SOPA and Lost Sales

by Rich on January 16, 2012

A lost sale is customer demand that can’t be filled. SOPA, and most discussions of digital piracy, treat every illegitimate download as a lost sale. I’m not pro-pirate, but that understanding of lost sales is a bad reading of the issue.

Tim O’Reilly nailed the problem in a recent Google+ post: The lack of clear evidence in economic harm due to electronic piracy. There’s plenty of emotional baggage evidence in the form of “he’s watching my show/reading my book/playing my game and never paid for it.” This is absolutely true, absolutely unfortunate, and absolutely indicative of bad action on the part of the pirate.

But illicit use doesn’t translate to lost sales. O’Reilly points out that his books are widely pirated. I’ve been an enthusiastic customer of O’Reilly for well over a decade, and his company produces great books. They are, almost always, the best technical resources on the topics they cover. With a highly technical audience, his customers and potential customers are also the most able to find a way to pirate his company’s material. I have to think that O’Reilly books are pirated at a higher rate than most.

But, he argues, if the pirates would never have bought a copy anyway, there’s no economic harm.

Most people in the world will never buy an O’Reilly book. They’d be better off if they did, but for lack of interest or lack of honesty, they won’t. 0% of those people count as lost sales, so 0% of their activity contributes to economic harm.

When we’re talking about electronic good, that little group in the middle are the ones who hurt O’Reilly’s (or any other producer’s) bottom line. The rest are wrong, annoying, and bad-actors. But they’re not taking anything from O’Reilly in any sense other than an emotional one.

I’m not condoning piracy, but O’Reilly is right that pro-SOPA politicians and media companies are asking the wrong question. They’re assessing the problem based on the size of the circle of crooks, not the subset of crooks who are doing more-than-emotional harm. That’s not a recipe for success.

  • Mike

    I’m an author, and a computer nerd.   I don’t particularly like SOPA, but piracy is out of control.   Over the past few years, my “unpaid” readership has far exceeded my sales, and I’m not happy about it.  Sure, many of them MIGHT not have bought the book if the pirate version wasn’t available — I’ll happily stipulate the financial harm is some fraction of the total downloads.   But having the pirates smirking at me and the paying customers is a slap in the face of honest commerce, and a slap at me.

    So, I just tallied up the value of the O’Reilly books sitting next to me.  I have 122 here, and another box or two in storage.  Several of these titles have newer additions available (which I haven’t bought) and I have multiple versions of a few that I found particularly informative.   Assuming $40 per title, that’s pretty close to $5000.  Since Tim is so understanding of pirates, and so condescending to authors, here’s my new goal: never pay Tim a nickel.

    So, I’ll be tossing my heavy paper books in the rubbish bin, and downloading whatever I damn well like from the O’Reilly catalog.  No more outdated books.  No more wondering WHICH of three similar titles to buy.   No more saving up for that expensive title.  Nope, I’m taking whatever I want, secure in the knowledge that Tim respects and loves me anyway.  I’m just sorry I didn’t figure this out years ago!

  • Rich Friedeman

    Thanks for commenting, Mike. I appreciate your frustration, and I think you’re right about the “who do these jerks think they are” aspect of it.

    Digital piracy is a property crime – they’re taking something they don’t have a right to take. O’Reilly’s reaction fails entirely to address your frustration at the bad end of a property crime. What I like about it, though, is his expectation that the laws we pass have at least as much thought put into them as an insurance policy: What was the loss resulting from the event/crime?

    Steal my car, the loss is clear. Steal my wallet the loss is clear. Steal my credit card number (essentially an information crime like digital piracy), there’s a convenience loss because I have to change it, but the real monetary loss occurs when the crook uses it.  Digital piracy only has a monetary loss when it replaces a sale. No doubt that happens in some cases, but nobody is doing the work to figure out where the line is.

    Proponents are holding up laws like SOPA as addressing a problem presented as “all digital piracy causes significant monetary damage” (think Jammie Thomas fined $1.5M for illegally sharing 24 songs). What possible amount of physical property would have to be involved for that kind of response.

    I’m not pro-piracy, and I don’t think Tim O’Reilly is, either. He is for bringing consideration of real rather than imagined monetary damages into consideration.

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