On February 15, the film industry, the movie business, video game publishers, and business software developers submitted a massive report to the US government, as they do every year. That report, part of America's "Special 301" process, is a key tool used each year to develop a list of other countries that the US wants to pressure on intellectual property laws. This year's version alleged that piracy is now, in many countries, a product of organized crime (PDF). And it claimed that pirated DVDs are worth more than cocaine.

Such claims have been made many times over the last decade, but a major new report, funded by Canada and by the Ford Foundation and buttressed by fieldwork around the globe, suggests that neither assertion is true. Indeed, far from being supremely lucrative, commercial piracy is under pressure from the same force pressing on legal distribution: free Internet file-sharing.

As for the drugs... well, there's a reason the gangs in The Wire weren't selling bootlegs of Spider-Man 3. There's just not much money in it anymore.

Linkages



The recent Section 301 industry submission isn't shy about making broad claims about piracy and organized crime. Consider the following statement, drawn from a single footnote in the report:

Piracy has been taken over in many countries by organized crime syndicates; this includes both physical and online piracy phenomena A March 2009 study explored the linkages between organized crime and film piracy detailing 14 case studies of film piracy, providing compelling evidence of a broad, geographically dispersed connection between piracy and organized crime. As well as documenting cases in North America and Europe, the report outlines the involvement of organized crime with film piracy in South America, Russia and many parts of Asia That study once again showed that the mark-up for DVD piracy (a relatively low-risk activity) is much higher than that for cocaine and heroine trafficking. The private sector does not possess the tools, nor usually the authority within countries, to investigate and fight organized crime. In addition, such organized groups or other commercial pirates can become violent, and company representatives and counsel have in some countries experienced threats on their lives, physical intimidation, or attacks leading to injury when doing their jobs to investigate piracy, and this has prevented enforcement activity by the private sector in many instances. Therefore, governments must step up to this challenge.

Such rhetoric has become standard. The "2009 study" referenced above comes from the RAND Corporation, and it's called "Film Piracy, Organized Crime, and Terrorism" (PDF). Funded by the motion picture business, most of the report's primary data came from someone "serving as an organized-crime consultant to the [Motion Picture Association]."

That report opens by claiming that DVD piracy "has a higher profit margin than narcotics and minimal risks of enforcement," making it "attractive around the world as an element of criminal portfolios that also include drugs, money laundering, extortion, and human smuggling."

And it's not just drug gangs; piracy is "attractive not only to organized crime, but also to terrorists, particularly opportunistic members of local terrorist cells."

A few years earlier, the worldwide music lobby put out its own report (PDF) called "Music Piracy: Serious, Violent, and Organized Crime."

"Evidence is available, and case studies in this leaflet demonstrate, the connections between music piracy and other crimes, such as people trafficking, money laundering, violence, drug smuggling and terrorism," it says.

But is that true? After three years of work by 35 researchers, the new study finds "no evidence" of systematic links between piracy and serious organized crime or terrorism. As for the claim about DVDs being a better business than narcotics, the report has one word for this claim: "implausible."

Better than drugs



Take the DVDs-better-than-drugs claim. The authors of the Social Science Research Council report, "Media Piracy in Emerging Economies," call it "an implausible claim that has circulated in industry literature since at least 2004."

They trace the story back to a 2001 French magazine article which claimed that a kilo of pirate CDs was worth more than a kilo of marijuana. Interpol ran with the claim in 2003, and "from there it began a long life of circular citation in industry reports."

The authors update the claim by comparing a kilo of marijuana in New York (street value: $30,000) to a kilo of pirate DVDs (65 discs, averaging $5 each, or $325). While some piracy was lucrative in the early 2000s, "we see no evidence that piracy, outside a few niche markets, is still a high-margin business," they conclude.

As for broader links between organized crime, terrorism, and piracy, the authors are also skeptical—though the connection depends in large part on what one means by "organized crime."

Commercial-scale piracy is illegal, and its clandestine production and supply chains invariably require organization. It meets, in this respect, a minimal definition of organized crime. Pirated CD and DVD vending, moreover, is often concentrated in poor neighborhoods and informal markets where other types of illegal activity are common. Such contexts create points of intersection between the pirate economy and wider illegal and quasi-legal arrangements of the informal economy. It would be remarkable if they did not. But we found no evidence of systematic links between media piracy and more serious forms of organized crime, much less terrorism, in any of our country studies.

The country studies used researchers who, in many cases, had long-established familiarity with their regions. In Mexico, for instance, one author notes that he has been in touch with key street vending groups there "for twenty years," and he criticizes the RAND report for apparently relying "exclusively on newspaper stories and interviews with representatives of the copyright industry" while doing its work.

RAND noted that in places like China or Russia, "on-site investigations are difficult or dangerous, or both, so we were compelled to rely more heavily on published accounts." The SSRC chapter on Russia, in contrast, relied on:

Fieldwork in St. Petersburg conducted by Sezneva, Pachenkov, and Olympieva in 2008 and 2009

Twenty interviews of industry lawyers, judges, and legal scholars and representatives of non-governmental and non-commercial organizations involved in enforcement

A March 2009 focus group with heavy users of unlicensed content in St. Petersburg

A late-2008 survey of three hundred DVD consumers in the city of Irkutsk

Content analysis of Russian-language media and online forums

Contributions from our economic and industry research partners, especially Anatoly Kozyrev

A wide array of secondary sources

The SSRC report, at more than 450+ pages, is nothing if not thorough.

Competing with free

One of its intriguing findings is that even the commercial pirates have it tough these days. Piracy made money back when optical disc stampers were scarce and expensive; it became less lucrative when CD and DVD burners became commodity items. Today, under pressure from P2P distribution, optical disc piracy in wealthy countries is "all but eliminated" and profit margins elsewhere are slim.

"Increasingly, commercial pirates face the same dilemma as the legal industry," says the report, "how to compete with free."

In a widely cited piece from 2008, our own Julian Sanchez dug into the claim that IP infringement killed 750,000 jobs and cost US industries $200 billion to $250 billion. The numbers turned out to be "utterly bogus," as Sanchez noted, but they had been repeated as articles of faith for two decades. Since that article appeared, this particular claim doesn't feature in much pro-IP testimony. Is it time to drop some of the most inflammatory rhetoric about "terrorism" and drug trafficking, too?