitled to take advantage of the safe harbour provisions in Division 2AA of Part V of the Copyright Act if it needed to do so.” Translation: not only did iiNet not authorise the illegal downloading, it also enjoyed the “safe harbour” protections of the Copyright Act like any other ISP or telco. It’s a comprehensive slap-down for the copyright lobby.

And then there was the plagiarism case concerning Men at Work’s famous 1981 song “Down Under.”

This is one of the most famous songs in Australian contemporary music, selling millions and reaching No.1 in both US and Australian charts. I  vividly remember hearing it played endlessly as a child when Australia won the America’s Cup yacht race in 1983, for which it had become a kind of de facto national anthem.

The case involved the publishers of a song entitled “Kookaburra Sits in an old Gum Tree”, a well-known children’s ditty penned for the Girl Guides in the 1930s b y a woman named Marion Sinclair. But afteer Ms Sinclair’s death, the song was bought by music publisher Larrikin Publishing, who then sued in 2007 after the similarity in the two songs was noted in an ABC music quiz show, Spicks and Specks.  In a canny piece of copyright trolling, Larrikin argued that the flute riff in “Down Under” included two bars of the melody of “Kookaburra”, and that Larrikin was therefore owed a substantial part of the publishing and songwriting royalties of the hit song.

Now songwriter Colin Hay and publisher EMI stand liable for millions in back-royalties.

In a statement yesterday, Hay slammed  the decision, stating that:

“It is indeed true, that Greg Ham, (not a writer of the song) unconsciously referenced two bars of ‘Kookaburra’ on the flute, during live shows after he joined the band in 1979, and it did end up in the Men at Work recording.”

“It may well be noted, that Marion Sinclair herself never made any claim that we had appropriated any part of her song ‘Kookaburra,’ and she wrote it, and was most definitely alive, when Men at Work’s version of ‘Down Under’ was a big hit. Apparently she didn’t notice either.”

Australia tries to censor the internet

Tilting at windmills? Australia's attempt to impose a so-called "clean feed" on ISP's is bound to fail, claim experts

Like Cervantes’ bumbling knight Don Quixote, most people would regard trying to censor the internet as a modern-day tilt at a windmill.

That hasn’t stopped Australia’s Communications Minister, Stephen Conroy, from trying.  Speaking on Tuesday at the release of a report into the trial of the government’s controversial plans to force ISP’s to filter a blacklist of RC-classified (refused classification) material from their users, Conroy announced that the government was pressing ahead with the censorship plan. Conroy was quoted by the Sydney Morning Herald‘s Asher Moses as saying:

”Most Australians acknowledge that there is some internet material which is not acceptable in any civilised society. ‘It is important that all Australians, particularly young children, are protected.”

Moses’ article goes on to point out that:

It is not clear how or if the filters will distinguish between banned material that is illegal and that which is legal.

A version of the Government’s list of banned sites was leaked on to the web in March, revealing that the scope of the filtering could extend significantly beyond child porn. About half were not related to child porn and included links to poker sites, YouTube, gay and straight porn sites, Wikipedia, euthanasia sites, fringe religions, fetish sites, Christian sites, a tour operator and a Queensland dentist.

Over at Marcus Westbury’s blog, his brother Stuart (an accomplished sysop and network engineer) has analysed the report of the filtering trial by Enex Testlab, and concluded that none of the proposed filter technologies can prevent determined access to RC material. You can read his full assessment over the fold:

Continue reading

Hollywood versus iiNet: safe harbours or choppy seas?

Raena Lea-Shannon has an excellent story today in NewMatilda.com about the current lawsuit by a consortium of film and TV distributors against Australian ISP iiNet.

Running through the fascinating history of the case law (which includes a suit by Australian author Frank Moorhouse and the infamous Sharman KaZaa case), Lea-Shannon demonstrates that the safe-harbour provisions written into the Copyright Amendment (Digital Agenda) Act 2000 won’t necessarily protect iiNet, particularly if it can be shown to have dragged its feet in allowing users to torrent pirated files:

What is therefore going to be of crucial importance to the decision in the iiNET case will be whether the court finds that iiNET has done something more than being a mere messenger.

The “something more” that the Federal Court is being asked by the plaintiffs to consider, include that iiNET: took no action in response to notifications sent on behalf of the applicants; offered encouragement to iiNET users to engage in, or continue to engage in, infringement of the plaintiffs’ copyright; failed to enforce terms and conditions prohibiting use of iiNET services to infringe copyright; continued to offer iiNET services to customers who were infringing the plaintiffs’ copyright; and, through its own inactivity and indifference, permitted a situation to develop and continue where iiNET users engaged in or continued infringe the plaintiffs’ copyright.

Internet service providers have argued that they are subject to obligations to their subscribers under the Telecommunications Act and Privacy Act. Giving away information about subscribers can be an offence and in breach of their own terms of service with subscribers. How, if at all, will the court take that into consideration? Is it possible for the parties to settle the matter and come up with a code of conduct that works?

The outcome of this case will define the relationship under Australian law between ISPs and the film, television and music industries for quite some time and that relationship will determine how Australians will entertain themselves well into the future. Watch this space.

I will indeed be watching.