MEDIA PIRACY IN EMERGING ECONOMIES Edited by Joe Karaganis © 2011 Social Science Research Council All rights reserved. Published by the Social Science Research Council Printed in the United States of America References to Internet websites (URLs) were accurate at the time of writing. Neither the author nor the Social Science Research Council is responsible for URLs that may have expired or changed since the manuscript was prepared. Designed by Rosten Woo Maps by Mark Swindle Cover photo: AFP/Getty Images Library of Congress Cataloging-in-Publication Data Media Piracy in Emerging Economies ISBN 978-0-98412574-6 1.Information society—Social aspects. 2.Intellectual Property. 3.International business enterprises—Political activity. 4.Blackmarket. I. Social Science Research Council Media Piracy in Emerging Economies can be found online at http://piracy.ssrc.org. SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES Media Piracy in Emerging Economies is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. To view a copy of this license, visit http://creativecommons. org/licenses/by-nc-sa/3.0/ or send a letter to Creative Commons, 444 Castro Street, Suite 900, Mountain View, California, 94041, USA. SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES The Social Science Research Council New York, NY, USA The Overmundo Institute Rio de Janeiro, Brazil The Center for Technology and Society Getulio Vargas Foundation Rio de Janeiro, Brazil Sarai The Centre for the Study of Developing Societies Delhi, India The Alternative Law Forum Bangalore, India The Association for Progressive Communications Johannesburg, South Africa The Centre for Independent Social Research St. Petersburg, Russia The Moscow Institute of Physics and Technology Moscow State University Moscow, Russia The Program on Information Justice and Intellectual Property Washington College of Law, American University Washington, DC, USA Partnering Organizations SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES Funders The International Development Research Centre Ottawa, Canada The Ford Foundation New York, NY, USA SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES Table of Contents Introduction Chapter 1: Rethinking Piracy Joe Karaganis Chapter 2: Networked Governance and the USTR Joe Karaganis and Sean Flynn Chapter 3: South Africa Natasha Primo and Libby Lloyd Chapter 4: Russia Olga Sezneva and Joe Karaganis Chapter 5: Brazil Pedro N. Mizukami, Oona Castro, Luiz Fernando Moncau, and Ronaldo Lemos Chapter 6: Mexico John C. Cross Chapter 7: Bolivia Henry Stobart Chapter 8: India Lawrence Liang and Ravi Sundaram Coda: A Short History of Book Piracy Bodó Balázs i 1 75 99 149 219 305 327 339 399 SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES i Introduction: Piracy and Enforcement in Global Perspective Media piracy has been called “a global scourge,” “an international plague,” and “nirvana for criminals,” 1 but it is probably better described as a global pricing problem. High prices for media goods, low incomes, and cheap digital technologies are the main ingredients of global media piracy. If piracy is ubiquitous in most parts of the world, it is because these conditions are ubiquitous. Relative to local incomes in Brazil, Russia, or South Africa, the price of a CD, DVD, or copy of Microsoft Ofce is ve to ten times higher than in the United States or Europe. Licit media goods are luxury items in most parts of the world, and licit media markets are correspondingly tiny. Industry estimates of high rates of piracy in emerging markets—68% for software in Russia, 82% for music in Mexico, 90% for movies in India—reect this disparity and may even understate the prevalence of pirated goods. Acknowledging these price effects is to view piracy from the consumption side rather than the production side of the global media economy. Piracy imposes an array of costs on producers and distributors—both domestic and international—but it also provides the main form of access in developing countries to a wide range of media goods, from recorded music, to lm, to software. This last point is critical to understanding the tradeoffs that dene piracy and enforcement in emerging markets. The enormously successful globalization of media culture has not been accompanied by a comparable democratization of media access—at least in its legal forms. The ood of legal media goods available in high-income countries over the past two decades has been a trickle in most parts of the world. The growth of digital piracy since the mid-1990s has undermined a wide range of media business models, but it has also disrupted this bad market equilibrium and created opportunities in emerging economies for price and service innovations that leverage the new technologies. In our view, the most important question is not whether stronger enforcement can reduce piracy and preserve the existing market structure—our research offers no reassurance on this front—but whether stable cultural and business models can emerge at the low end of these media markets that are capable of addressing the next several billion media consumers. Our country studies provide glimpses of this reinvention as costs of production and distribution decline and as producers and distributors compete and innovate. 1 Respectively, by the USTR (2003), Dan Glickman of the MPAA (Boliek 2004), and Jack Valenti (2004) of the MPAA. SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES ii SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIESSOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIESSOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES Invariably, industry groups invoke similar arguments on behalf of stronger enforcement: lower piracy will lead to greater investment in legal markets, and greater investment will lead to economic growth, jobs, innovation, and expanded access. This is the logic that has made intellectual property a central subject of trade negotiations since the 1980s. But while we see this mechanism operating in some contexts in emerging markets, we think that other forces play a far larger role. The factor common to successful low-cost models, our work suggests, is neither strong enforcement against pirates nor the creative use of digital distribution, but rather the presence of rms that actively compete on price and services for local customers. Such competition is endemic in some media sectors in the United States and Europe, where digital distribution is reshaping media access around lower price points. It is widespread in India, where large domestic lm and music industries dominate the national market, set prices to attract mass audiences, and in some cases compete directly with pirate distribution. And it is a small but persistent factor in the business software sector, where open-source software alternatives (and increasingly, Google and other free online services) limit the market power of commercial vendors. 