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Hollywood Says Piracy Has Ripple Effect
Illegal Film Distribution Decreases Sales, Jobs and Tax Revenue, Study Says

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.

NBC's Wright hopes the study gets attention on Capitol Hill.

"If any light should go off in Congress, it's that [intellectual property] is the strongest element to this country's economy, even if they can't see it," Wright said in an interview Wednesday. "It would be helpful to us, not that we would wish for it, if you saw the same situation with Boeing and engineering work on a B-1 bomber was distributed on the Internet. There would be hell to pay."

According to the L.E.K. study, 38 percent of all movie piracy occurs on the Internet, with counterfeit DVDs accounting for the rest.

Wright cited the example of Universal Studios' 2003 film "The Hulk," which was pirated on the Internet. Kerry Gonzalez, a 24-year-old insurance underwriter in New Jersey, got an advance copy of the film from a friend at an advertising agency that was creating a campaign for the movie. Gonzalez posted the film on a foreign file-sharing Web site before it was released in studios.

NBC Universal discovered the breach and reported it to law enforcement officials, who tracked down Gonzalez and arrested him. He was convicted of copyright infringement and sentenced to house arrest and probation. He was also forced to pay fines and restitution to NBC Universal.

Wright said he is comfortable being the industry's tough-on-piracy face, whereas some of his competitors might shy away from cracking down on youthful offenders.

"If you're Disney, you probably don't want to be prosecuting," Wright said. "If you're me, you want to have that veil of prosecution out there."

Does that make Wright the movie industry's Mean Uncle Bob?

"I think we can live with that," he said.

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