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METHODOLOGY
TRADE LOSSES DUE TO PIRACY
Estimated trade losses due to piracy are
calculated by IIPA's member associations. Since it is impossible to
gauge losses for every form of piracy, we believe that our reported
estimates for 1999 actually underestimate the losses due to piracy
experienced by the U.S. copyright-based industries.
Pirate production for export for the
records and music, computer programs and book publishing industries is
included in the loss figure for the country of manufacture, not the
country of ultimate sale. For example, the Recording Industry
Association of America (RIAA) reports losses estimated at $60 million
from sales in several Eastern European countries and Russia, of
Czech-produced CDs. The relevant amounts are included in the Czech
Republic losses for records and music (which even notes that $60 of the
$62 million in estimated losses in the Czech Republic are the result of
exports); the loss figures in Russia and the other "receiving"
Eastern European countries do not report these losses. There are rare
exceptions noted in the filing. For example, in the Paraguay report, the
RIAA notes that $270 million of the estimated $280 million in losses are
due to the transshipment of pirate CDs from Asia. In the motion picture
industry, losses are generally counted in the country in which the sale
of product occurs.
COMPUTER SOFTWARE: BUSINESS
APPLICATIONS
The Business Software Alliance (BSA)=s
calculation method compares two sets of data -- the demand for
new software applications, and the legal supply of new software
applications.
Demand: PC shipments for the major
countries are estimated from proprietary and confidential data supplied
by software publishers. The data is compared and combined to form a
consensus estimate, which benefits from the detailed market research
available to these member companies.
Two dimensions break the shipments into
four groups. Splitting the PC shipments between Home and Non-Home
purchasers represents the market segments of each country. The PC
shipments are also compared to the change in the installed base of
existing PCs. The part of PC shipments which represents growth of the
installed base is called "new shipments" and is separated from
the "replacement shipments" which represent new PCs that are
replacing older PCs.
A scale of the installed base of PCs by
country compared to the number of white-collar workers was developed. PC
penetration statistics are a general measure of the level of
technological acceptance within a country. The level of penetration, for
a variety of reasons, varies widely from country-to-country. This level
is then ranked and each country is assigned to one of five maturity
classes.
The number of software applications
installed per PC shipment is provided by member companies, and the
following ratios for the four shipment groups are developed:
1.
Home-New Shipments
2.
Non-Home - New Shipments
3.
Home - Replacement Shipments
4.
Non-Home - Replacement Shipments
For each
shipment group, ratios are developed for each of five maturity classes.
U.S. historical trends are used to estimate the effects of lagged
technological development by maturity class.
Piracy rates
can vary among applications. Grouping the software applications into
three Tiers and using specific ratios for each Tier further refined the
ratios. The Tiers were General Productivity Applications, Professional
Applications, and Utilities. These were chosen because they represent
different target markets, different price levels, and it is believed,
different piracy rates.
Software
applications installed per PC shipped are researched and estimated using
these dimensions:
1.
Home vs. Non-Home
2.
New PCs vs. Replacement PCs
3.
Level of Technological Development
4.
Software Application Tier
From this work, a total software
applications installed estimate was calculated for each country.
Supply: Data was collected by
country and by the 26 business software applications. Shipment data was
limited in some instances, hence, uplift factors were used to estimate
U.S. and world-wide shipments.
Piracy Estimates: The difference
between software applications installed (demand) and software
applications legally shipped (supply) equals the estimate of software
applications pirated. The piracy rate is defined as the amount of
software piracy as a percent of total software installed in each
country.
Dollar Losses: The legal and
pirated software revenue was calculated by using the average price per
application. This is a wholesale price estimate weighted by the amount
of shipments within each software application category.
To develop the wholesale dollar losses
for U.S. software publishers, the wholesale dollar losses due to piracy
were reduced by the ratio of the software shipped by U.S. software
publishers as a percent of software shipped by all software publishers.
COMPUTER PROGRAMS: ENTERTAINMENT
SOFTWARE
The Interactive Digital Software
Association (IDSA)'s calculation method uses market data of dedicated
platform and PC entertainment software in both compact disc and
cartridge formats, and hardware shipments along with an estimate of the
level of piracy in the target country. These estimates do not include
the huge losses to this industry from online piracy. Here are the basic
steps involved in determining losses to entertainment software
publishers:
o
For each dedicated platform, the 1997 entertainment
software units are divided by hardware units. This results in the number
of applications per dedicated platform.
o
For each multimedia PC, the 1997 entertainment software
units are divided by hardware units. This results in the number of
entertainment applications per multimedia PC.
o
The number of applications per PC or dedicated platform is
estimated (this varies country-to-country and is based on published
estimates). The actual number of applications per dedicated platform or
PC is then subtracted, resulting in the number of illegal applications
per hardware unit.
o
The number of illegal applications per hardware unit is
divided by the estimated number of applications per hardware unit,
resulting in the estimated percentage of illegal software units in use.
o
The illegal software units per hardware unit is multiplied
by the average wholesale price (which varies country-to-country) which
is multiplied by the number of legitimate hardware units. This results
in the dollar amount lost to piracy.