2 But with a handful of exceptions, it is marginal everywhere else in the developing world, where multinational rms dominate domestic markets. Here, our work suggests that local ownership matters. Domestic rms are more likely to leverage the fall in production and distribution costs to expand markets beyond high-income segments of the population. The domestic market is their primary market, and they will compete for it. Multinational pricing in emerging economies, in contrast, signals two rather different goals: (1) to protect the pricing structure in the high-income countries that generate most of their prots and (2) to maintain dominant positions in developing markets as local incomes slowly rise. Such strategies are prot maximizing across a global market rather than a domestic one, and this difference has precluded real price competition in middle- and low-income countries. Outside some very narrow contexts, multinationals have not challenged the high-price/small-market dynamic common to emerging markets. They haven’t had to. The chief defect of this approach in the past decade is that technology prices have fallen much faster than incomes have risen, creating a broad-based infrastructure for digital media consumption that the dominant companies have made little effort to serve. Fast technological diffusion rather than slowly rising incomes will, in our view, remain the relevant framework for thinking about the relationship between global media markets and global media piracy. Media businesses, in our view, will either learn to compete downmarket or continue to settle for the very unequal splits between low-priced pirated goods and high-priced legal sales. This 2 Industry and trade representatives would characterize many of the same forces as “market access barriers” to foreign rms—generally ignoring the monopolization of markets that rapidly follows such access. Such issues have been central to international debates over cultural policy for some time, with much of the attention currently focused on China, where strict controls on cultural imports ensure that domestic, state-controlled companies control the market. [...]... COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES professionalization of research staff over, in some cases, twenty years of piracy research and the challenge of analyzing the digital transition in media piracy, in particular, have placed a premium on methodological innovation and prompted a reconstruction of industry research strategies in the past half decade.6 • The diminishing returns of outsized piracy. .. meeting in November 2009, it spent three days discussing the need for more research OECD and GAO hedging, in our view, is a sign that the golden age of big piracy numbers is past Industry groups haven’t had much success exporting their claims into more independent research bodies, and they don’t appear willing—yet—to pull back the curtain 9 SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES. .. that operating system piracy dropped from 68% in 2006 to 29% in 2008 (Chinese State Intellectual Property Office 2009) 11 SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES Some of the assistance we received from local industry and governmental sources reflects growing recognition of the importance of research in setting the terms of the enforcement dialogue Inevitably, power in trade... understanding piracy in relation to economic development and changing media economies This perspective implies looking beyond the calculation of rights-holder losses toward the evaluation of the broader social roles and impacts of piracy In so doing, it provides a basis for rethinking key questions raised—and often left hanging— by the industry studies: What role does piracy play in cultural markets and in. .. Washington, DC: USTR Valenti, Jack 2004 Testimony of the MPAA president to the US Senate Committee on Foreign Relations, Hearing on Evaluating International Intellectual Property, 108th Cong., June 9 http://foreign.senate.gov/hearings/ hearing/?id=f3231d45-0eea-030c-e369-aa64c16e8b87 vi SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES CHAPTER ONE • RETHINKING PIRACY Chapter 1: Rethinking... Ministry of the Interior reported 29,670 “actions,” generating 73 criminal cases and an unspecified number of convictions The Russian BSA, in 2007, initiated 589 raids on local businesses for “end-user infringement,” obtaining convictions in 83 cases The Brazilian APCM reported 3,942 raids in 2008, leading to 195 convictions, most of which resulted in suspended sentences Between 2000 and 2007 in India,... country, finding the domestic share of benefits from software purchases to be 76% in India, 73% in Brazil, 61% in Russia, and 68% in South Africa (BSA/IDC 2010a) CHAPTER ONE • RETHINKING PIRACY How Is Enforcement Organized? The copyright industries invest heavily in enforcement advocacy and anti -piracy campaigns, from legislative lobbying, to police efforts to protect theatrical release windows for... dominance of the desktop (well over 90% in developing markets), which make Windows and related products de facto standards But as the IDC’s numbers indicate, this dominance in low- and middle-income countries is attributable almost entirely to software piracy, rather than legal licensing As we will argue later, such network effects make piracy a key feature of software business models in emerging economies. .. COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES at the heart of the IDC method, putting it on firmer methodological ground But any claims about losses are now gone Countervailing Benefits Since 2006, industry-loss claims have been recycled into a wide range of broader estimates of the social and economic impacts of piracy In our view, the current generation of economicimpact studies, including those of... contributed generously, and sometimes anonymously A lengthy, but inevitably partial, list of credits appears in the back matter of this report Media Piracy in Emerging Economies was made possible by support from the Ford Foundation and the Canadian International Development Research Centre v SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES References Boliek, Brooks 2004 “Dialogue: Dan Glickman.” . • MEDIA PIRACY IN EMERGING ECONOMIESSOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIESSOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN. COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES INTRODUCTION SOCIAL SCIENCE RESEARCH COUNCIL • MEDIA PIRACY IN EMERGING ECONOMIES INTRODUCTION history of the international