Fansubs 3: what cost piracy?

Check out my previous articles on Fansubs:

1) animatedfilms.suite101.com/article.cfm/fansubs__publicity_or_piracy_

2) animatedfilms.suite101.com/article.cfm/fansubs_2__the_empires_strike_back

In a quickie IMDb story on October 2nd, the MPAA claimed that movie piracy cost the major studios approximately $6.1 billion per year in profits. The Texas-based Institute for Policy Innovation went even further, claiming that movie piracy cost the entire U.S. economy a whopping $20.5 billion per year. This included losses to theatre operators, video renters and retailers, ad agencies, lawyers, and movie cast and crews all the way down to theatre janitors. $5.5 billion of that sum was from annual earnings losses to U.S. workers, plus $387 million that the I.R.S. didn't receive.

Not to be outdone, MPAA chairman and CEO Dan Glickman claimed, "Motion picture piracy hurts not only the movie business, but triggers a harmful domino effect that results in lost jobs and wages for American workers inside and outside the industry."

So there you have it: movie piracy isn't just theft, it's un-American too.

Now Hollywood accounting has always been suspect. As John D. MacDonald observed about Hollywood in his 1981 crime novel Free Fall in Crimson: "Darling! It's the Industry! The really creative people are the accountants. A big studio got over half the profit, after setting breakeven at about three times the cost, taking twenty-five percent of income as an overhead charge, and taking thirty percent of income as a distribution charge, plus rental fees, and prime interest on what they advanced." (page 139: Harper & Row hardcover edition).

The most famous example of such industry shenanigans was in 1994, when Paramount made Forrest Gump, a highly-successful movie based on the Winston Groom novel. When Groom requested his share of the $677 million worldwide take (as part of his contract with the studio), Paramount refused, claiming that the multiple Oscar-winning film never actually made a profit. Paramount then asked Groom for the movie rights to his sequel, Gump and Co., so they could film it as well The author, not surprisingly, refused.

So why are we feeling sympathy for an industry that uses creative accounting to avoid paying people what they're legitimately owed, and then complains about profits lost from piracy? And just how badly does movie piracy hurt moviemakers? In 2005, Jie Zhou wrote an article in the Yale Economic Review called The Economics of Movie Downloads in the Film Industry. In it, he used "survey data from a sample of college students (the demographic that produces the most illegal downloaders) to create demand curves which are used to simulate models for various movie products." Essentially, he gathered information on how likely students were to pay for a movie if a costless alternative (ie: illegal downloading) was available.

The results are surprising. According to his data, the potential for illegal downloading hurt cinema revenues by 8%, DVD sales dropped by 5%, while rentals took the biggest hit at 11%. For the sake of argument, if we average that loss out to 8%, and accept the IPI's loss figure at face value, that would imply that the American movie industry regularly makes $256.25 billion a year in profits. By the way, that's $38 billion more than what the U.S. exported to Canada in 2001.

And Paramount claimed that Forrest Gump made no money.

Keep in mind that Zhou admitted that his research data was not a representative sample, but based on responses from 97 Yale undergrads. As I've mentioned before, most illegal downloaders tend to be college students. They don't have the money to go see many movies at full price, and they are the most familiar with computer technology. Therefore, we're looking at a sample taken from the demographic most likely to download movies, and the maximum amount of revenue lost from that demographic averages less than 10%.

Also, Zhou didn't test whether or not downloaders actually purchased a movie after previewing it on computer screens, as what quite often happens with music downloaders. Therefore, one could argue that illegal downloading helps marginal movies, since the viewer might view part of it, decide the flick's worth seeing and either see it in theatres or rent the DVD.

Zhou also pointed out that, despite rampant piracy, "the movie industry saw record revenue in both box office and home video sales in 2004." It's worth noting that 2006 appears to be headed in the same direction, thanks to the runaway success of such movies as Pirates of the Caribbean: Dead Man's Chest, X-Men: The Last Stand, and Cars. From this we can gauge two things: either enough law-abiding citizens are seeing movies to offset internet theft, or many pirates are eventually dropping cash on movie tickets and DVD rentals, after previewing them on their computer screens.

The author also noted that, "The industry also seems to have little incentive to create competitive new online legal alternatives due to the strong consumer preference for traditional movie products." As we all know, desperation fuels innovation: if everyone's doing well, there's no incentive to think outside the box. After all, as the old saying goes: "If it ain't broke, don't fix it."

So, if the movie industry isn't hurting from piracy, why all the sturm und drang?

A lot of the industry's histrionics appear to be pre-emptive. The music industry saw a slight fall-off when Napster came into being, and that scared a lot of movie executives. An industry that is so money-conscious that they'll try to rip off people they legitimately owe money to will fear anything that cuts into their profits.

So what does this have to with fansubs? Zhou's survey looked at properly licensed movies where a costless alternative was available. Fansubs are very different, since fansubbers only sub titles that aren't even available in their markets. In that case, copyright owner generally makes zero profit unless a foreign distributor decides, "Hey, this title would make money here."

Chances of that happening are extremely slim: some movies (like Hayao Miyazaki's family-oriented animes) are deemed commercial enough to jump the Pacific, but those are few and far between. The North American market is also very ethnocentric: very few foreign films do well at the box office. Even the Oscar-winning Wallace and Gromit in the Curse of the Were-Rabbit was considered a disappointment when it only made $16 million in its first weekend.

So, when gauging how much fansubbers hurt anime companies, we have to talk about licensed properties. Since most fansubbers won't touch licensed titles as a matter of principle, that argument is strictly academic. There is very little revenue lost to fansubbing since there was no revenue to begin with.

This point needs to be re-iterated: copying without permission is strictly illegal under International Copyright Law. These laws are extremely important so that creative people don't have their intellectual property stolen. Some would legitimately argue that these laws don't go far enough. In his book, Confessions of a Music Producer, Moses Avalon (a pseudonym) freely admits to having worked on a session where they used a Mick Jagger sound-a-like to record Rolling Stones-type songs for a film; a blatant attempt to avoid paying Jagger and co-writer Keith Richards any royalties.

For anime producers, fansubbing is a deal with the devil. If the producers follow the RIAA and MPAA's lead, they risk losing the chance to expose their product to foreign markets without real cost to themselves. On the other hand, by explicitly or implicitly encouraging the practice, they risk weaken the very laws that protect them, and the artists who work for them. Do the benefits outweigh the risks? Only the anime producers can decide?

(Next in Part 4: who are fansubbers?)

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