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Estimating displacement rates of copyrighted content in the EU

The extent to which digital consumption of pirated materials displaces legitimate purchases is of fundamental importance for EU copyright policy design. The European Commission has commissioned Ecorys to carry out a study on the relation between online copyright infringement (digital piracy) and sales of copyrighted content. Here is the key findings.

The conventional wisdom says that illicit use of copyrighted material reduces revenues of rights-holders and thus their incentives to produce content. Creative industries suggest piracy represents a significant threat to sales of copyrighted materials, aggravated by the rapid development of digital technologies, which substantially reduce the cost of making, distributing and accessing copies of copyrighted content. Two channels of piracy haven been analysed: illegal streaming and downloading files from illegal websites, for each of the four types of creative content (music, movies and TV series, books and games).

The overall conclusion is that for games, illegal online transactions induce more legal transactions. For music, audio-visual and books illegal downloads and streams are found to have positive effects on the number of legal streams, and insignificant and mixed effects on the number of legal downloads. The effects of illegal downloads and streams on live visits are positive for music (live concerts) and negative for audio-visual (cinema visits).

With regard to total effects of online copyright infringements on legal transactions, there are no robustly significant findings. For audio-visual, the 27 per cent displacement is a net effect of displacement of cinema visits, legal downloads and physical purchases adding up to 50 per cent for illegal downloads and to 51 per cent for illegal streams on the one hand, and positive effects on legal streams and rentals adding up to 31 per cent and 38 per cent respectively. For books, the number of people reporting illegal streams is negligible and hence only effects of illegal book downloads can be reported.

For music, the overall displacement rate estimated in this study is zero. In particular, the displacement of physical sales (though with a large error margin) is compensated by a significant positive effect of illegal streams on live concerts. For games, the estimated effect of illegal online transactions on sales is positive because only free games are more likely displaced by online copyright infringements than not.

The proportion of people who illegally downloaded or streamed creative content while they are willing to pay the market price, is the lowest for films and TV-series, and the highest for books. For films and TV-series the average willingness to pay is € 6.90, which is slightly below the average market price. The low willingness to pay any price suggests that if the film or TV-series were no longer illegally available, they would not have downloaded the film or TV-series from a pay site. The average willingness to pay for books is € 15.80. People seem willing to download or stream books legally but do so illegally because the book is not available online on legal sites, or to save out the money they would in fact have been willing to spend.

For music the average willingness to pay is € 0.90. For music the average price of a track is around € 0.90. Therefore the price for music should not be an issue for most illegal downloaders, as their average willingness to pay is equal to this. For games the average willingness to pay is equal to € 8.40. The average price of one month of gaming is generally less than the average willingness to pay, and hence the price should not be an issue for most illegal downloaders. Overall, the price is one factor that helps explain the piracy of films and TVseries, but the price does not help explain the piracy of music, e-books and games.