College Papers

I. economy and there are a great deal

 

 I. Introduction

            In the “MUSO Global
Piracy Report” (2017) of MUSO1, the anti-piracy company reported
more than 179 billion (179,549,999,693) global visits to piracy sites in 2016.
According to MUSO this would mean that every internet user, on average, visited
a piracy site 53.33 times that year. On 20 February 2017 The Telegraph (UK)
reports that US tech giants Google and Microsoft agreed to a stricter policy
regarding websites that have been served with copyright infringement notices (Titcomb,
2017). In June 2017 the European Court of Justice ruled that  the piracy site The Pirate Bay could be held
responsible for their role in making protected works available to users (Hern,
2017). The same year the BBC reports season 7 of the well- known TV-show Game of Thrones was hit
by leaks and hacks, resulting in more than a billion illegal downloads overall.
More episodes of that season were watched illegally than legally (“Game of
Thrones S7 illegally downloaded billion times, says piracy tracking firm”,
2017). On January 12th of 2018 the court Midden-Nederland in the Netherlands
decided that the internet providers KPN, T-Mobile, Tele2, Zeelandnet and CAIW
in the Netherlands had to restrict access to The Pirate Bay before 22 January 2018
(“ECLI:NL:RBMNE:2018:114”, 2018). These articles and reports point
out the growing problem   of illegal downloading and streaming.

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            Over the past few years,
technological innovation and changes in the economy gave rise to the shared
economy. There has been discussion about the definition of the shared economy
and there are a great deal of terms to describe this concept. Examples are “asset-light
lifestyle”, “collaborative consumption”, “collaborative economy”, “peer
economy”, “access economy” and “sharing economy” (Bo?ckmann,
2013). Today a definition would likely involve the providing or sharing access
to goods and services on a peer-to-peer basis. Often using an online platform.
When high demand of transport in urban areas such as cities could not be met
with for instance a sufficient public transport system, search for alternatives
would arise (Inzelt, Kriston, & Szabo?, 2010). Combined with the
technological innovations this gave rise to digital firms such as Uber and
Lyft. The digital firms propelled the shared economy to a digitalized shared
economy. Countless digital firms and platforms now give users the opportunity
to make use of goods and services in a more efficient and thus cheaper way.
This concept not only covers peoples more immediate needs, but also the
entertainment business. This peer-to-peer concept made it far more easy to
share protected works.

            The sharp rise in the sharing of
protected works became a substantial problem for the entertainment business, as
their profits diminished. Although illegal sale and resale of music and films
already existed, the founding of The Pirate Bay made transfer of files such as
music and films, but also games and software, far more easy. It was purely created
with the intention of servicing as a platform to exchange the protected works
of others. The Pirate Bay has become one of, if not the, largest piracy site
globally, with millions of users. Alexa Internet, Inc., an American company
which provides web traffic data and analytics, currently (19 January, 2018)
ranks The Pirate Bay 103rd globally (“Thepiratebay.org Traffic,
Demographics and Competitors – Alexa”, 2018).

            This illegal file sharing has its
impact on the entertainment businesses. Considering this industry has high
fixed cost, illegal sharing of files could reduce demand and strongly effect
sales revenue. Lower levels of demand removes incentives to invest in the
costly entertainment business which would result in a decrease of new
products/content. Artists, actors and producers are less credited for their works if
obtained illegally. In addition illegal file sharing has been costly to
governments. Money spent on anti-piracy policies, winning court decisions and
server shutdown operations is ultimately paid by civilians. This paper will
research one of the largest piracy sites, The Pirate Bay, and ask what the
effect of this site is on the entertainment industry (focusing on the music and
film business). To research the matter a literature review will be used.  The first section of this paper will have an
analytic form where the general background is elaborated further upon. In the
second section there is room for discussion which will further elaborate on the
problem of piracy. In the following section an hypothesis will be given based
on the information and discussion that have been considered in this paper. In
the final section a conclusion is drawn which summarizes this paper and
contains an  answer to research question
and the hypothesis.