MOTION PICTURES
Many factors affect the nature and effect
of piracy in particular markets, including the level of development of
various media in a particular market and the windows between release of
a product into various media (theatrical, video, pay television, and
free television). Piracy in one form can spill over and affect revenues
in other media forms. Judgment based on in-depth knowledge of particular
markets plays an important role in estimating losses country by country.
Video: Losses are estimated using
one of the following methods:
(1)
For developed markets:
o
The number of stores that rent pirate videos and the
number of shops and vendors that sell pirate videos are multiplied by
the average number of pirate tapes rented or sold per shop or vendor
each year;
o
The resulting total number of pirate videos sold and
rented each year in the country is then multiplied by the percent of
those pirate videos that would have been sold or rented legitimately and
adjusted to reflect the US producers' share of the market.
(2)
For partially developed markets:
o
The number of legitimate videos sold or rented in the
country each year is subtracted from the estimated total number of
videos sold or rented in the country annually to estimate the number of
pirate videos sold or rented annually in the country;
o
The resulting total number of pirate videos sold and
rented each year in the country is then multiplied by the percent of
those pirate videos that would have been sold or rented legitimately and
adjusted to reflect the US producers' share of the market.
(3)
For fully pirate markets:
o
Either: (a) the number of blank videos sold in the country
annually is multiplied by the percent of those tapes used to duplicate
US motion pictures to equal the number of pirate copies of US motion
pictures sold in the country each year; or, (b) the number of VCRs in
the country is multiplied by an estimated number of US motion pictures
on video that would be rented and sold per VCR per year;
o
The figure resulting from each of the foregoing
calculations is an estimate of the number of legitimate sales of videos
of US motion pictures that are lost each year in the market due to video
piracy. These estimates are adjusted to reflect the wholesale price of
legitimate videos, to equal losses due to video piracy.
TV and Cable: Losses are estimated
using the following method:
o
The number of TV and cable systems that transmit U.S.
motion pictures without authorization is multiplied by the average
number of U.S. motion pictures transmitted without authorization by each
system each year;
o
The resulting total number of illegal transmissions is
multiplied by the average number of viewers per transmission;
o
The number of viewers of these illegal transmissions is
allocated among those who would have gone to a theatrical exhibition or
who would have rented or purchased a legitimate video. The number of
legitimate transmissions of the motion picture that would have been made
is also estimated;
o
These figures are multiplied by the producers' share of
the theatrical exhibition price, the wholesale share of the video cost
or the license fee per legitimate transmission, as appropriate, to
estimate the lost revenue from the illegal transmissions.
Public Performance: Losses are
estimated using the following method:
o
The number of vehicles and hotels that exhibit videos
without authorization is multiplied by the average number of viewers per
illegal showing and the number of showings per year;
o
The resulting total number of viewers of unauthorized
public performances is allocated among those who would have gone to a
theatrical exhibition or who would have rented or purchased a legitimate
video. The number of legitimate TV and cable transmissions that would
have been made of the motion pictures is also estimated;
o
These figures are multiplied by the producers' share of
the theatrical exhibition price, the wholesale share of the video cost
or the license fee per legitimate transmission, as appropriate, to
estimate the lost revenue from the illegal performances.
SOUND RECORDINGS AND MUSICAL
COMPOSITIONS
RIAA generally bases its estimates on
local surveys of the market conditions in each country. RIAA then
estimates the sale of piratical product at the pirates' prices; this
conservative approach significantly undervalues the extent of economic
harm to the recording industry. These estimates also include losses to
music publishers for the underlying musical compositions contained on
the pirate recording.
Where RIAA has sufficient information
relating to known manufacture of pirate recordings that emanate from a
third country, this loss data will be included in the loss number for
the country of manufacture rather than the country of sale.
In certain instances where appropriate,
RIAA employs economic data to project the likely import or sale of
legitimate sound recordings, rather than merely reporting pirate sales.
In these instances, projected unit displacement is multiplied by the
wholesale price of legitimate articles in that market rather than the
retail price of the pirate goods.
BOOKS
The book publishing industry relies on
local representatives and consultants to determine losses. These experts
base their estimates on the availability of piratical books, especially
those found near educational institutions, book stores and outdoor book
stalls. A limitation here is that experts can only gauge losses based on
the pirated books that are sold; it is impossible to track losses for
books which are pirated but not available for public purchase. The trade
loss estimates are calculated at pirate prices which are generally (but
not always) below the prices which would be charged for legitimate
books. Also included are conservative estimates of losses due to
unauthorized systematic photocopying of books.
PIRACY
LEVELS
Piracy levels are also estimated by IIPA
member associations and represent the share of a country’s market that
consists of pirate materials. Piracy levels together with losses provide
a clearer picture of the piracy problem in different countries. Low
levels of piracy are a good indication of the effectiveness of a
country’s copyright law and enforcement practices. IIPA and its member
associations focus their efforts on countries where piracy is rampant
due to inadequate or non-existent copyright laws and/or lack of
enforcement.