Hollywood Says Piracy Has Ripple Effect

By Frank Ahrens
Washington Post Staff Writer
Friday, September 29, 2006

Seeking another weapon in its war on piracy, the movie industry hopes to wow lawmakers today with a study that says the economic impact of illegal DVD and Internet film distribution may be as much as three times what was previously estimated.

The movie industry continues to vigorously combat both DVD and Internet piracy of its films domestically and overseas, urging foreign governments to crack down on illegal DVD factories and toughen laws on Internet file-sharing.

Hollywood moviemakers, armed with the new study pointing to piracy as having ripple effects on the U.S. economy, want Washington to recognize the larger problem and address it.

The Institute for Policy Innovation, founded by former Republican congressman Richard K. Armey, is to present the study today at a U.S. Chamber of Commerce conference where NBC Universal chief executive Bob Wright will speak.

The movie industry had previously focused on piracy's impact on lost sales of legal DVDs and online films, estimated at about $6 billion per year, according to a previously released study commissioned by the Motion Picture Association of America, the movie industry lobby.

Lawmakers and federal agencies such as the Justice and State departments have helped Hollywood battle physical piracy -- specifically, counterfeit DVDs. But now the stakes are especially high for entertainment companies as they sell more of their products online in the form of digital songs, movies and other intellectual property.

Internet piracy may be tougher for lawmakers to conceptualize, entertainment companies fear.

The report being released today -- which was largely paid for by Armey's think tank with some funding from NBC Universal and the MPAA -- takes the previous study, conducted by consulting firm L.E.K., and applies a model used by the U.S. Bureau of Economic Analysis to calculate the potential ripple effect of those lost sales, factoring in lost jobs, worker earnings and tax revenue.

Given those facts, the study says, movie piracy causes a total lost output for U.S. industries of $20.5 billion per year, thwarts the creation of about 140,000 jobs and accounts for more than $800 million in lost tax revenue.

"I think it's legitimate to ask whether the L.E.K. numbers are defensible," Tom Giovanetti, president of the Institute for Policy Innovation, wrote in an e-mail. "We think they are at least the best shot that's been taken at the problem. . . . We've stated all of our assumptions and methodology, so I think we've shown pretty decent integrity in this study."

It's important to remember, however, that even though piracy prevents money from reaching the movie industry, those dollars probably stay in the economy, one intellectual property expert said.

"In other words, let's say people are forgoing paying for $6 billion in movies by downloading or consuming illegal goods but end up spending that $6 billion on iPods, computers and HDTV sets on which to watch the movies, which leads to $25 billion in job creation in the computer/software/consumer electronics field," Jason Shultz, staff lawyer at the Electronic Frontier Foundation, wrote in an e-mail.

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