 

 II. Theoretical Framework

II.a General background: theory, models & definitions

            The Pirate Bay is a digital platform created by a Swedish
think-tank called Piratbyrån (specifically Peter Sunde, Fredrik Neij and Gottfrid
Svartholm) in 2003. Piratbyrån defines itself in its core as an ongoing
conversation, answering questions about copying, information infrastructure and
digital culture (“Piratbyrån – The Bureau of Piracy Activities 2007”, 2007).
As mentioned earlier, The Pirate Bay primarily services as a platform to
exchange intellectual property regarding entertainment and software on a broad
scale. According to the digital market intelligence company SimilarWeb Ltd.,
thepiratebay.org was visited over 290 million times in December 2017. It also
ranked 3rd globally in ‘Arts and Entertainment > Music and Audio’ (“Thepiratebay.org
Analytics – Market Share Stats & Traffic Ranking”, 2017). As a
comparison, the site of Uber.com and Airbnb.com were only visited around 118
million (“Uber.com Analytics – Market Share Stats & Traffic
Ranking”, 2017) and 68 million (“Airbnb.com Analytics – Market Share Stats
& Traffic Ranking”, 2017) times respectively.

            The Pirate Bay essentially serves as a search machine that works
similar to other search engines (e.g. Google and Yahoo). Users search for a
type of content, in turn searchers are presented with a catalogue which
presents search results with the most correspondence. Users are able to search
for magnetic links, which refer to content available to download. It is important
to understand that  The Pirate Bay does
not store any protected works or other content on its site. It is only a
platform that connects people who have the content to people who want the
content using peer-to-peer networking. As explained by Plouffe (2008),
peer-to-peer is an exchange between different consumers with computers using
the same type of peer-to-peer software. If connected to the internet these
consumers together form a network. If a consumer would search for a specific
type of content such as a film or song, each consumers computer, if connected
to the network, would search for that content on its hard drive. If the content
is found, the person requesting the content would be able to download the
content directly from the other persons hard drive, without either person being
aware of the other. Both parties will now have the content.

            The peer-to-peer software used by The Pirate Bay is
BitTorrent. It enables users to connect to each other and participate in file
sharing. To make use of the BitTorrent protocol a BitTorrent client is needed
which implements the BitTorrent protocol (e.g. ?Torrent). As Qiu
and Srikant  (2004) explain,
BitTorrent aims for fast downloading of files. Instead of downloading a single
large file, the file is split in to multiple smaller pieces containing parts of
the original file. Persons or ‘peers’ trying to download the file each download
different parts of the file. Rather than downloading the rest of the file from
the original source they download it from other peers.
Because everyone downloads and uploads simultaneously, the speed is not limited
to the upload speed of a single provider, but can in the optimal case be the
sum of the upload speeds of all active providers. Using software called a tracker,
BitTorrent is able to distinguish between different peers and able to attain
the right pieces to complete the file. (In BitTorrent two different peers
exist, downloaders and seeds. While downloaders only hold pieces of a file,
seeds hold the entire file. Furthermore downloaders upload and download while
seeds only upload. Another aspect of BitTorrent is that it prioritizes pieces
of a file that are relatively in the minority, making sure that there is an
even amount of different pieces of a file.)

            The Pirate Bay, in particular as a digital platform in
the sharing economy, could very well be regarded as a successful piracy site.
This is not only because the main idea behind it was to successfully create a
platform using peer-to-peer networking to literally freely share content from
person to person, which could be considered as the definition of a sharing
economy. But the piracy site also, as mentioned above, ranks as one of the top
sites globally and outranks the sites of well-known digital firms such as Uber
and Airbnb. In addition the site was designed in such a matter that despite of
repeated attempts to take the platform down it managed to stay intact and
continue its services.

 

II.b Discussion

            Since its launch The Pirate Bay has made
numerous protected works available to the public. The content made available by
the site ranges from entertainment such as music, films and games to eBooks and
software. Using BitTorrent technology The Pirate Bay was able to create an
environment where people could freely and easily share in formation
from peer to peer. Although The Pirate Bay might have contributed to the
sharing economy, the site also had an impact on the regular economy. The site
has contributed to (illegally) sharing countless protected works. Generally
piracy is considered to have a negative impact on the entertainment business,
driving down profits. In addition, to combat copyright infringement,
governments have repeatedly tried to take action which has cost them large amounts
of money. So the question that remains is what the effect of piracy has on the
economy.

