Piracy’s impact on the economy: Scare tactics or a massive loss?

Last week the Business Software Alliance (BSA) released their report of an IDC study they funded which stated that a 10 percentage point drop in software copyright infringement (often called “piracy”) would lead to significantly more jobs, economic activity and an increase in tax revenue.

Entitled “The Economic Benefits of Reducing Software Piracy,” the IDC study found that reducing South Africa’s piracy rate from 35% to 25% would create 1650 new high-tech jobs.

If the decrease happens over the next four years, the IDC says that R9 091 ($1,244) million in new economic activity, and R967 ($132) million in new taxes will be generated, with 68% percent of those benefits expected to remain in the local economy.

Marc Ashwell, vice chairperson for the BSA in South Africa, explained that this is due to the services associated with licensing legal software, including the sales channel, training and support.

Should the reduction in piracy be expedited to occur over two years instead of four, the IDC says that $1,670 million will be added to South Africa’s GDP and $178 million in extra taxes will be generated.

This means a boost of 34% in added GDP and tax if software piracy is reduced by 10 percentage points in two years rather than four, the BSA said.

Ashwell emphasised the the core message of the study isn’t the numbers, but rather the relative effect on the economy. He did acknowledge that the size of the amounts were bound to draw attention, however.

Use of “scare tactics”

Asked how he would respond to accusations that the BSA is using these large figures to scare legislators into imposing harsher penalties for pirates, Ashwell said that the intention isn’t to scare.

The report is meant to be a wakeup call, he said.

Ashwell confirmed that part of the BSA’s mandate is to bring the interests of their members to the attention of policy changers, but the idea is to raise awareness.

Disputes on accuracy

As with similar studies of previous years, many questions were raised about the accuracy of the estimated financial losses due to software copyright infringement.

Chief Research Officer at the IDC, John Gantz, explained the methodology used to obtain the numbers in a video published on the BSA website.

In his explanation, Gantz confirmed that the commercial value of the pirated software is obtained by multiplying an average system price with the number of pirated units installed as determined by their survey and extrapolations. No mention is made of those who would simply not use the software if the option to pirate wasn’t available to them.

Ashwell said that the majority of these losses are due to the piracy in large corporate enterprises, and as such simply doing without the software or switching to an alternative isn’t always feasible for them.

Large companies also aren’t always infringing copyright wilfully, Ashwell said. In many cases it’s just a matter of them not owning enough licenses for the number of users running a particular piece of software.

When asked whether companies or individuals diverting money to software licensing from other activities wouldn’t negatively affect those other industries, Ashwell said that he didn’t believe there was an argument there.

Corporates spend large amounts of money on supporting pirated software, according to Ashwell. Support is typically included in the price of legitimately licensing it, he added. Upgrading software is also often cheaper than buying it new.

Private vs. corporate piracy

Since the biggest contributor to the IDC’s piracy statistic is the copyright infringement by large corporates, we wondered how this impacts the BSA’s view on private copying.

Ashwell said that licensing and the allowances for private copying differ from vendor to vendor and that the BSA’s role is to protect the intellectual property rights of those it represents.  He added that it’s much easier to manage film and music piracy in South Africa than software piracy.

If copying of the software violates the EULA (end user license agreement), it should be criminal, Ashwell said. This is regardless of whether the software is being shared freely or illegitimately sold for profit.

At the recently held iWeek the president and CEO of the United States Internet Industry Association (USIAA), Dave McClure, said that associations like the BSA are pushing for the criminalisation of file sharing.

McClure said this was so that the legal costs of prosecuting offenders would be carried by law enforcement, rather than by copyright owners.

Presented with the argument Ashwell said that it’s not about deferring the legal costs, but about the economy gaining.

BSA clarifies 2010 economic impact study << Comments and views

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Piracy’s impact on the economy: Scare tactics or a massive loss?