How piracy helps business

Karen Croxson, a Junior Research Fellow in Economics at New College, Oxford, gave a lecture at the Royal Economic Society Annual Conference explaining how software and music piracy can actually help businesses.

While piracy may harm sales, it can also serve to provide free marketing, helping to create ‘buzz’ about a product.

This is product specific and may explain certain protections: console games vs. office software for example.

The unauthorised copying of digital goods such as software, music and films – a practice referred to as ‘digital piracy’ – has been claimed to place in peril the viability of whole industries. With perceived losses running so high, one might expect to see all sellers moving mountains to safeguard their intellectual property technologically. In fact there are some puzzling differences in attitudes.

Piracy can displace sales but highlights the importance of being realistic about this: not every copy implies a lost purchase. In any market there are some who value the product but never would buy (perhaps children with limited pocket money) and their piracy poses no threat to sales.

Given that the cost of piracy is likely to come down to a personal calculation (related to such things as the value of time, fear of penalties and moral costs), there may be variation across markets in the genuine sales threat – the temptation to pirate by those who would otherwise buy.

Croxson using the example of the Arctic Monkeys to explain how valuable 'word-of-mouth' is, although putting a sterling value on this is very hard to do.

The instant success of the music group's first album was due not to traditional marketing muscle but to the energy of early consumers who hyped its songs through social networking site myspace.com.

• Lecture (PDF)
• Karen Croxson
  

Hat-tip: Etre