            Claussen, Kretschmer and Peukert
(2015) found in their study focusing on box-office revenues, that piracy does
not necessarily result in negative effects towards the film-industry. Using
research based on the shutdown of the download website Megaupload, they
concluded that positive effect should not immediately be excluded. Their
research showed that on average the shutdown had a negative effect on
box-office returns. Although the shutdown of the website resulted in higher
profits of box-office movies with a wider audience, less popular movies
experienced a more neutral effect and the shutdown had a more negative effect
on the returns of niche movies. An explanation for this effect is that users of
piracy sites are introduced to new experiences which turns piracy site users to
customers. Their research showed an estimated average weekly decrease of 4%
($30,000) for ‘narrow release movies’ (i.e. niche movies) and an estimated
weekly increase of 47% ($707,000) for ‘wide release movies’. Danaher and Smith
(2014) however, conducted a similar study in which they focused on licensed
digital sales and rental changes. They found, in contrast to Claussen et al.,
that the shutdown of Megaupload had a positive effect towards the film-industry,
showing an increase between 14,800 to 19,000 or  7-9% on digital sales units and an increase
between 38,700 to 47,400 or a 6-8% in weekly digital rental units. Overall
their data suggests that the shutdown of Megaupload resulted in a estimated
weekly increase of 6.5-8.5% in digital movie revenue.

            More literary papers agree than
disagree with the conclusion that file sharing (i.e. piracy) has a negative
impact. Liebowitz (2006):

All the same, the evidence here
supports the current findings from almost all econometric studies that have
been undertaken to date, including those in this issue—file sharing has brought
significant harm to the recording industry. The birth of file sharing and the
very large decline in CD sales that immediately followed is a powerful piece of
evidence on its own.

The
2004 increase in sales of CD’s matches a decrease in file-sharing activity
which is further proof of a negative correlation. Rob and Waldfogel (2006), conclude from their
research that file sharing decreases music sales. They conducted research
across 4 U.S. colleges asking students to list the amounts of music albums
purchased and (illegally) downloaded. In their sample illegal downloading made
expenditures drop by 10% and possibly by more. Downloading increases consumer’s
welfare and although part of this welfare goes to sellers, consumers
unsurprisingly enjoy most of the benefits from downloading. A third study by
Zentner (2006), also seems to prove that file sharing causes harm to
the economy. He found that, using  his
estimates, the probability of buying music falls by 30% as a result of
downloading. Using his estimations Zentner concluded that sales could have been
7.8% higher in 2002 if it wasn’t for file sharing in his research.

            There are more reasons to believe
file sharing could negatively influence the entertainment business. Firstly,
consumers with a lower willingness to pay for legal copies will prefer the
illegal copies over the original legitimate copies. As a result producers will
have to compete with the illegal copies and are forced to lower their price.
Obviously this reduces the returns on their investments. In addition this will
create less incentive for producers to produce newer and better content. A
second reason is that in the efforts of producers to combat piracy will lead to
otherwise avoidable costs. This consequently will also reduce returns (Belleflamme
& Peitz, 2014). Thus far evidence suggests that file sharing, and thus
piracy, has effected the entertainment business negatively. Bellefame and Peitz
however also concluded that piracy might have positive effects because of 3
‘mechanisms’. Firstly, illegal copies could function as a sample, intriguing
consumers and persuading them to buy legal copies, as mentioned earlier (Claussen
et al., 2015). The second mechanism involves the positive network effects
digital content tends to have. The more users use a type of software (e.g.
Word, Excel) for example, the higher the demand for that software. This
increase in demand will also include increased demand for legitimate copies.
Lastly they reasoned that pirated content will increase demand for complements
for the content. They use the example of increased ticket sales for a concert
of an artist whose popularity has increased due to illegal music copies.
Oberholzer?Gee and
Strumpf (2010), share the ideas behind this last mechanism. Comparing
different studies they found that income complements for music artists have
risen in the same years as file sharing was becoming more popular. Concert
sales have risen more than music sales had fallen. However, considering
multiple studies they found that, although the results of those studies were
mixed, most of the results pointed to file sharing having negative effects on
sales.

            Another aspect in which piracy has
influenced the economy is through regulation by the government. Piracy is
illegal and governments have spent large amounts of money trying to halt piracy
on legislation and winning court cases. An example of this is the ruling of the
Dutch court, which obligated large Dutch internet providers to block access to
The Pirate Bay resulting in more than 85% of the Dutch population being unable
to directly access the site. however, the court ruling might not be effective
with people learning to circumvent the blocking and people using VPN’s (Virtual
Private Networks) which makes it impossible to monitor the internet traffic. These shortcomings in the block
could result in the amount of illegal file sharing increasing again (Poort,
Leenheer, van der Ham & Dumitru, 2014). This will result in more court
cases which will cost the government money again.

 

II.c Hypothesis

            So far we can conclude that piracy
and thus The Pirate Bay has a negative effect towards the film and music
industry.  The authors of the studies
from the last section show that the findings of most studies is that piracy has
a negative impact on film and music industries. This negative effect is of
course not only limited to the film and music industry, but also disrupts
businesses in games, books and software. However, this cannot be the final
answer, it has limitations for a number of reasons.

            One reason is that a number studies
suggest that piracy could bring benefits as well, bringing more business to the
entertainment industry instead of less. An example for this is that results
indicate the shutdown of major piracy site Megaupload resulted in a 4% weekly
decrease in revenue from niche movies. Another is that despite multiple studies
pointing to negative effects, the studies discussed fail to accurately describe
these negative effects of piracy. Most studies do point out the negative
effect, but they don’t depict coherent results. Results of the shutdown of
Megaupload range from increasing weekly digital movie revenue with 6.5-8.5% to
increasing weekly box-office returns up to 47%. In the music business there was
evidence found that expenditure of students dropped 10% resulting from illegal
downloading. Other evidence suggests probability of buying music falls by 30%
as a result of illegal downloading. An additional problem is that this
provisional answer is based on studies not using The Pirate Bay but similar
digital piracy platforms. (Also the time of the studies might have influenced
the results. A number of the studies pointing to negative effects are more than
half a decade old.) Other problems could be that some studies fail to account
for significant alternative explanations such as unobserved events and that
many illegal content would not have been consumed if it wasn’t for piracy.

            With more information about these
problems an answer to the effect of The Pirate Bay could be different. Further
research should focus more on the platform The Pirate Bay, specifically it’s users. By
conducting surveys questioning users if they would have bought content if it
wasn’t for The Pirate Bay and by studying the effects of several shutdowns and
domain seizures on the entertainment industry, better information regarding
possible negative and positive effects could be obtained. A fitting hypothesis
would be the following: The Pirate Bay has a negative effect on the sales
revenue in the entertainment industry.

 

III.Conclusion          

            In recent years the act of file
sharing, although often illegal, has grown very popular. Evidence shows that
there are millions of individuals that gain access to protected works through
illegal file sharing (i.e. piracy). Protected works illegally made available to
the public range from films, music and games to books and software. Outcry from
businesses supposedly losing large sums of money made governments repeatedly
take action and try to halt piracy. The goal of this paper was to find the effect of
piracy in the context of the sharing economy and peer to peer networks.
Therefore this paper researched the effects of The Pirate Bay on the
entertainment business focusing on the film and music industry.

            From the studies discussed in this
paper, but also in general,
it is hard to draw a correct and precise conclusion describing possible
effects. Evidence suggests that piracy could damage as well as improve the
entertainment business. Evidence of negative effects are a 6.5-8.5% increase in
weekly digital movie revenue and increasing weekly box-office returns up to 47%
resulting from the shutdown of piracy site Megaupload. Other evidence in the
music industry is a 10-30% potential fall in probability of buying music due to
the possibility of illegal downloading. One result even suggests sales in the
music business could have been 7.8% higher in 2002 if it wasn’t for file
sharing. Danaher and Smith (2014), Liebowitz (2006), Rob and Waldfogel (2006),
Zentner (2006) and Oberholzer?Gee and
Strumpf (2010) all agree that file sharing and thus piracy generally has
negative effects. Belleflamme and Peitz (2014) add that sellers of protected
works might have to compete with file sharing to retain customers, resulting in
lowered prices and driving down profits. Sellers might also try preventing
piracy, costing them money which further eats into profits.

            Finally, piracy also made
governments intervene. Anti-piracy policies, winning court decisions and server
shutdown operations has cost governments money. However, winning court
decisions and blocking the site for instance, doesn’t mean the problem of
piracy is resolved.  People will find
ways to circumvent these measures which means government will have to make
expenditure again, repeating the process of making new policies, winning court
decisions and server shutdown operations. This remains an unresolved problem
costing governments lotst of money.

            Belleflamme and Peitz (2014),
however also argue that piracy could have positive effects though 3 mechanisms.
Firstly illegal copies could interest consumers and persuade them to buy
similar content, secondly because of the positive network effects digital
content tends to have and thirdly pirated content will boost demand for
complements. Dumitru et al. (2015) found
that the shutdown of Megaupload had negative effects on the returns of niche
movies, dropping by 4%. On average their research showed piracy to have
positive effects on the film industry.
            To conclude, although it is
commonly believed piracy has a negative impact on sales and reduces revenues in
the entertainment industry, there are studies that found evidence of piracy
doing the opposite.  The precise effect
of piracy is debatable, however most economists would agree that in general the
effect is negative. Therefore, considering thepiratebay.org is one of the
largest piracy sites at the moment (25-01-1018), The Pirate Bay will have a
general negative effect towards the entertainment business.